Policy Statement on Creditworthiness for Interstate Natural Gas Pipelines and Order Withdrawing Rulemaking Proceeding, 37717-37723 [05-12874]
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Federal Register / Vol. 70, No. 125 / Thursday, June 30, 2005 / Proposed Rules
means to maintain a clear area of vision
by requiring it to be effective at low
speeds and precipitation rates as well as
the higher speeds and precipitation
rates identified in the current
regulation. These are the only new or
changed requirements relative to those
in § 25.773(b)(1) at Amendment 25–108.
Applicability
As discussed above, these special
conditions are applicable to the Model
G150. Should GALP apply at a later date
for a change to the type certificate to
include other type designs incorporating
the same novel or unusual design
feature, the special conditions would
apply to that model as well.
Conclusion
This action affects only certain novel
or unusual design features on one model
of airplanes. It is not a rule of general
applicability.
List of Subjects in 14 CFR Part 25
Aircraft, Aviation safety, Reporting
and recordkeeping requirements.
The authority citation for these
special conditions is as follows:
Authority: 49 U.S.C. 106(g), 40113, 44701,
44702, 44704.
The Proposed Special Conditions
Accordingly, the Federal Aviation
Administration (FAA) proposes the
following special conditions as part of
the type certification basis for
Gulfstream Aerospace Limited
Partnership (GALP) Model G150
airplane.
Pilot Compartment View—
Hydrophobic Coatings in Lieu of
Windshield Wipers. The airplane must
have a means to maintain a clear portion
of the windshield, during precipitation
conditions, enough for both pilots to
have a sufficiently extensive view along
the flight path in normal flight attitudes
of the airplane. This means must be
designed to function, without
continuous attention on the part of the
crew, in conditions from light misting
precipitation to heavy rain at speeds
from fully stopped in still air, to 1.5
VSR1 with lift and drag devices retracted.
Issued in Renton, Washington, on June 21,
2005.
Ali Bahrami,
Manager, Transport Airplane Directorate,
Aircraft Certification Service.
[FR Doc. 05–12883 Filed 6–29–05; 8:45 am]
BILLING CODE 4910–13–M
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DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 284
[Docket Nos. PL05–8–000 and RM04–4–000]
Policy Statement on Creditworthiness
for Interstate Natural Gas Pipelines
and Order Withdrawing Rulemaking
Proceeding
Issued June 16, 2005.
Federal Energy Regulatory
Commission, DOE.
ACTION: Proposed rule; withdrawal;
policy statement.
AGENCY:
SUMMARY: On February 2, 2004, the
Federal Energy Regulatory Commission
(Commission) issued a notice of
proposed rulemaking (NOPR) proposing
to amend its open access regulations
governing capacity release and
standards for business practices and
electronic communications with
interstate natural gas pipelines. The
NOPR proposed to incorporate by
reference ten creditworthiness standards
promulgated by the Wholesale Gas
Quadrant of the North American Energy
Standards Board (NAESB) and adopt
additional regulations related to the
creditworthiness of shippers on
interstate natural gas pipelines. The
Commission adopted the NAESB
creditworthiness standards in Docket
No. RM96–1–026 (70 FR 28204), and is
now issuing a policy statement on
creditworthiness. Therefore, the
proposed rulemaking in Docket No.
RM04–4–000 is withdrawn.
DATES: The withdrawal of the proposed
rulemaking is made on the date of
publication in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
David Faerberg, Office of the General
Counsel, Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426, (202)–502–8275,
david.faerberg@ferc.gov.
Frank Karabetsos, Office of the
General Counsel, Federal Energy
Regulatory Commission, 888 First
Street, NE., Washington, DC 20426,
(202)–502–8133,
frank.karabetsos@ferc.gov.
SUPPLEMENTARY INFORMATION:
Before Commissioners: Pat Wood, III,
Chairman; Nora Mead Brownell, Joseph T.
Kelliher, and Suedeen G. Kelly.
1. The Commission is issuing a policy
statement setting forth its approach to
credit issues relating to transportation
on natural gas pipelines. The policy
statement is intended to provide the
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37717
industry with guidance on the
Commission’s policies with respect to
credit and the way in which the
Commission will evaluate future
proceedings involving changes to the
creditworthiness provisions of pipeline
tariffs.
