Cadwalader Alert: FERC Staff Alleges Another 'Flipping' Violation

Cadwalader Alert: FERC Staff Alleges Another 'Flipping' Violation

By Ken Irvin and Ben Chesson

By notice issued Friday, August 12, 2011, the Federal Energy Regulatory Commission Office of Enforcement announced that, as a result of a nonpublic preliminary investigation pursuant to 18 C.F.R. Part 1b, Staff has preliminarily determined that Atmos Energy Corporation (Atmos) and its subsidiaries, Atmos Energy Marketing, Inc. (AEM) and Trans Louisiana Gas Pipeline, Inc. (Trans La), violated the Commission's natural gas pipeline capacity release rule against "flipping" capacity under 18 C.F.R. § 284.8(h)(2) and 1c.1 of the Commission's regulations.  Staff also alleges that AEM violated the Commission's shipper-must-have-title requirement and the associated FERC gas tariffs of various pipelines.

"Flipping" is a series of transactions undertaken to avoid FERC's pipeline posting and bidding requirements for discounted releases of firm capacity.[1] Typically, the wrongful conduct involves a series of short-term releases of discounted rate capacity to two or more affiliated replacement shippers on an alternating monthly basis, without complying with the posting and bidding requirements, which FERC contends creates a long-term, noncompetitive discounted rate release.

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