• FERC Imposes Civil Penalties on Enbridge and Integrys
  • November 13, 2008
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • On October 24, 2008, FERC levied a civil penalty of $500,000 against Enbridge Marketing (U.S.) L.P (“Enbridge”) and an $800,000 penalty against Integrys Energy Services, Inc. (“Integrys”) for violating pipeline capacity release policies, including violations of the shipper-must-have-title requirement. Integrys was also required to disgorge $194, 505.78, plus interest, of unjust profits acquired through “flipping” transactions. Additionally, both companies agreed to compliance monitoring reporting.

    The Energy Policy Act of 2005 increased FERC’s civil penalty authority up to $1 million a day per violation for as long as the violation continues under section 22(a) of the Natural Gas Act. The October 24 penalties, like other penalties that the Commission has issued pursuant to its new authority, fall far short of the maximum penalty that could have been assessed. FERC justified the smaller penalties based on several mitigating factors: the violations were found and brought to the Commission’s attention through internal investigations and self-reporting, each company voluntarily took actions to correct the offenses once discovered, each took steps to improve their compliance programs, each agreed to compliance monitoring as part of the settlements, and each cooperated with the Commission’s investigations.

    The violations giving rise to the settlements involve violations of the Commission’s “shipper-must-have-title” requirement. The Commission requires as part of the capacity release program that “all shippers must have title to the gas when the gas is tendered to the pipeline or storage transporter and while it is being transported or held in storage by the transporter.”

    The Commission’s investigation also found evidence that Integrys had engaged in a strategy known as “Flipping.” In this practice, a company avoids the Commission’s competitive bidding requirements for discounted long-term capacity releases by engaging in a “series of repeated short-term releases of discounted rate capacity to two or more affiliated replacement shippers on an alternating monthly basis.” The Commission determined that Integrys unjustly profited from these transactions, and so required disgorgement of the profits as part of the settlement.
    Both of the Stipulation and Consent Agreements are available on FERC’s website under Docket No. IN09-1-000 (Enbridge) and IN09-2-000 (Integrys).