Southern Natural Gas pipeline was within its rights when it required Calpine Energy Services LP, a non-creditworthy shipper, to put up 30 months of collateral in order to receive service on its 114-mile South System Expansion project, FERC said last week.

The Commission rejected a complaint brought by Calpine, a Houston-based developer of gas-fired generation, in March that alleged Southern’s collateral requirement violated the parties’ service agreement, the pipeline’s tariff and FERC policy.

Southern’s 30-month collateral requirement, which Calpine said totaled $21 million, “is not unreasonable when compared to the risks that Calpine and other non-creditworthy shippers pose,” according to the FERC order [RP03-312]. The Commission signaled that 30 months was appropriate in Southern’s case because it involved an expansion of the pipeline’s mainline.

The order, however, “should not be read to [suggest] that there’s a new 30-month [collateral] standard for expansions” of pipeline mainlines, said FERC Chairman Pat Wood. “We do search for bright lines, but this is not an example” of that.

Nevertheless, the Calpine-Southern complaint order does provide the industry with “pretty clear guidance” on creditworthy issues, Commissioner Nora M. Brownell noted.

Commissioner William Massey admitted the Calpine case was a “tough call,” although he voted to deny the complaint in the end. “I think the pipelines have the right to feel a sense of security in going forward with a project,” but he said he didn’t want to create a policy that would impose “unreasonable burdens” on pipeline shippers.

In separate but related orders involving the Tennessee and Northern Natural Gas pipelines, the Commission addressed the collateral requirements for construction of interconnecting lateral lines. It held that a pipeline can require collateral from a shipper, who requests a lateral, in an amount up to the full cost of the facility [GT02-35, GT02-38].

As part of the Calpine order, FERC called for pipelines and shippers to spell out the collateral requirements for mainline expansions in their precedent agreements. It further said that issues relating to collateral for mainline expansions should be raised during the certificate stage of proceedings at the Commission, “not after the pipeline has secured financing based on that collateral and has begun construction.”

The agency also said shipper collateral requirements for any type of pipeline construction will continue to apply after the facilities go into service.

The North American Energy Standards Board (NAESB) met last Thursday to address pipeline creditworthiness standards. Wood noted that while he hoped the board would provide “more clarity” on the issue, the final arbiter would be FERC. “We acknowledge that we’ve got to make the policy calls here, and let [NAESB] convert that into implementable standards that can help govern the industry.”

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