Tractebel Energy Marketing Inc. (TEMI) has asked FERC to issue an emergency order directing a Texas natural gas storage facility to restore the marketer’s full storage service rights, cease threats to confiscate gas and to comply with recent agency decisions regarding credit assurances. The Houston-based marketer also is seeking relief from the Texas Railroad Commission, and has asked the U.S. District Court in Houston to issue a temporary restraining order to preserve Tractebel Energy Marketing’s storage rights and gas in storage.

“We want to cover all fronts…because of the urgency of the matter” and because the dispute raises issues involving both federal and state law, said Lilly C. Teng, general counsel and vice president for the company.

In its complaint filed at the Commission Friday, TEMI alleged Hill-Lake Gas Storage LP, a subsidiary of Falcon Gas Storage, had reduced its firm storage withdrawal rights by nearly 70% and threatened to suspend all service effective May 16, even though it said it complied with what it claimed were the unwarranted demands of the storage company for additional credit assurances, including a $3 million Guaranty from its parent Tractebel Inc., and an irrevocable one-month letter of credit for the entire sum of the monthly demand charges remaining under its contract ($2.54 million).

Hill-Lake’s demands for the added credit assurances had nothing to do with TEMI’s credit status, the marketer claimed, but rather stemmed from a prior dispute involving alleged under-deliveries by the storage company. TEMI said its credit status is tied to that of its parent, which “has not become impaired since the [storage] contract was executed.”

A Falcon Gas Storage spokesman was not available for comment Monday. In addition to Hill-Lake in West Texas, Falcon is developing the MoBay Storage Hub in the Southeast and the Wyckoff storage field in the Northeast.

Hill-Lake threatened to confiscate an estimated $3.2 million of TEMI’s gas in storage and cut off full service if it did not receive the credit assurances from the company, the marketer said in its complaint [PR03-14]. The Texas storage company rejected both the $3 million Guaranty and $2.54 million letter of credit supplied by TEMI as unacceptable, it noted.

Teng would not say if TEMI’s storage service was in fact suspended Friday (May 16). “All I know is it’s Monday morning, and we’re still not happy. As of Monday, May 19, there’s been no change to the complaint” filed Friday, she said.

Hill-Lake did not require any credit assurances from TEMI when the storage contract was initially entered into in August 2002, or when it was re-executed on Jan. 1 of this year, according to the complaint. “Nor has Tractebel’s credit quality diminished since that time,” the gas marketer said. “Rather, Hill-Lake’s demand for credit assurances is a punitive response to Tractebel’s assertions that Hill-Lake has failed to deliver Tractebel’s full contract quantities.”

Even if TEMI had posed a credit risk to Hill-Lake, the marketer contends the storage company’s credit demands flout the Commission’s recent decisions in Northern Natural Gas and Tennessee Gas Pipeline, which held that three months of demand charges were sufficient security in the event of a credit downgrade or default. Furthermore, it said FERC in those rulings barred the pipelines from confiscating a shipper’s gas.

“Tractebel is, and always has been, current on its payments to Hill-Lake. Yet, Hill-Lake is demanding $5,745,000 in collateral and gas from Tractebel for a storage contract on which Hill-Lake has seriously under-delivered,” the marketer said.

“Hill-Lake’s actions have severely diminished Tractebel’s firm injection and withdrawal rights under the Hill-Lake/Tractebel firm storage contract and the reliability of Tractebel’s firm storage service. Hill-Lake’s threats to suspend storage service and confiscate Tractebel’s gas will obviously severely impair Tractebel’s ability to supply gas needed to operate the Ennis power plant [owned by an affiliate] and to supply customers in the ERCOT” region of Texas.

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