I. Background
2. In 2002, a number of interstate
natural gas pipelines made filings with
the Commission to revise the
creditworthiness provisions in their
tariffs. These pipelines claimed that,
due to increased credit rating
downgrades for many energy
companies, industry attention has
focused on issues relating to a pipeline’s
risk profile and its credit exposure. The
pipelines argued that tariff revisions are
needed to strengthen creditworthiness
provisions and minimize the risk to the
pipeline and its shippers in the event
that a shipper defaults on its
obligations.
3. In September 2002, the
Commission issued orders that began to
examine and investigate issues relating
to a pipeline’s ability to determine the
creditworthiness of its shippers.1
Several parties in these proceedings
requested that the Commission develop
uniform guidelines for pipeline
creditworthiness provisions. The parties
argued that generic guidelines would
reduce the potential burden faced by
customers who otherwise would need to
comply with inconsistent and overly
burdensome credit requirements.
4. The Commission concluded that
developing generic standards for
creditworthiness determination could
be valuable since shippers would be
able to provide the same documents to
every pipeline to obtain capacity. The
Commission encouraged the parties to
initiate the standards development
process at the Wholesale Gas Quadrant
(WGQ) of the North American Energy
Standards Board (NAESB) to see
whether a consensus standard could be
developed for creditworthiness
determinations. In June 2003, NAESB
filed a progress report with the
Commission in Docket No. RM96–1–000
stating that its Wholesale Gas Quadrant
had adopted ten standards relating to
creditworthiness. A number of parties
filed comments with the Commission
after NAESB filed its report.
5. On February 2, 2004, the
Commission issued a Notice of
Proposed Rulemaking (NOPR) in Docket
1 See Tennessee Gas Pipeline Co., 100 FERC
¶ 61,267 (2002); Northern Natural Gas Co., 100
FERC ¶ 61,278 (2002); Natural Gas Pipline Co. of
America, 101 FERC ¶ 61,269 (2002).
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Federal Register / Vol. 70, No. 125 / Thursday, June 30, 2005 / Proposed Rules
No. RM04–4–000 2 that proposed to
amend the Commission’s open access
regulations governing capacity release
and standards for business practices and
electronic communications with
interstate natural gas pipelines. The
NOPR proposed to incorporate by
reference the ten creditworthiness
standards promulgated by NAESB’s
WGQ and to adopt additional
regulations related to the
creditworthiness of shippers on
interstate natural gas pipelines.3 Fortytwo comments were filed in response to
the NOPR.4
II. Discussion
6. The Commission has determined
not to go forward with a final rule on
creditworthiness, but to issue this
policy statement to provide the industry
with guidance as to the Commission’s
credit policies and the way in which the
Commission will examine future
proceedings in which creditworthiness
issues are considered. Since the
issuance of the NOPR, filings by
pipelines to revise their
creditworthiness standards have
declined markedly, and, in general, the
circumstances in the energy industry
that led to concern about shippers’
credit status and their effect on pipeline
risk profiles have improved. Based on
the comments filed in the NOPR and
changes in the financial picture of the
natural gas industry, we conclude that
standardizing the creditworthiness
process beyond the business practices
adopted by NAESB is not necessary at
this time and that creditworthiness
issues that arise in individual filings can
be addressed on a case-by-case basis.
The guidance provided here will assist
the industry in evaluating the issues
that may arise in individual cases.
2 Creditworthiness Standards for Interstate
Natural Gas Pipelines, Notice of Proposed
Rulemaking, 69 FR 8587 (Feb. 25, 2004), FERC
Stats. & Regs., Proposed Regulations ¶ 32,573 (Feb.
12, 2004).
3 On May 9, 2005, the Commission issued Order
No. 587-S, in which the Commission incorporated
by reference the most recent version, Version 1.7,
of the consensus standards promulgated by the
WGQ of NAESB. 111 FERC ¶ 61,203 (2005). Among
other things, Version 1.7 contains the ten standards
regarding creditworthiness which the Commission
proposed to adopt in its NOPR in Docket No.
RM04–4–000. The standards include procedures for
the following practices: requesting additional
information for credit evaluation; acknowledging
and responding to requests and receipt of
information; notice regarding creditworthiness and
notice regarding contract termination due to creditrelated issues; forms of communication;
reevaluation of determinations that a Service
Requester is not creditworthy; and awarding
capacity release offers only after a service requester
has been determined to meet the creditworthiness
requirements applicable to all services.
