Energy Legal Blog

BP and MGTC Settlements Push FERC Penalties for Year Toward $40 Million, FERC Reiterates Self-Reporting Still Mitigating Factor in Penalty Amounts

On October 25 FERC approved two stipulation and consent agreements with BP Energy Co. and its affiliates BP Canada Energy Marketing Corp and IGI Resources, Inc. (collectively, BP) totaling $7 million in agreed-to fines for natural gas capacity release violations ―  violations of the posting and bidding requirements for released capacity (the so-called "flipping" violations), the shipper-must-have-title requirement, and the prohibition on buy-sell transactions, among others; and with Anadarko Petroleum Corporation subsidiary MGTC totaling $300,000 for shipper-must-have-title violations.  For the year, these push FERC's penalty total close to $40 million.

True to its emerging body of decisional precedent on mitigating factors under its expanded civil penalty, FERC concluded that: (1) Anadarko, MGTC's parent company, promptly self-reported the violations upon discovery and "exhibited exemplary cooperation with staff's investigation;" (2) the violations began long before Anadarko acquired MGTC; and (3) the violations occurred only in a small geographic area in Wyoming.  FERC also found that MGTC "did not profit unjustly from its violations, and it appears that no demonstrable financial harm to third parties was caused by [its] violations."  These findings echo those FERC made in levying substantial fines against Cleco earlier this summer.

BP's violations were found to span fourteen interstate pipeline systems, involving the transportation or storage of 49.3 Bcf, and arising under twenty-three separate asset management arrangements.  FERC found the flipping violations serious and "deliberate attempt[s] to circumvent [FERC] rules" and, as such, "intentional violation[s] . . . that warrant . . . substantial civil penalt[ies]."  FERC again reported that "significant credit" was given to BP for self-reporting and cooperation.

Chairman Joseph Kelliher has remarked, and this exercise of FERC's expanded civil penalty authority against BP and MGTC was no exception, that the companies involved would have seen substantially higher penalties but for the fact that they self-reported.  In the face of industry speculation, especially since Cleco, that self-reporting may not mitigate against high penalties after all, Chairman Kelliher assures that "FERC places a high value on a company's commitment to rectifying inappropriate conduct by self-reporting its violations and cooperating with staff's investigation."  Given the year's total penalty dollars from only twelve separate actions, however, it's obvious self-reporting can still lead to substantial penalties.