Transwestern Pipeline told FERC earlier this month that it overlooked facts and the chronology of events prior to the Enron Corp. bankruptcy in pressing Transwestern and Northern Natural to explain the use of $1 billion in loans to support their failing parent company, Enron. Transwestern secured $550 million from Citicorp North America Inc. and JP Morgan Chase Bank that it then gave to its parent company in the weeks prior to Enron’s Chapter 11 filing.

The Federal Energy Regulatory Commission (FERC) ordered the pipelines to explain why their actions didn’t violate the Commission’s Uniform System of Accounts for gas companies. It also ordered the pipelines to state why the loans were not imprudently incurred and therefore unrecoverable in any future rate proceedings (see NGI, Aug. 5).

Transwestern said it is only in hindsight that the loans might be labeled by regulators as imprudent. A careful analysis of the events leading up to the loans wipes away any notion of impropriety, the pipeline said. FERC’s order is “specifically predicated on several incorrect factual assumptions and on a general lack of information as to the overall factual content surrounding the questioned transactions,” Transwestern told the Commission.

While not denying Enron was in financial trouble at the time of the loans, the pipeline noted that in mid-October through mid-November 2001 when the loans were being considered “Enron had an investment grade credit rating, the Dynegy-Enron merger was executed, was pending and had not yet been terminated, and Transwestern was in a position to provide a loan to meet its parent’s/stockholder’s then pressing need for financial support.

“Transwestern believed Enron was a viable, going concern,” the pipeline told FERC.

Moreover, the pipeline said, “Transwestern acted reasonably and prudently in its actions leading up to and including the loan transaction.” Transwestern noted that it deemed the actions financially prudent because its capital structure at the time was “virtually 100% equity” and the loans could be made without jeopardizing its capital structure or increasing its credit risk.

Enron entered into two subordinated promissory notes with Transwestern for the $550 million, part of which was used to pay off a portion of a $250 million unsecured loan that was outstanding by Enron North America, and the rest was “swept” up by Enron under a “cash management program.” Enron has yet to make any payments on the subordinated notes with Transwestern, which has written them off as unrecoverable.

However, Transwestern told FERC that the loans will “have no impact on future rates.” The loans involved short-term debt that matures in November, but its rates are set for the next four years.

Northern has since reached a settlement agreement with FERC in which it agreed not to recover from its pipeline customers any costs associated with the revolving credit loan. “Northern will not include the loan itself, the interest cost of the $450 million loan, or the cost of acquiring such loan, in any future Commission rate proceedings,” FERC said in a recent order on the matter (see NGI, Aug. 12).

Northern, which came under Dynegy’s control after the Enron merger fell apart and was subsequently sold by Dynegy to MidAmerican Energy, also agreed to comply with the provisions of a final FERC rule that would limit regulated pipelines’ involvement in cash-management programs with their parents and also would require pipelines to maintain written documents on all cash deposits and withdrawals from such accounts. The Commission issued a notice of proposed rulemaking addressing the issue last month.

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