The Federal Energy Regulatory Commission has affirmed several key rulings involving creditworthy issues that are favorable to shippers on Tennessee Gas Pipeline Co.

Responding to the pipe’s challenge of a June 4 order, the Commission again told Tennessee it could not continue to charge a shipper for service after it has suspended service to that shipper for failure to meet Tennessee’s creditworthy standards, and that it must pay interest on the security payments that it requires of credit-risky shippers as insurance against default.

It would be “unjust and unreasonable” for the El Paso pipeline subsidiary to be allowed to charge a customer after their service has been suspended, FERC said in an Oct. 24 order [GT02-35-005]. Tennessee argued that a shipper still was liable for transportation charges because the pipe was continuing its obligation to reserve capacity for the suspended shipper.

“But the shipper is not paying simply to reserve capacity,” the agency order said. “It is paying to reserve capacity and, more importantly, to have Tennessee transport gas using that capacity. By refusing to transport gas during suspension, Tennessee is failing to perform its obligation under the contract. Tennessee, therefore, should not be permitted to charge the shipper as if it were receiving service.”

The Commission already has given Tennessee and other interstate gas pipelines the “added remedy” to suspend non-creditworthy shippers on “shorter notice than [is required for] termination of service,” the order noted. “But Tennessee should not be given added incentive to suspend service by being protected against financial loss in the meantime.”

FERC also upheld its June 4 ruling requiring Tennessee to provide shippers an opportunity to earn interest on their security pre-payments (equal to three months of demand charges) that are held by the pipeline in the event of default.

“The shipper is…entitled to a return of the withheld payments if it satisfies Tennessee’s creditworthiness requirements…The amounts provided by non-creditworthy shippers to Tennessee are…designed to provide collateral or security against potential default, not pre-payments of future demand charges, and the pipeline should be responsible for paying the shipper interest to cover the time value of the money it is holding as security,” the order said.

The Commission did reverse itself on one issue. In the June 4 order, Tennessee was instructed to provide a “detailed written notification” to a shipper who is found to be non-creditworthy on its system. But, on rehearing, FERC said such notification would be required only if requested by the shipper.

FERC, however, rejected a proposal that would require a shipper to supply Tennessee with certain items to evaluate the shipper’s creditworthiness. Under the tariff proposal, shippers would have to confirm in writing that they were not aware of any changes in business conditions that could substantially affect their financial status, or the existence of lawsuits or judgements that could affect solvency.

“Again Tennessee ignores the main issue that the provisions are unnecessarily vague and require a shipper to make assumptions without the benefit of the necessary objective criteria,” the order noted. “The Commission finds that shippers are entitled to know with a reasonable degree of certainty what information they should have to provide to the pipeline, and Tennessee’s proposed revisions fail to provide sufficient guidance.”

The agency also restated its position prohibiting Tennessee and other interstate pipelines from confiscating gas left on their systems by defaulting shippers.

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