4 The commenters and the abbreviations for each
commenter are listed in the Appendix.
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A. Shipper Information Provided to the
Pipeline
7. The WGQ Executive Committee
considered, but did not adopt, a
proposed standard which would have
established a uniform set of documents
that shippers would have to provide to
pipelines, distinguishing between the
various customer groups that use
pipeline services. The list of
information under this proposed
standard was as follows:
a. Audited Financial Statements;
b. Annual Report;
c. List of Affiliates, Parent Companies,
and Subsidiaries;
d. Publicly Available Information
from Credit Reports of Credit and Bond
Rating Agencies;
e. Private Credit Ratings, if obtained
by the shipper;
f. Bank References;
g. Trade References;
h. Statement of Legal Composition;
i. Statement of Length of Time
Business has been in Operation;
j. Most recent filed statements with
the Securities and Exchange
Commission (or an equivalent authority)
or such other publicly available
information;
k. For public entities, the most recent
publicly available interim financial
statements, with an attestation by its
Chief Financial Officer, Controller, or
equivalent (CFO) that such statements
constitute a true, correct, and fair
representation of financial condition
prepared in accordance with Generally
Accepted Accounting Principles
(GAAP) or equivalent;
l. For non-public entities, including
those that are state-regulated utilities:
i. The most recent available interim
financial statements, with an attestation
by its CFO that such statements
constitute a true, correct, and fair
representation of financial condition
prepared in accordance with GAAP or
equivalent;
ii. An existing sworn filing, including
the most recent available interim
financial statements and annual
financial reports filed with the
respective regulatory authority, showing
the shipper’s current financial
condition;
m. For state-regulated utility local
distribution companies, documentation
from their respective state regulatory
commission (or an equivalent authority)
of an authorized gas supply cost
recovery mechanism which fully
recovers both gas commodity and
transportation capacity costs and is
afforded regulatory asset accounting
treatment in accordance with GAAP or
equivalent;
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n. Such other information as may be
mutually agreed to by the parties;
o. Such other information as the
pipeline may receive approval to
include in its tariff or general terms and
conditions.
In comments, Reliant argues that item
‘‘o’’, which makes the list nonexclusive, would create uncertainty as
to exact requirements and could lead to
discriminatory treatment of shippers.5
Pipelines urge the Commission to
include item ‘‘o’’ in the regulations.6
8. The Commission generally finds
this list to be a reasonable compilation
of information that, in most cases, will
provide pipelines with sufficient data
with which to evaluate shipper credit.
Pipelines may, in appropriate cases,
seek to require additional information,
but they should be able to justify why
the additional data is necessary in the
particular case.
B. Criteria for Determining
Creditworthiness
9. Several shippers recommend in
their comments that the Commission
require that pipelines have defined,
objective criteria in their tariffs that
detail when a customer is
creditworthy.7 Pipelines, as well as
some shippers, maintain the
Commission should not establish a
defined set of criteria since pipelines
need to take into account the individual
circumstances and complexities of
shipper relationships.8
10. The Commission’s policy is that
pipelines must establish and use
objective criteria for determining
creditworthiness.9 However, the
Commission recognizes that there may
not be a defined set of criteria for
evaluating the circumstances facing
each shipper, and that pipelines need to
take into account the individual
circumstances and complexities of
different shipper relationships in
making their determinations. Pipelines,
however, should promptly inform a
shipper in writing of the reasons for any
determination that the shipper is not
creditworthy, so that the shipper can
5 See
Comments of Reliant at 6.
Comments of National Fuel; INGAA; El
Paso; NiSource; NFGD.
7 See Comments of PGC; Reliant; SEMCO;
Tenaska; AGA; APS/PWEC; EPSA; Calpine.
8 Comments of AGA; NYISO; NRECA; Peoples;
Amerada Hess; Alliance; Northern Natural; Vector;
Dominion; Duke Energy; Kern River; National Fuel;
NiSource; Williston Basin; INGAA; El Paso.
9 See Tennessee Gas Pipeline Co., 102 FERC
¶ 61,075 at P 41, order on reh’g, 103 FERC ¶ 61,275
at P 40–41 (2003), PG&E Gas Transmission,
Northwest Corp., 103 FERC ¶ 61,137 at P 67 (2003).
