In what may be the prelude to a key ruling involving pipeline credit issues, FERC said PG&E Transmission, Northwest Corp. (PG&E-GTN) was correct last fall when it determined that Denver, CO-based marketer, e prime Inc., was no longer creditworthy under the pipeline’s tariff guidelines, and threatened to suspend service to the company. However, the agency deferred ruling on whether PG&E-GTN had the authority to demand from e prime a 12-months pre-payment of service to continue as a shipper.

The Commission on Friday said it will decide the issue once PG&E-GTN furnishes it with a 1993 loan agreement from its lenders, which the pipeline claims explicitly requires non-creditworthy shippers to post collateral for one year’s worth of demand charges. FERC ordered the pipeline to file the “supporting documentation” within five days. At that time, the Commission “will…determine the appropriateness of the 12-month pre-payment requirement imposed on e prime,” according to the order [RP03-41].

In the meantime, the agency said PG&E-GTN could hold onto the collateral paid by e prime last Oct. 4. e prime contracts for 20,000 Dth/d of firm service on the pipeline.

The order was in response to a complaint brought by e prime in late October, accusing PG&E-GTN of violating the creditworthiness criteria in its own tariff and Commission regulations by demanding that it pre-pay $1.5 million in reservation charges for a one-year period, or face suspension of service. At the time, e prime told FERC it “had no choice but to accede to [PG&E-GTN’s] demand” for $1.5 million of collateral, given that it was unable to “identify a commercially reasonable alternative” to PG&E-GTN’s service in the “short time allowed” by the pipeline (See Daily GPI, Oct. 29, 2002).

e prime claimed PG&E-GTN’s action violated the pipeline’s tariff because its parent, Minnesota-based Xcel Energy Inc., had an overall corporate credit rating of BBB from Standard & Poor’s. But PG&E-GTN argued that the “decisive” credit rating involved Xcel’s senior unsecured debt (SUD) for individual bonds, which had been downgraded to BBB- last June by S&P — one notch below the rating required by PG&E-GTN’s tariff.

“It appears that the issue revolves around whether PG&E-GTN should accept Xcel’s BBB issuer credit rating or has PG&E-GTN correctly relied on the BBB- rating pertaining to unsecured debt for individual bonds,” the order said. The Commission sided with the pipeline, noting that its tariff requires shippers to meet “at least a long-term bond (or other senior debt) rating of BBB” as determined by S&P or any other recognized U.S. or Canadian debt rating service.

The FERC order further said PG&E-GTN was not required under its tariff to give e prime 15 days notice of termination of service due to creditworthiness problems, as the marketer had argued in its complaint. The pipeline was only required to give advance termination notice in cases where a shipper fails to pay for transportation or storage service, it said.

In related cases, the Commission is scheduled to act during its meeting Wednesday on two proposals in which Northern Natural Gas Co. and Tennessee Gas Pipeline Co. are seeking to strengthen the credit-related provisions in their tariffs to protect themselves from credit-risky shippers [GT02-38, GT02-35].

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