Industrial gas users have called on the Federal Energy Regulatory Commission to jettison Tennessee Gas Pipeline’s proposed changes in its currently effective transportation tariff to shield the pipeline and its paying customers from credit-risky shippers. They also object to FERC’s designation of the North American Energy Standards Board (NAESB) to develop generic creditworthiness standards for the industry.

In an order last month, FERC acknowledged the serious concerns that were raised by industrial customers and others, but rather than rejecting the El Paso Corp. pipeline’s proposal, the agency ordered a technical conference and directed the NAESB to develop generic creditworthy standards for pipelines, said the Process Gas Consumers Group (PGC).

The Commission also accepted Tennessee’s proposed tariff changes, subject to refund, and suspended the effective date of the new proposal until the earlier of five months or the conclusion of the technical conference process [GT02-35]. PGC urged FERC to reconsider its decision.

In its proposal filed in August, Tennessee sought the go-ahead to impose stiff credit requirements on shippers or potential shippers, including requiring shippers to submit information on their credit status “upon Tennessee’s request,” rather than “once every three months,” and provide copies of their audited and certified financial statements for the previous two fiscal years, as well as copies of their financial statements for the most recent period. If the statements for the latest period are unaudited, they would have to be signed and attested to by the customer’s president and chief financial officer as “fairly representing the financial position of the company,” according to the proposed tariff changes. Tennessee also seeks wide access to other areas of a shipper’s credit background “at its request.”

Tennessee’s credit measure “should be rejected outright,” said Dena Wiggins, PGC’s general counsel. In its Sept. 13 order, FERC “recognized that there are no ‘industry standards’ governing creditworthiness and, therefore, it is clearly impossible for Tennessee to comply with standards and policies that do not even exist in the first place,” she noted.

The pipeline’s proposed tariff changes “would strip shippers of service rights, intrude upon bankruptcy procedures and unfairly assess shippers significant additional administrative and financial burdens and costs,” Wiggins said.

Tennessee is not the only pipeline seeking credit protection in the midst of the turmoil in the energy industry. Kinder Morgan’s Natural Gas Pipeline Co. of America, Kinder Morgan Interstate Gas Transmission LLC and Northern Natural Gas, a subsidiary of MidAmerican Energy, all have proposed tariff changes to inoculate themselves against credit-risky shippers. PGC objected to Northern Natural’s proposed credit provisions as well, saying they would give the pipeline an “unprecedented amount of discretion” over its shippers, which it claimed could lead to harassment and discrimination (see NGI, Sept. 9).

The refund protection offered under the Natural Gas Act (NGA) would not adequately protect pipeline shippers from possible abuses by Tennessee or others if FERC awards them expanded authority to explore the credit history of shippers, the industrial gas group argued. Nor, it argued, is the NAESB the appropriate forum in which to develop industry-wide credit standards.

FERC “has delegated to NAESB a decision that implicates several of the Commission’s key policies, including its open-access requirement, non-discrimination requirement and affiliate rules of conduct,” Wiggins noted.

But Indicated Shippers, a group of producers and marketers, believes generic creditworthiness standards, developed through the NAESB, are the right way to go. In fact, the group called on FERC in late August to launch a proceeding, “possibly working through the North American Energy Standards Board,” to explore uniform standards to shield pipes from insolvent or credit-risky shippers (See NGI, Sept. 2).

“Creditworthiness standards would be a particularly appropriate area for generic standards, and development of such standards would potentially conserve considerable time and resources for the Commission and affected entities, as opposed to [FERC addressing] individual filings by interstate pipelines,” Indicated Shippers said at the time.

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