6 See
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evaluate and challenge the
determination.10
C. Collateral Requirements for NonCreditworthy Shippers
11. Since Order Nos. 436 and 636, the
Commission’s general policy in order to
ensure that open access service is
reasonably available has been to permit
pipelines to require shippers that fail to
meet the pipeline’s creditworthiness
requirements for pipeline service to put
up collateral equal to three months’
worth of reservation charges.11 The
Commission has viewed a customer’s
on-going credit risk as a business risk of
the pipeline that should be reflected in
its rate of return on equity.12 The
Commission has also recognized that in
cases of new construction, particularly
project-financed pipelines,13 pipelines
and their lenders could require larger
collateral requirements from initial
shippers before committing funds to the
construction project.14
12. In the NOPR, the Commission
requested comment on these policies
and, in particular, requested comment
on whether pipelines should be
permitted to take into account a
10 Tennessee, 102 FERC ¶ 61,075 at P 46; 103
FERC ¶ 61,275 at P 45.
11 See Florida Gas Transmission Co., 66 FERC
¶ 61,140 at 61,261 n.5&6, order vacating prior order,
66 FERC ¶ 61,376 at 62,257 (1994); Southern
Natural Gas Co., 62 FERC ¶ 61,136 at 61,954 (1993);
Valero Interstate Transmission Co., 62 FERC
¶ 61,197 at 62,397 (1993); Texas Eastern
Transmission Corp., 41 FERC ¶ 61,373 at 62,017
(1987); Williams Natural Gas Co., 43 FERC ¶ 61,227
at 61,596 (1988); Pacific Gas Transmission Co., 40
FERC ¶ 61,193 at 61,622 (1987); Tennessee Gas
Pipeline Co., 40 FERC ¶ 61,194 at 61,636 (1987);
Natural Gas Pipeline Co. of America, 41 FERC
¶ 61,164 at 61,409, n.4 (1987); Northern Natural Gas
Co., 37 FERC ¶ 61,272 at 61,822 (1986).
12 See Ozark Gas Transmission Co., 68 FERC
¶ 61,032 at 61,107–108 (1994) (business and
financial risk determine where the pipeline should
be placed within the zone of reasonableness);
Williston Basin Interstate Pipeline Co., 67 FERC
61,137 at 61,360 (1994) (‘‘Bad debts are a risk of
doing business that is compensated through the
pipeline’s rate of return’’).
13 Project-financed pipelines are projects in which
the lender secures its loans to the pipeline by the
service agreements negotiated with the contract
shippers. See Kern River Gas Transmission Co., 50
FERC ¶ 61,069 at 61,145 (1990).
14 Calpine Energy Services, L.P. v. Southern
Natural Gas Co., 103 FERC ¶ 61,273, reh’g denied,
105 FERC ¶ 61,033 (2003) (30 months’ worth of
reservation charges found to be reasonable for an
expansion project); North Baja Pipeline, LLC, 102
FERC ¶ 61,239 at P 15 (2003) (approving 12 months’
worth of reservation charges as collateral for initial
shippers on new pipeline); Maritimes & Northeast
Pipeline, L.L.C., 87 FERC ¶ 61,061 at 61,263 (1999)
(12 months prepayment); Alliance Pipeline L.P., 84
FERC ¶ 61,239 at 62,214 (1998); Kern River Gas
Transmission Co., 64 FERC ¶ 61,049 at 61,428
(1993) (stringent creditworthiness requirements
required by lenders); Mojave Pipeline Co., 58 FERC
¶ 61,097 at 61,352 (1992) (creditworthiness
provisions required by lender); Northern Border
Pipeline Co., 51 FERC ¶ 61,261 at 61,769 (1990) (12
months’ worth of collateral for new project).
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shipper’s credit status in determining
the amount of collateral to be required
when prospective shippers are bidding
for available capacity. The pipelines
generally maintain that the three
months collateral may not be
sufficient.15 Pipelines and some
shippers 16 support flexibility in setting
collateral requirements based on
contract term, volume, rate, and credit
status. Pipelines also support the
proposal for allowing pipelines to take
into account credit status in
determining collateral requirements
when allocating capacity among
bidders. Most shippers generally
support the three-month period or
less.17 But some shippers support the
proposal for considering
creditworthiness as part of a nondiscriminatory process for determining
net present value when considering bids
for new capacity.18
13. The termination of an existing
shipper’s service is abandonment under
the Natural Gas Act,19 and, accordingly,
it is important to ensure that collateral
requirements do not unnecessarily
cause the termination of a shipper’s
service. The collateral requirement
asked of existing shippers whose credit
status has fallen below the pipeline’s
credit standards must be reasonable and
directly related to the risks faced by the
pipeline. In many if not most cases, the
existing shipper is continuing to pay for
service under its contracts even though
its credit status has been lowered, and
that shipper should not be pressed into
default by overly onerous collateral
requirements.
