Failing to concede any wrongdoing on its part, Northern Natural last week entered into a stipulation and consent agreement with FERC to resolve the agency’s concerns about a $450 million loan that the regulated pipeline secured to help bail out its then-parent, Enron Corp., just before Enron sank into bankruptcy last year. Northern Natural signed the agreement with FERC Chief Accountant John Delaware and the Office of General Counsel’s Market Oversight and Enforcement section.
Under the deal, Northern Natural has agreed not to recover from its pipeline customers any costs associated with the revolving credit loan that it obtained from Citicorp North American Inc., with JP Morgan Chase Bank as collateral trustee, last November. “Northern will not include the loan itself, the interest cost of the $450 million loan, or the cost of acquiring such loan, in any future Commission rate proceedings,” said the FERC order approving the consent agreement (IN02-6).
In addition, the agreement requires Northern Natural and its parent company to comply with the provisions of a final rule that would limit regulated pipelines’ involvement in cash-management programs with their parents, and also would require pipelines to maintain written documents on all cash deposits and withdrawals from such accounts. The Commission issued a notice of proposed rulemaking (NOPR) addressing the issue earlier this month (See NGI, Aug. 5).
As part of the agreement, Northern Natural “neither admits nor denies” that it obtained the loan “imprudently,” or that it violated any of the Commission’s accounting regulations. The consent agreement came one week after FERC issued an order in which it called into question the propriety of two emergency loans secured by Northern Natural and Transwestern Pipeline, which still is a pipeline subsidiary of Enron. Transwestern obtained a $550 million loan last November to aid its ailing parent (See NGI, Aug. 5). FERC became concerned about the loans — specifically if Enron ever intended to repay the pipelines — during an audit of cash-management programs involving regulated utilities and pipelines and their parent companies, which the agency began last January.
Northern Natural currently is owned by Dynegy, but the Houston-based energy company has announced plans to sell the pipeline to Berkshire Hathaway’s MidAmerican Energy Holdings Co. for $928 million in cash and assumption of $950 million in outstanding debt. Some speculated that FERC’s questions about Northern Natural’s secured loan to Enron could complicate the sale, but this latest action may end that.
FERC said it believes the agreement was an “equitable resolution” of its concerns about the propriety of the loan. However, it noted “approval of this agreement does not constitute settlement or waiver of any further action or remedies the Commission may find appropriate concerning matters that are not addressed” in its Aug. 1 order in which it cited its suspicions about the loan.
“Further, nothing in this approval constitutes immunity from any civil or criminal action that any other federal agency or department may take,” the FERC order said.
Within days of FERC’s initial order in the case, The Wall Street Journal reported that both the Department of Justice and Securities and Exchange Commission had taken an interest in the Northern Natural and Transwestern loans. FERC did not refer the matter to either of the federal agencies, said Andrew Soto, legal adviser to Chairman Pat Wood.
The WSJ said the two federal agencies were exploring whether the once-powerful Enron may have improperly used its two FERC-regulated natural gas pipelines to obtain revolving credit loans totaling $1 billion, with no intention of ever repaying the pipeline companies. The head of accounting for the two pipelines, which still are liable for the $1 billion in loans, told FERC that neither company expected to be repaid due to Enron’s bankruptcy.
“To the best of my knowledge, Justice has not notified us [Enron] that it is investigating the loans,” said an Enron spokesman. But, he conceded “there are a number of [federal] investigations into our various business aspects,” which makes it hard to keep track of them. He noted that Enron notified the SEC about the two pipeline loans last November.
While transactions between subsidiaries and parent companies are “not unusual” in the industry, a source observed “it may be a little bit less common to do it as a loan to a parent rather than as a direct dividend,” which is kept by the parent and doesn’t have to be repaid.
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