FERC rejected tariff filings by Portland Natural Gas Transmission System (PNGTS) that would have restructured its creditworthiness and financial assurances provisions using a higher present value (PV) calculation than the Northeast pipeline uses in other parts of its tariff.
PNGTS, majority-owned by TransCanada Pipelines, proposed to revise its generally applicable creditworthiness standard by lowering the minimum required Standard and Poor’s (S&P) debt rating from “BBB” to “BBB-” and the Moody’s debt rating from “Baa2” to “Baa3,” while at the same time adding a tangible net worth requirement. The latter requirement would limit the present value of the shipper’s overall payments under the contract to no more than 10% of its tangible net worth.
The interest rate in the present value calculation offered in the proposed creditworthiness provision would be based on the monthly equivalent of 52-week treasury bill rate. In other parts of the pipeline’s tariff, present value is based upon the monthly equivalent of the prime rate, as published in the Wall Street Journal, plus 5%.
The Federal Energy Regulatory Commission said a contract with a 20-year term and equal annual monthly reservation charge payments for transportation service of $1,000/month would be valued at about $115.23 million under the present value formula PNGTS’s current tariff. The value of the same contract under its proposed creditworthiness present value formula would be about $237.84 million.
“Portland has not provided sufficient support for concluding that its reasonable opportunity cost of money is twice as high as its current PV formula would indicate,” the Commission order said.
PNGTS had initially filed its creditworthiness provision without explicitly stating what the present value calculation would consist of. DTE Energy Trading protested and FERC asked PNGTS to specify if the formula contemplated was the one in its current tariff. At that point the pipeline filed the new formula. FERC rejected the entire creditworthiness provision, saying PNGTS could refile consistent with the decision.
PNGTS is a high-capacity, high-pressure interstate natural gas pipeline connecting the TransQuebec and Maritimes Pipeline at the Canadian border and the Maritimes and Northeast Pipeline at Westbrook, ME, with the Tennessee Gas Pipeline System near Boston, MA.
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