On September 23, 2010, FERC settled with RRI Energy, Inc. and RRI Energy Wholesale Generation LLC (collectively “RRI”) over open access transportation violations, and RRI agreed to pay a civil penalty of $750,000. The settlement concluded an investigation by FERC Enforcement that identified potential violations from January 2000 to March 2008.

RRI provides energy, capacity, and ancillary services to wholesale customers, and it directly or indirectly owns and operates natural-gas fired generating plants. RRI was responsible for acquiring the natural gas to run those plants. RRI conducted a training session in 2007 where some of the initial violations were first noticed, and in April 2008 RRI self-reported buy/sell and “flipping” transactions to FERC staff. FERC Enforcement then opened an investigation.

Flipping is the process where an entity will avoid the posting and bidding process for discounted firm capacity, and it is usually done through a series of short-term releases of capacity to affiliate replacement shippers. Also, FERC prohibits buy/sell transactions where a shipper with capacity on a pipeline buys gas in a direction for another entity, but then after shipping the gas, the equivalent quantity of gas is resold downstream. The Commission prohibits buy/sells because FERC does not want an entity holding priority capacity to serve as a broker for transmission to end-users; instead, the release of capacity is supposed to be subject to a competitive bidding process. The majority of the prohibited buy/sell transactions were for RRI’s Aurora, Shelby, and Astoria generating plants in New York, but eleven other confirmed violations involve gas purchased in the Eastern Louisiana zone of Texas Eastern Transmission, LP.

Although the civil penalty could have been much higher, FERC noted that the penalty amount was determined prior to FERC’s most recent penalty guidelines. (see September 17, 2010 edition of the WER https://washingtonenergyreportredesign.lexblogplatform.com/2010/09/ferc-releases-modified-penalty-guidelines/). Under the Natural Gas Act, FERC has the authority to penalize up to $1 million per day, per violation, but FERC took into consideration that RRI did not receive any unjust profits related to the violations.

The full version of FERC’s order approving the stipulation and consent agreement is available at www.ferc.gov under Docket No. IN10-7 and here.