Industrial natural gas customers have called on FERC to reaffirm a March 2003 decision that barred PG&E Gas Transmission-Northwest (PG&E-GTN) from requiring credit-risky shippers to put up collateral equal to one year’s worth of reservation charges in order to continue receiving transportation service on its system.

“The Commission was right to reject GTN’s proposal to require 12 months collateral, finding that requiring such excessive collateral would undercut the security of a pipeline system by preventing customers who lose their creditworthiness from continuing their [service],” said the United States Gypsum Co. and the Process Gas Consumers Group in comments filed at FERC Tuesday.

The case stems from an October 2002 complaint in which Denver, CO-based marketer e prime accused PG&E-GTN of violating the creditworthiness criteria in its own tariff and Commission regulations by demanding that it pre-pay $1.5 million in reservation charges for a one-year period, or face suspension of service. In March 2003, the Federal Energy Regulatory Commission ruled that its policy in effect at the time when PG&E-GTN demanded that e prime pay collateral required noncreditworthy shippers to pay only three months’ worth of reservation charges. FERC ordered PG&E-GTN to refund the remaining portion of e prime’s cash deposit that exceeded three months of reservation charges [RP03-41].

The decision, as well as an agency ruling in a related case rejecting PG&E-GTN’s proposal to revise its tariff to require 12 months of security [RP03-70], were appealed to the U.S. Court of Appeals for the District of Columbia Circuit. However, before the court could act, FERC submitted a motion to hold the court proceedings in abeyance and to voluntarily remand the combined case to allow for further Commission action. Last month, the court approved the agency’s request and the case is now pending at FERC.

In a policy statement on shipper creditworthiness issued in June 2005, “the Commission put the burden on the pipeline proposing a collateral requirement of greater than three months security to demonstrate that the requirements are reasonably related to the risk posed by the noncreditworthy shipper and reasonably reflect risks associated with contract terms or volumes. GTN has not and cannot show that a 12-month collateral requirement is reasonably related to the risk of default by shippers who fall below the pipelines’ creditworthiness standards,” industrial customers said.

“In today’s environment of higher natural gas prices, it is more important than ever that end-users not be subjected to unreasonable collateral requirements and ill-defined procedures for acquiring capacity. Therefore, as the Commission reviews its earlier decisions in the remanded cases, the industrials urge the Commission to adhere to its sound creditworthiness policy and reject any attempts by GTN to require 12 months of service charges as collateral or change the objective criteria for determining credit status,” they said.

While FERC in its policy statement affirmed its traditional policy of permitting no more than three months of reservation charges as collateral, it said it would consider on a case-by-case basis pipeline requests to collect more than three months of reservation charges as collateral from shippers who are bidding for available capacity on a pipeline’s existing system.

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