The Interstate Natural Gas Association of America (INGAA) on Friday took issue with a number of recent decisions that it said indicate FERC is intent on establishing generic creditworthiness standards for natural gas pipelines.

By taking such an expansive approach to creditworthiness standards, the Federal Energy Regulatory Commission is ignoring “either the differences in risk profiles from shipper to shipper or the differences in risk tolerance from pipeline to pipeline,” the pipeline group wrote in a letter to Chairman Pat Wood and Commissioners Nora Brownell and William Massey [GT02-35, GT02-38, RP02-363].

FERC “should carefully consider the wisdom of departing from its current practice, which allows pipelines to tailor their creditworthiness provisions to suit their particular situation and the needs of their creditworthy shippers,” INGAA said. Without this flexibility, pipelines will face greater risk of being placed “at the end of the credit lines in bankruptcy proceedings,” and they and their lenders will be less willing to commit to capital expansion projects, it noted.

Given the critical role of the creditworthiness provisions and the “complexity” of the policy issues involved, INGAA called on the Commission to seek “full and active” input from industry in a “notice and comment rulemaking to determine whether adoption of a generic creditworthiness provisions is just and reasonable.” INGAA said it believes “this examination will reveal that it would be a mistake to adopt generic creditworthiness provisions.”

Decisions about creditworthiness policy should be made by FERC, not the North American Energy Standards Board (NAESB), the pipeline group said. “The NAESB process is a poor substitute for notice and comment rulemaking conducted by the Commission. Given NAESB’s historical role as a consensus organization that does not create policy standards, it is inappropriate for the Commission to defer its duty to a group having this different focus,” INGAA noted.

If FERC should reject the rulemaking approach suggested by INGAA, “then any case-by-case decision should be made with the explicit recognition by the Commission that individual pipeline companies are different in terms of their current level of risk, anticipated future risk and ability to assume more risk, and that precedent developed in one case may have no application to other pipelines in different circumstances.”

INGAA’s comments were in response to three orders addressing proposed revisions to the tariff creditworthiness provisions of Northern Natural Gas, Tennessee Gas Pipeline and North Baja Pipeline LLC, which offered the industry its first glimpse into where FERC was headed on its creditworthiness policy.

In the Tennessee and Northern Natural orders, FERC rejected the pipeline proposals that would have required non-creditworthy shipper to post three months of security within five days of being notified of suspension or termination in order to continue service. The pipes “have not shown five days to be a sufficient period of time for shippers to obtain [the] requisite security,” the agency said.

Instead, the Commission suggested that non-creditworthy shippers be required to pre-pay one month’s worth of reservation charges within five business days, and be given 30 days to come up with pre-payment for the next three months of service. FERC also rejected the pipelines’ proposals to confiscate gas as partial payment for a bill of a non-creditworthy shipper who contract has been terminated.

In the North Baja order, the agency deemed “unjust and unreasonable” the pipeline’s proposal that would require non-creditworthy transportation shippers to post collateral equal to one year’s worth of reservation charges to continue receiving firm service. FERC found this level of security to be “excessive for shippers subscribing to service after the pipeline is in operation,” but it noted it could be allowed for “initial firm shippers at the time the project is certificated.”

For shippers — other than a pipe’s initial shippers at the time of certification — the standard collateral that could be required was three months of transportation reservation charges, the North Baja order noted.

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