Reliant Energy Services Inc. (RES) and CenterPoint Energy Resources Corp. (CERC) have brought a complaint against Kern River Gas Transmission, claiming the pipeline’s credit requirements for Reliant’s transportation agreements are unreasonable and violate FERC’s 2005 policy statement governing pipe collateral practices.

In a Section 5 complaint filed last Friday, the two Houston-based energy companies requested that Kern River be ordered to accept a “reasonable level of credit support” for existing transportation service agreements as a substitute for a significantly more costly guarantee that was negotiated by RES’s then-affiliate — Reliant Energy Resources Corp. (RERC) — in 2001. RERC has since become CERC, and is a subsidiary of CenterPoint Energy Inc.

While Kern River initially indicated a “willingness” to consider a substitute credit support arrangement whereby RES would post a letter of credit equal to 12 months’ worth of reservation charges to replace the original guarantee, “Kern River now insists that [RERC’s successor, CERC] — which is no longer affiliated with RES — maintain what is essentially an uncapped guarantee for the benefit of Kern River until 2016,” the companies said.

Because Reliant Energy Services was not investment grade in March 2001, RERC executed a guarantee with Kern River covering all of affiliate RES’s payment obligations under the agreement. Since that time, Reliant has been restructured into two companies, spinning off the regulated side of its business and renaming it CenterPoint Energy, while maintaining ownership of the unregulated operations. Despite the split and the fact that it receives no benefits from the transportation agreements, the guarantee now remains a liability of CERC.

“Kern River has…made it clear that either the CERC guarantee must remain in place for 10 more years, or RES must provide [substitute] credit support (in the form of a letter of credit) equal to all of the reservation charges for all of RES’s TSAs with Kern River through 2016, which is an amount in excess of $600 million,” the two companies said. This requirement “unduly discriminates against RES, inasmuch as Kern River has permitted other, similarly situated shippers to post credit support similar to the substitute credit agreement initially discussed by RES and Kern.”

RES said it has offered to post a letter of credit equal to one year’s worth of reservation charges ($53.67 million) and that its parent, Reliant Energy Inc., is willing to provide a parent guarantee to erase CERC’s financial responsibility.

Reliant Energy and CERC called on the Federal Energy Regulatory Commission to expeditiously issue an order declaring that Kern River is in violation of the Natural Gas Act, Commission precedent, the 2005 policy statement on shipper creditworthy requirements and Kern River’s tariff, and to direct the pipeline to accept a reasonable form of collateral from RES as a replacement for the CERC guarantee.

The transportation agreements at issue were for service on Kern River’s 2003 expansion. FERC’s 2005 policy statement said a pipeline cannot demand from non-investment grade shippers, as credit support for service, collateral in excess of three months of reservation charges for existing capacity. But it allowed pipelines to seek greater collateral amounts from potential shippers on new construction projects.

However, “the circumstances under which a pipeline may demand this higher level of credit support for new construction projects are very narrowly proscribed. For example, the Commission makes clear that ‘issues relating to collateral for construction projects should be determined in the precedent agreements,'” RES and CenterPoint argued. They noted that the precedent agreements executed by RES did not require any form of credit support.

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