On April 18, 2007, FERC Staff and Calpine executed a stipulation & consent order the terms of which call for Calpine Energy Services (CES) to pay $4.5 million for multiple violations of FERC’s shipper-must-have-title requirement—even though CES self-reported and FERC staff found no identifiable financial harm to third parties from the violations. FERC staff did find that CES’ actions "undermined the market transparency necessary for the Commission’s open-access policies to function properly."

In addition to the monetary penalty, CES must make two semi-annual reports to FERC Enforcement staff that include the following:

(1) advising staff whether any further violation of the shipper-must-have-title requirement has occurred;

(2) providing a detailed update of all compliance training administered and compliance measures instituted; and

(3) including an affidavit executed by CES' general counsel that the compliance reports are true and accurate.

Upon request by staff, CES must provide to staff all backup documentation supporting its reports. After receipt of the second semi-annual report, staff will determine whether CES will be required to submit semi-annual reports for one additional year.

The violations involve numerous transactions representing approximately 156.5 Bcf of gas, and occurred over a period of years dating back to at least January 2003. The violations fall into three categories.

(1) Transactions involving CES selling gas to an affiliated generating plant that holds pipeline capacity rights, with the delivery point in the gas sales agreement being the inlet to the affiliated shipper’s plant rather than the inlet to the applicable interstate pipeline on which the generating plant holds capacity.

(2) Transactions involving CES holding title to the gas transported and using capacity rights of certain Calpine affiliates to deliver gas to other Calpine affiliates.

(3) Transactions involving CES using capacity rights of Calpine affiliates to transport gas for deliveries to unaffiliated third parties on three interstate pipelines.

The bulk of CES’ shipper-must-have-title violations stem from transactions in which CES held title to the gas being transported either to a Calpine plant holding pipeline capacity, or to another Calpine affiliate using capacity held by a different Calpine affiliate.

CES’ violations came to light as a result of an internal review of contracts performed in connection with Calpine’s bankruptcy. From March 2006 to June 2006, CES and its outside counsel conducted an internal investigation to ascertain facts, and CES self-reported its findings to FERC’s Office of Enforcement on June 29, 2006, and delivered its written self-report to Enforcement on July 27, 2006.

Calpine’s settlement with Staff is contingent on approval of its by the bankruptcy court and by FERC. A copy of the stipulation and consent agreement are available here.