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Kinder Morgan pays $25MM civil suit for unauthorized sales customers coal!

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This topic contains 1 reply, has 1 voice, and was last updated by  Charles Randall 13 years, 9 months ago.

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  • #3833

    Charles Randall
    Participant


    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
    http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/11-28-2007/0004713389&EDATE=  >

  • #7110

    Charles Randall
    Participant

    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.
     
    Regards

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