On November 30, 2012, FERC approved a stipulation and consent agreement (“Settlement Agreement”) between its Office of Enforcement (“Enforcement”) and Alliance Pipeline L.P. (“Alliance”) for an unsubscribed capacity scheme that FERC determined violated its Standards of Conduct for Transmission Providers as well as Alliance’s own Open Access Transmission Tariff (“OATT”).  While Alliance neither admitted nor denied the allegations in the Settlement Agreement, it consented to a $500,000 fine and to filing semi-annual compliance reports with Enforcement for one year.

According to the Settlement Agreement, Alliance was unable to secure any bids in two separate auctions it held in February and March of 2010 for 20 MMcf/d of capacity that was previously repudiated in March 2006.  Alliance became concerned that the unsubscribed capacity would be negatively perceived by shippers, and that certain shippers would decrease their valuation of Alliance’s capacity and decide not to exercise their right to extend their existing contracts, set to expire in 2015, for one additional year. 

As a result, Alliance informed its owners, Enbridge Inc. and Fort Chicago Pipeline II U.S. L.P. (collectively, “Owners”), that it would be best if the Owners bid on the unused capacity in an upcoming auction in May 2010, rather than letting the capacity remain unsubscribed.  The Settlement Agreement also states that Alliance shared information with its Owners that a valuable receipt point on Alliance’s system could accommodate the entire unsubscribed capacity of 20 MMcf/d of volume.  Eventually, the Owners shared this information with Tidal Energy Marketing U.S., L.L.C. (“Tidal”), an affiliate of Alliance.  However, according to the Settlement Agreement, this information was not clearly conveyed publicly in Alliance’s subsequent bid sheet regarding the May 2010 auction.

The Owners ultimately decided to create a new company, Sable NGL Services L.P. (“Sable”), to bid on the unsubscribed capacity.  Notably, Sable was not on Alliance’s approved bidders list, as required by Alliance’s OATT.  Sable was the only bidder in Alliance’s auction, and was awarded the capacity.  Subsequently, Alliance filed a negotiated rate agreement between itself and Sable regarding the capacity Sable won at the May 2010 auction.    

Once the negotiated rate agreement was filed, BP Canada filed a protest, claiming that Alliance gave an undue preference and disclosed non-public information to Sable in violation of FERC’s regulations.  Eventually, FERC accepted the negotiated rate agreement and referred BP Canada’s allegations to Enforcement.  The resulting investigation concluded that Alliance’s actions had posed a threat to market transparency and violated FERC’s Standards of Conduct, as well as Alliance’s own OATT.  Specifically, Enforcement concluded that Alliance:

  1. violated the non-discrimination requirement by disclosing information regarding capacity volumes to its Owners and Tidal before disclosing it to other market participants;
  2. violated the no conduit rule through its Owners disclosure of non-public transmission function information to marketing function employees at Tidal;
  3. violated the transparency rule by failing to provide non-public transmission function information to other market participants in an internet posting after notifying its Owners; and
  4. violated its OATT by accepting a bid from a bidder not on its Approved Bidders List.

In assessing the fine, Enforcement concluded that while Alliance’s actions posed a serious threat to market transparency, those actions did not result in profits or cause financial harm to other market participants, and that Alliance fully cooperated with Enforcement’s investigation.

A copy of the order is available here.