14. For existing shippers under
contract, the Commission generally
finds that its traditional policy of
requiring no more than the equivalent of
three months’ worth of reservation
charges reasonably balances the
shippers’ right to continued service with
the pipelines’ risk. Three months
corresponds to the length of time it
takes a pipeline to terminate a shipper
in default and be in a position to
remarket the capacity. Three months
also is an appropriate measure of the
pipeline’s current remarketing risk. The
amount of collateral advanced by a
shipper under an existing contract does
not directly reduce the current risk
faced by the pipeline. When a shipper’s
credit rating has declined so that it is no
15 See, e.g., Comments of Alliance; Duke Energy;
INGAA; National Fuel; NiSource; Northern Natural;
Texas Gas; El Paso; Vector.
16 See Comments of BP.
17 See Comments of NWIGU; PG&E; PGC; PSEG;
Reliant; SEMCO; Tenaska; APS/PWEC; Calpine.
18 See Comments of BP; ConEd; O&R; Peoples.
19 American Gas Ass’n v. FERC, 912 F.2d 1496,
1516–18 (D.C. Cir., 1990).
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37719
longer creditworthy under the pipeline’s
tariff, the pipeline faces a risk no matter
what the collateral requirement. If the
shipper defaults, the pipeline is faced
with remarketing the capacity.
Similarly, if the shipper cannot meet a
higher collateral requirement, and is
terminated for that reason, the pipeline
also would be faced with remarketing
the capacity.20 Further, requiring more
collateral will increase the current risk
of default from a shipper that cannot
provide such expensive collateral.21
15. The Commission needs to
consider on a case-by-case basis any
pipeline proposal to take into account a
shipper’s credit status in determining
whether more than three months
collateral can be required when
shippers are bidding for available
capacity on the pipeline’s existing
system. In allocating available capacity,
the pipeline is generally permitted to
allocate capacity to the highest valued
bidder.22 A shipper’s credit status may
be a relevant factor in assessing of the
value of its bid as compared with bids
by more creditworthy shippers, and in
determining the amount of collateral
that a non-creditworthy shipper must
provide to have its bid considered on an
equivalent basis.
16. However, the Commission is
concerned that any such proposal not
impede open access as well as
competition and market development by
reducing the pool of potential shippers
that can acquire capacity. Any pipeline
that puts forth such a proposal must
ensure that its method for evaluating
credit status is objective, nondiscriminatory, and results in collateral
requirements that are reasonably related
to the risk posed by the noncreditworthy shipper. In addition, the
pipeline will need to ensure that its
proposal reasonably reflects risks
associated with contract term or
volumes and may need to apply a
reasonable limit on the amount of
collateral a non-creditworthy shipper
20 Certainly, if the shipper could put up more
collateral, the pipeline would be better protected for
a potential future default, since it would have a
longer period to try to remarket the capacity. But
such a potential future benefit does not change the
current remarketing risk to the pipeline.
21 See PG&E Gas Transmission, Northwest
Corporation, 105 FERC ¶ 61,382, at P 18–28 (2003).
22 See Tennessee Gas Pipeline Co., 76 FERC
¶ 61,101 at 61,518 (1996) (accepting net present
value formula for allocating capacity), aff’d, Process
Gas Consumers Group v. FERC, 292 F.3d 831 (D.C.
Cir. 2002) (affirming no length of contract cap for
NPV bids); Texas Eastern Transmission Corp., 79
FERC ¶ 61,258 (1997), aff’d on rehearing, 80 FERC
¶ 61,270 (1997) (use of net present value to allocate
capacity), aff’d, Municipal Defense Group v. FERC,
170 F.3d 197 (D.C. Cir. 1999) (finding use of NPV
allocation method not unduly discriminatory when
applied to small customers seeking to expand
service).
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would have to provide in order to have
its bid considered equivalent to that of
creditworthy bidders.
17. The Commission will continue its
policy of permitting larger collateral
requirements for construction projects.
