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Policy Statement Issued on Shipper Creditworthiness

FERC issued a policy statement last Wednesday that gives interstate natural gas pipelines further guidance on how to evaluate the creditworthiness of shippers on their systems.

The policy statement comes a little more than a month after the Federal Energy Regulatory Commission issued a final rule that, among other things, spelled out standards for creditworthiness criteria and other practices (see NGI, May 9). The rule adopted standards developed by the Wholesale Gas Quadrant (WEQ) of the standards-setting organization North American Energy Standards Board (NAESB).

"Today's policy statement addresses other issues for which NAESB consensus was unavailable. The Commission decided to issue a policy statement upon finding that with the decline in pipeline worthiness filings, changed economic circumstances and the adoption of the NAESB standards, a rulemaking was not necessary at this time," the Commission said in a statement.

The agency's policy requires pipelines to establish and use "objective criteria" for determining a shipper's creditworthiness and it identified a uniform set of 15 documents that shippers would be required to provide pipelines to help them assess whether a shipper is creditworthy [PL05-8, RM04-4]. The documents include audited financial statements; annual reports; list of affiliates, parent companies and subsidiaries; private credit ratings, if obtained by the shippers; bank references; and trade references, according to FERC.

Under the policy statement, pipelines would be able to demand more information from shippers if they can justify why the additional data is needed, the Commission said.

FERC's policy encourages pipelines to take into account a shipper's individual circumstances and business relationships when making decisions on a shipper's creditworthiness. It also urges pipelines to provide shippers with prompt notification of unfavorable decisions so that they can evaluate and challenge the determinations.

The agency further outlined its policies on collateral with respect to shippers on existing facilities, new mainline construction and construction of lateral facilities. For current shippers on existing facilities, the Commission reaffirmed its traditional policy of permitting no more than the equivalent of three months of reservation charges as collateral. "This amount reasonably balances the shipper's right to continued service with a pipeline and the pipeline's default risk," the agency said.

The Commission said it would consider on a case-by-case basis pipeline requests to collect more than three months of reservation charges as collateral from shippers who are bidding for available capacity on a pipeline's existing system.

For new mainline construction, FERC noted that it will continue its policy of permitting larger collateral requirements that reasonably reflect the risk of the project, particularly the risk to the pipeline of remarketing the capacity should the initial shipper default for construction projects. As for construction of lateral lines, the policy will allow pipelines to require collateral up to the full cost of the project, the agency said.

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