The debate over creditworthiness standards for gas pipeline service has proved to be too contentious so far for the North American Energy Standards Board (NAESB), which told FERC last week that its Executive Committee failed to endorse the entire set of proposed standards at its May 20 meeting. NAESB had planned to send the matter to FERC unresolved, but in a letter to the Commission on Friday, it asked that its deadline be pushed back to June 15 from June 1 so that it could schedule one last vote on the standards on June 5.

NAESB Executive Director Rae McQuade said she expects one of two things to happen at the June 5 meeting: “We’ll either get some of the standards passed and some not passed, but with a more developed record to forward to the Commission, [or] we will get an outcome where none of the standards get passed, but all are individually vetted or vetted in groups and we have a more fully developed record to forward to FERC.”

NAESB has been struggling with creditworthiness standards since being handed the reins by FERC last fall in a Tennessee Gas Pipeline case (see NGI, Oct. 28, 2002). A total of 24 proposed standards have been developed. About 40% of them deal with how to provide credit information and about 60% deal with what constitutes adequate credit information. NAESB’s Business Practices Subcommittee met in 19 multi-day meetings from November 2002 to April 2003 to come to a consensus on the proposed standards. Sixteen organizations commented on the proposed standards and those comments were also forwarded to the Executive Committee last week for consideration.

However, some observers have believed it was nearly a foregone conclusion that NAESB would fail, given that such a large part of the industry was totally against it even having an opportunity to tackle the issue.

“The NAESB process is a poor substitute for notice and comment rulemaking conducted by the Commission,” the Interstate Natural Gas Association of America (INGAA) said in a Feb. 28 letter to FERC Chairman Pat Wood and Commissioners Nora Brownell and William Massey [GT02-35, GT02-38, RP02-363]. INGAA represents the nation’s interstate pipeline companies.

Decisions about creditworthiness policy should be made by FERC, not NAESB, the pipeline group said. “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.”

Meanwhile, large commercial and industrial customers have been eager for either NAESB or FERC to hammer out standards. The pipeline customers have been pleased with the direction FERC has taken in several creditworthiness cases.

FERC has handed down decisions on a case-by-case basis for stricter creditworthiness standards in light of Enron’s bankruptcy and the resulting market turmoil since late 2001. The Commission has rejected some of the more stringent provisions, such as requiring 12-month prepayments from shippers deemed to have poor credit. It also rejected pipeline proposals to confiscate natural gas left on their system by shippers who failed to meet the terms of their service contract. The return of deliberations to the Commission could end up satisfying the majority on both sides.

Nevertheless, McQuade said it’s still too early to count out NAESB. Despite the inability of the NAESB Executive Committee to find a consensus, there really has been less division among members than many first expected, she said.

“If you look at the make-up of the Executive Committee and how everybody is coming into work, I think there is a genuine effort by the majority to work together. I wouldn’t characterize any single segment as having significant problems, particularly not the pipelines.”

Executive Committee Chairman Jim Buccigross said all segments of the industry probably can live with the majority of the 24 standards. “The problem is there are one or two…that some segments have issues with. There is a core of standards that, I think, could garner majority support.”

In order for the standards to be approved, NAESB requires 40% of the representatives in each of five gas industry segments to be in favor of them and two thirds of the Wholesale Gas Quadrant Executive Committee to vote in support.

McQuade said she is still optimistic that a positive consensus can be reached. “A number of people wanted to have additional time to consider comments that came in last week. The last time it voted, the Executive Committee really didn’t have much time to consider those comments. And the votes that were taken on the 20th were ‘packaged’ votes. Everybody was looking at the standards as a package,” she said. “They really didn’t have the discussion at the individual standard level.”

Buccigross said it was an “all or nothing vote. I think if we deliberate them individually, we may find that there are some that can garner the [required] support.”

There are a few standards that have been more controversial than others. Standard 5.3zE, which deals with permanently released pipeline capacity and the creditworthiness of a replacement pipeline shipper, has been the most controversial. “If you look at all 16 sets of comments you’ll see that standard come up a lot,” said McQuade. “There will need to be some necessary wordsmithing on it. Some of the companies felt it just needed to be rejected. Others said it was in opposition to existing FERC policy. Some felt the wording was incorrect. There’s no easy sound bite on this one. There are pages of small-print comments on it.”

There is still time, however, for additional modification, she added. And even if the standards are not all approved, the FERC still will be getting a fully developed record and will have a significant amount of information to guide it.

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