With energy traders and other companies becoming bigger credit risks, Natural Gas Pipeline Co. of America (NGPL) has proposed tariff changes to shield it from its transportation capacity being released by non-creditworthy shippers at cut-rate prices.

In an Aug. 16 filing at FERC, Natural proposed it be allowed to terminate an existing capacity release by a shipper that is no longer considered creditworthy, and require a non-creditworthy shipper to obtain prior consent from the pipeline before it can release capacity to a replacement shipper. Both proposed revisions are intended to protect its shareholders and creditworthy customers from the “adverse impacts on its system of deteriorating shipper credit,” the Kinder Morgan pipeline said [GT02-34]. It asked for the tariff revisions to take effect on Sept. 16.

Nowhere in the tariff filing does Natural define what would be considered non-creditworthy.

Natural’s proposed changes “will rationalize the capacity-release situation where the releasing shipper is not creditworthy by allowing Natural to take back and remarket capacity and reduce its credit risk,” the pipeline noted. “It provides Natural with an ability to protect itself, for example, where a contract with a 10 cents unit rate is released at a unit rate of two cents, and the releasing shipper is not creditworthy or becomes non-creditworthy.” It also shields against the “misallocation or inefficient allocation” of firm transportation capacity, Natural said.

Currently, “the interstate pipeline has no say in most situations regarding the rate at which capacity is released even though it can be adversely affected by the pricing under releases by a non-creditworthy shipper. The Commission has recognized [in past decisions] that pipelines should have tariff provisions to deal with this situation,” Natural noted.

Under its proposal, Natural said it would allow a capacity release to be carried out by a non-creditworthy releasing shipper only if the replacement shipper agrees to pay a rate “at least equal to the lower of the applicable maximum rate or the same rate as the releasing shipper is paying to Natural under the original contract.” Or, it noted Natural and the replacement shipper could agree on “other pricing terms.”

Without this provision, “efforts by Natural to reduce its credit exposure [would be] frustrated, given that the non-creditworthy releasing shipper rather than the replacement shipper is liable for the difference between [the] original contract rate and the release rate.”

As for requiring prior notice from the pipeline, this is necessary to “avoid the wasteful and disruptive process of Natural terminating releases which were just implemented,” it said. “Where the releasing shipper is not creditworthy at the time of the release, the credit issue should be dealt with then rather than after the release is effectuated.”

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