For new construction projects, pipelines
need sufficient collateral from noncreditworthy shippers to ensure, prior to
the investment of significant resources
in the project, that it can protect its
financial commitment to the project. For
mainline projects, the pipeline’s
collateral requirement must reasonably
reflect the risk of the project,
particularly the risk to the pipeline of
remarketing the capacity should the
initial shipper default.23 Because these
risks may vary depending on the
specific project, no predetermined
collateral amount would be appropriate
for all projects. However, the collateral
may not exceed the shipper’s
proportionate share of the project’s cost.
18. Issues relating to collateral for
construction projects should be
determined in the precedent agreements
at the certificate stage, and collateral
requirements for new construction
projects should not ordinarily be
included in the pipeline’s tariff.24 In the
absence of any specified collateral
requirement in the precedent agreement,
the pipeline’s standard creditworthiness
provisions in its tariff would apply once
the facilities go into service.
19. The collateral requirements in the
precedent agreements would apply only
to the initial shippers on the project,
and would continue to apply to these
initial shippers even after the project
goes into service.25 The pipeline also
should reduce the amount of collateral
it holds as the shipper’s contract term is
reduced.26 Once the contractual
obligation is retired, the standard
creditworthiness provisions of the
pipeline’s tariff would apply. In
addition, in the event of a default by an
initial shipper, the pipeline will be
required to reduce the collateral it
retains by mitigating damages.27
23 See
Calpine Energy Services, L.P. v. Southern
Natural Gas Co., 103 FERC ¶§ 61,273 at P 31 (2003)
(approving 30 month collateral requirement based
on the risks faced by the pipeline).
24 North Baja Pipeline, LLC, 102 FERC ¶ 61,239,
at P 15 (2003).
25 See Northern Natural Gas Co., 103 FERC
¶ 61,276, at P 17.
26 See Natural Gas Pipeline Co. of America, 102
FERC ¶ 61,355 at P 80–85; PG&E Northwest Corp.,
103 FERC ¶ 61,137 at P 33, n.18, order on rehearing,
105 FERC ¶ 61,382 at P 64 (2003).
27 One method of mitigation would be for the
pipeline to determine its damages by taking the
difference between the highest net present value bid
for the capacity and the net present value of the
remaining terms of the shipper’s contract. The
pipeline could then retain as much of the collateral
as necessary to cover the damages. Pipelines could
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20. For lateral line construction,28
consistent with the Commission’s
current policy, the Commission will
allow pipelines to require collateral up
to the full cost of the project.29 Unlike
mainline projects, lateral lines are built
to connect one or perhaps a few
shippers, and the facilities may not be
of significant use to other potential
shippers. The likelihood of the pipeline
remarketing that capacity in the event of
a default by the shipper, therefore, is far
less than for mainline construction.
Because lateral line construction
policies are part of a pipeline’s tariff,
collateral requirements for such projects
should be included in the pipeline’s
tariff.
D. Forms of Security
21. Pipelines should accept
reasonable forms of security. Such
security could include cash deposits,
letters of credit, surety bonds, parental
guarantees, security in gas reserves, gas
in storage, contracts or asset liens. A
pipeline must not unreasonably
discriminate in the forms of security it
determines to accept from customers.
22. The Commission has held that a
pipeline must provide its shippers with
the opportunity to earn interest on
collateral either by paying the interest
itself, or giving the shipper the option
to designate an escrow account to which
the pipeline may gain access to
payments for services provided, if
needed.30 Under either option, the
shipper could retrieve any interest that
accrued on the principal amount. If a
pipeline holds the collateral, the
applicable interest rate will be at least
the same rate that the pipeline earns.31
Moreover, in such situations, the
Commission will require that the
pipeline be responsible for any expenses
related to the maintenance of this
escrow account.
E. Suspension and Termination of
Service
23. Termination of service is an
abandonment of service, and the
Commission’s regulations, therefore,
require a pipeline to provide 30 days
also develop alternative measures for determining
mitigation.
28 A lateral line includes facilities as defined in
18 CFR 154.109(b) and 18 CFR 157.202 (2003).
29 See Natural Gas Pipeline Co. of America, 102
FERC ¶ 61,355 at P 80–85 (2003) (allowing pipeline
to request security in an amount up to the cost of
the new facilities from its customers prior to
commencing construction of new interconnecting
facilities). See also Panhandle Eastern Pipe Line
Co., 91 FERC ¶ 61,037 at 61,141 (2000).
