FERC’s chief accountant last week sent letters to five pipelines, Florida Gas, Transwestern Pipeline, Transcontinental Gas Pipe Line, Gulf South Pipeline and El Paso Natural Gas, informing them that they need to have updated written cash management agreements with their parent companies to identify the rules governing how corporate money pools are utilized. El Paso has an existing but outdated written agreement with its parent, FERC Chief Accountant John Delaware said.

The money pools allow parent companies and affiliates to borrow money from their regulated units at preferred rates. During the industry’s credit crunch and the sharp decline in the marketing and trading business some financially weak parent companies were turning to their regulated subsidiaries for cash. Enron, for example, borrowed about $1 billion from affiliates Transwestern. and Northern Natural Gas Co. before the parent company filed for bankruptcy in December 2001. Northern Natural Gas is now owned by MidAmerican Energy Holdings Co.

Delaware said the Commission staff found no rules violations after lengthy audits of the companies’ cash management practices. However, specific cash management agreements should be written, designating the responsibilities of the parties, the interest rate and rate adjustments, when interest should be paid and any restrictions on borrowing from the pool.

On June 25, FERC issued an interim rule requiring jurisdictional companies to have written cash management agreements with their parent companies. It also said the agreements should be filed with the Commission, and that regulated companies must notify FERC within 20 days when their minimum propriety capital balance drops to below 30% of total capital.

FERC said it audited the pipelines because they had large amounts in their cash pools. Transco had a balance of $106.2 million in its cash pool in 2001. FGT had $314.5 million and Transwestern had $275 million, according to the audits. El Paso Natural Gas had a balance of $92.7 million in its cash pool in 2001, and Gulf South had a balance of $52.6 million.

In June, FERC also voted out a proposed rule to require jurisdictional entities to file quarterly financial reports in addition to the annual reports they currently file. The more frequent and transparent reporting will help the Commission in evaluating trends and market conditions, the order said, noting that the accelerated filing is in keeping with the Sarbanes-Oxley overall corporate reform measure enacted by Congress a year ago. The reports will include a management discussion and analysis section and annual reports will add in a similar section.

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