January 9, 2008 at 12:15 pm #3833
Kinder Morgan Agrees to $25 Million Civil Settlement for Unauthorized Sales of Customers’ Coal
WASHINGTON, Nov. 28, 2007 /PRNewswire-USNewswire/ — U.S. Attorney for the
Southern District of Illinois, A. Courtney Cox, announced today that the
United States has reached a civil settlement with Kinder Morgan Energy
Partners, L.P., Kinder Morgan Operating L.P. “B”, and Kinder Morgan
Operating L.P. “C” (collectively Kinder Morgan). Kinder Morgan provides
energy transportation and distribution services, including the handling,
unloading, storing, blending and/or transferring of coal at its terminals,
with its Cora terminal located in Rockwood, Randolph County, Illinois.
The Tennessee Valley Authority (TVA), a government corporation (as well
as certain private companies) contracted with Kinder Morgan to handle coal
at Kinder Morgan’s Cora and Grand Rivers (GRT) terminals. TVA ordered large
quantities of coal produced in the western United States. The coal was
shipped by rail to Cora and/or GRT where it was offloaded, stored and
eventually loaded onto barges for delivery to the TVA. On occasion, the
coal was directly transferred from rail to barge, but more often the coal
was placed in customer stockpiles to be later shipped out by barge. Coal
coming to the terminals was weighed by certified scales when it was loaded
onto the train. However, at the Cora terminal, outgoing coal was weighed by
barge draft. The barge draft method usually weighed two to three percent
heavier than the certified scales.
Kinder Morgan exploited this weighing differential to show that it
shipped out the same amount of coal as it had received. It claimed the
“excess” coal therefore belonged to it and it had the right to sell the
coal and keep the profit. Kinder Morgan took the differential (unshipped
customer coal or excess coal) and sold it as its own “Red Lightning” coal
between 1997 and 2001. At the GRT terminal where certified scales were used
for both incoming and outgoing coal, Kinder Morgan simply took coal from
the customer stockpiles.
Kinder Morgan took and sold approximately 258,725.84 tons of coal
attributable to the TVA which amounted to a total loss of $6,599,526 for
the TVA. Kinder Morgan has agreed to pay back three times this amount to
the United States for a total of $19,798,578. In addition Kinder Morgan
will reimburse other private customers in the amount of $5,208,383.00, for
a total settlement of $25,006,961.00. U.S. Attorney Cox complimented the hard work of all the agents and
attorneys involved in the investigation which resulted in this out-of court
settlement. “The United States Attorney’s Office and its law enforcement
partners are committed to protecting the taxpayers of this country by
discovering and preventing conduct which causes improper depletion of
public resources. I am also pleased that private customers will also
benefit from this agreement.”
According to Karen E. Spangenberg, FBI Special Agent in Charge,
Springfield Division, “The FBI is proud to have worked side by side with
the Tennessee Valley Authority (TVA) Office of the Inspector General during
this extensive corporate fraud investigation which impacted customers in
several states and overseas. It is our hope that this civil settlement will
emphasize the public’s expectation for corporate integrity.”
Richard W. Moore, Inspector General of the TVA, observed, “OIG special
agents and auditors worked closely with the FBI to put this case together,
and I believe their efforts in finding and analyzing the evidence led
directly to Kinder Morgan agreeing to this settlement.”
This matter was investigated by the Tennessee Valley Authority, Office
of Inspector General, and the Federal Bureau of Investigation. The
Government was represented by Assistant U.S. Attorneys Gerald M. Burke and
Stephen B. Clark.
SOURCE U.S. Department of Justice
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January 9, 2008 at 12:26 pm #7110
Here is news item on Kinder Morgan $25 MM civil suit for selling customers coal. They were exploiting the difference between coal barge weights & scale weights and selling the differences thru its “Red Lightning” company (name seems fit practice given what normally happens in red light district?).
KM is good company that got caught in a bad practice because some wunderkind had a brain-fart on this solution – but it has been my experience that bad applications don’t get limited to one area. KM is also the US & Worlds largest handler of petroleum coke and refiner’s like the TVA aren’t all that swift when it comes to dry bulk logistics.
Think this popped up during a financial audit & the FBI & OIG agents uncovered the details on what was happening.
Given the “sting” nature on this practice & fact KM paid 3X the value of what was sold – no doubt this practiced stopped but……
Think it might be good for anyone refining petcoke area to audit / review previous barge / ship weights (always more reliable and accurate than scales unless your survey agent is bum) against scale shipments from KM terminals??
Petcoke & coal always have a lot to crosscheck given changes in both moisture, Volatiles and handling losses but volumes should always be taken back to dry ton (or fuel coke case 8% moisture) basis for accounting purposes.
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