30 Tennessee Gas Pipeline Co., 102 FERC ¶ 61,075
at P 38 (2003).
31 The pipeline will have the option, but is not
required to, pay a higher interest rate if it chooses.
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notice to the Commission prior to
terminating service.32 This notice
ensures that the Commission has the
opportunity to determine if termination
is in the public convenience and a
necessity.33
24. The Commission allows pipelines
to suspend service on shorter notice
than termination, since it allows the
pipeline to protect itself against
potential losses arising from the
continuation of service to a noncreditworthy shipper, such as the
incurrence of large imbalances that may
be extinguished in bankruptcy.
Pipelines that suspend service are
making an election of remedies: they are
determining that the risks of continued
service outweigh the potential
collection of reservation or other
charges during the time of the
suspension. Since the pipeline is
making an election to suspend and is
not providing the service required under
the contract during suspension, the
Commission has not permitted pipelines
to impose reservation charges during the
period of suspension.34 At the same
time, the Commission does not permit a
suspended shipper to release or recall
capacity.35 This permits the pipeline to
resell the capacity as interruptible or
short-term firm.
25. The Commission recognizes that
when a pipeline suspends a firm
shipper’s contract, it is still providing
some value to the shipper by reserving
the capacity for the shipper’s use.36
Pipelines may propose some lesser
charge to reflect the value of reserving
the capacity for a short period of time.
Such a filing, however, must address the
shipper’s ability to release capacity or
otherwise share in the pipeline’s
generation of revenue from the use of
the capacity for which the shipper is
paying.
26. Some of the pipelines contend
that the Commission’s suspension
policy may result in pipeline’s more
quickly seeking to terminate service
32 See 18 CFR 154.602 (2003) (requiring 30 days
of advance notice to the customer and the
Commission prior to contract termination).
33 Northern Natural Gas Co., 103 FERC ¶ 61,276,
at P 51 (2003).
34 The Commission has not wanted to create an
incentive for pipelines to suspend service by
making this a more attractive alternative than
contract termination.
35 Trailblazer Pipeline Co., 103 FERC ¶ 61,225, at
P 53 (2003).
36 In Tennessee Gas Pipeline Co. v. FERC, 400
F.3d 23 (D.C. Cir. 2005), the court affirmed the
Commission’s policy of not permitting a pipeline to
recover full reservation charges during suspension.
The court noted that the Commission had not yet
considered whether the pipeline should be able to
impose a lesser charge during suspension and left
such an issue to the Commission when a case is
properly filed.
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Federal Register / Vol. 70, No. 125 / Thursday, June 30, 2005 / Proposed Rules
rather than working with shippers to
overcome financial difficulties.37 The
Commission’s policy on suspensions
and termination goes only to unilateral
decisions by the pipelines to terminate
or suspend service. The Commission
encourages pipelines and shippers to
mutually negotiate suspension or other
provisions to apply during the period
when the shipper is trying to work out
financial issues.
27. The Commission has required that
pipelines provide shippers that have
become non-creditworthy with a
reasonable period of time to obtain the
requisite collateral, taking into account
the amount of money that may be
involved and that the shipper may be
faced with requests from multiple
pipelines to provide collateral. The
Commission, for instance, found
proposals to require shippers to provide
the total amount of collateral required
within five days to be unreasonably
short.38
28. The Commission has developed a
timeline that applies to suspension and
termination procedures that it finds
reasonable,39 although pipelines may
seek to justify alternative proposals.
Under this timeline, when a shipper is
no longer creditworthy, the pipeline
may not terminate or suspend the
shipper’s service without providing the
shipper with an opportunity to satisfy
the collateral requirements. In this
circumstance, the shipper must be given
at least five business days within which
to provide advance payment for one
month’s service, and must satisfy the
collateral requirements within 30 days.
This procedure would allow the shipper
to have at least 30 days to provide the
next three months of security for
service. If the shipper fails to provide
the required security within these time
periods, the pipeline may suspend
service immediately. Further, the
pipeline may provide simultaneous
written notice that it will terminate
service in 30 days if the shipper fails to
provide security. After a shipper either
defaults or fails to provide the required
collateral, pipelines would need to
provide the shipper and the
Commission with 30 days notice prior
to terminating the shipper’s contract.
37 See
Comments of INGAA; NiSource.
