In the first action of its kind, a Denver, CO-based marketer is challenging the right of an interstate natural gas pipeline to demand up-front payment of collateral equal to a full year of reservation charges from shippers that are perceived to be potential credit risks.

In a complaint filed on Oct. 25, e prime Inc. accused PG&E Transmission-Northwest Corp. (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. It told FERC that it “had no choice but to accede to GTN’s demand for $1,554,730.98 of collateral support,” given that it was unable to “identify a commercially reasonable alternative” to GTN’s service in the “short time allowed” by the pipeline.

e prime urged the Commission to process the complaint on a fast-track basis. “Continuing uncertainty regarding these creditworthiness standards could have a chilling effect on the willingness and ability of marketers to participate in transactions requiring transportation services on GTN’s system,” the company said [RP03-41]

e prime contends that GTN’s action violated its tariff, which requires shippers to show proof of a long-term bond (or other senior debt) rating “at least” as good as a BBB or equivalent rating to establish their creditworthiness. e prime noted that while it does not issue debt and does not have a credit rating, its parent, Minnesota-based Xcel Energy Inc., has a BBB credit rating from Standard & Poor’s. Xcel provided GTN with a guarantee to assure e prime’s financial performance under the agreement for 20,000 Dth/d of service, it said.

Nevertheless, GTN last month informed e prime in a letter that Xcel Energy no longer held a sufficient credit rating, and signaled that it intended to suspend service to the company on Sept. 23 unless e prime submitted collateral in an amount equal to its reservation charges for a full 12 months, according to the gas marketer.

Even if it wasn’t creditworthy, which e prime insists isn’t the case, the marketer contends GTN’s action violates the Commission general policy, which bars pipelines from extracting collateral “equal to more than three months of charges” from credit-risky shippers. Moreover, “GTN’s position that it may suspend service to e prime without prior notice to, or approval by, the Commission is contrary to the public interest and violates Section 7(b) of the [Natural Gas Act],” it argued.

In light of the uncertain climate in the energy industry, a number of interstate pipelines — Tennessee Pipeline and Natural Gas Co. of America, for example — in recent months have proposed tariff changes at FERC to protect their systems and paying customers from credit-risky shippers. While e prime is “aware” of the efforts to tighten pipeline creditworthy standards, the Commission “has not, to e prime’s knowledge, agreed that the alleged changes in the industry justify a four-fold increase in the amount of collateral that pipelines may demand from non-creditworthy shippers,” it said.

Moreover, e prime pointed out that any future changes by the Commission to the credit requirements of interstate pipelines would apply only prospectively to shippers.

Because of the alleged violations, e prime has called on FERC to find that it satisfies the creditworthiness standards of GTN; order the pipeline to immediately return the company’s pre-payment of $1.554 million cash deposit, plus interest; and require GTN to continue providing service under e prime’s existing transportation agreement.

As an alternative action, e prime asked the Commission to bar GTN from suspending service without either obtaining prior approval from FERC or giving e prime and the agency 30 days notice, and require the pipeline to return the cash collateral.

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