Kinder Morgan Agrees to $25 Million Civil Settlement for Unauthorized Sales of Customers Coal

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WASHINGTON, Nov. 28 /-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.
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