Natural Gas Co., 102 FERC ¶ 61,076,
at P 49 (2003); Tennessee Gas Pipeline Co., 102
FERC ¶ 61,075 at P 18 (2003).
39 See Northern Natural Gas Co., 102 FERC
¶ 61,076, at P 49 (2003); Tennessee Gas Pipeline
Co., 102 FERC ¶ 61,075 at P 18 (2003); Natural Gas
Pipeline Co. of America, 102 FERC ¶ 61,355 at P 52
(2003); Gulf South Pipeline Co., LP, 103 FERC
¶ 61,129 at P 49–52 (2003).
38 Northern
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Jkt 205001
F. Capacity Release
29. The Commission will clarify its
policies relating to creditworthiness and
capacity release in two areas:
creditworthiness requirements for
replacement shippers; and rights of
releasing and replacement shippers
upon contract termination or
suspension.
1. Creditworthiness Requirements for
Replacement Shippers
30. Since Order No. 636, the
Commission has held that in capacity
release situations, both the releasing and
replacement shippers must satisfy a
pipeline’s creditworthiness
requirements.40 The Commission
further found that releasing shippers
could not establish creditworthiness
provisions for released capacity
different from those in the pipeline’s
tariff.41 As the Commission explained,
the same criteria should be applied to
released capacity and pipeline capacity
in order to ensure that all capacity,
including released capacity, is available
on an open access, non-discriminatory
basis to all shippers.42
31. Most commenters favor the
continuation of the Commission’s
current policy, although EPSA
maintains that the releasing shipper
should be permitted to set lower
collateral requirements than the
pipeline’s requirements. Since the
replacement shipper has obligations to
the pipeline (usage charges, penalties,
imbalance cash outs, etc.) that are not
covered by the releasing shipper’s
underlying contract, the pipeline does
40 See Pipeline Service Obligations and Revisions
to Regulations Governing Self-Implementing
Transportation; and Regulation of Natural Gas
Pipelines After Partial Wellhead Decontrol, Order
No. 636–A, FERC Statutes and Regulations,
Regulations Preambles, January 1991–June 1996
¶ 30,950 at 30,588 (1992). Under the capacity
release regulations, 18 CFR § 284.8(f) (2003), the
releasing shipper remains obligated under its
contract to the pipeline, and must, therefore, satisfy
the creditworthiness and other obligations
associated with that contract, regardless of how
many subordinate releases take place. For example,
even if a replacement shipper is creditworthy, it
may default and the releasing shipper would be
responsible for payment. Moreover, given the
ability of releasing shippers to recall and segment
releases, both the releasing and replacement
shippers need to be creditworthy to ensure their
respective obligations.
41 See El Paso Natural Gas Co., 61 FERC ¶ 61,333
at 62,299 (1992); Panhandle Eastern Pipe Line Co.,
61 FERC ¶ 61,357 at 62,417 (1992); Texas Eastern
Transmission Corp., 62 FERC ¶ 61,015 at 61,098
(1993); CNG Transmission Corp., 64 FERC ¶ 61,303
at 63,225 (1993).
42 See Tennessee Gas Pipeline Co., 102 FERC
¶ 61,075 at P 62 (2003) (a releasing shipper cannot
impose creditworthiness conditions on a
replacement shipper that are different from the
creditworthiness conditions imposed by the
pipeline.)
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Fmt 4702
Sfmt 4702
37721
have a legitimate independent interest
in assuring sufficient creditworthiness
(or collateral) to cover the replacement
shipper’s obligations. The Commission,
therefore, would not require a pipeline
to permit a releasing shipper to establish
a lesser collateral requirement.
However, a pipeline can propose a tariff
change to permit a releasing shipper to
establish a lower collateral requirement.
2. Termination and Suspension
32. Pipelines will be permitted to
terminate a release of capacity to the
replacement shipper if the releasing
shipper’s service agreement is
terminated, provided that the pipeline
provides the replacement shipper with
an opportunity to continue receiving
service if it agrees to pay, for the
remaining term of the replacement
shipper’s contract, the lesser of: (1) The
releasing shipper’s contract rate; (2) the
maximum tariff rate applicable to the
releasing shipper’s capacity; or (3) some
other rate that is acceptable to the
pipeline.43
33. This policy establishes a
reasonable balance between the pipeline
and replacement shippers in the event
a releasing shipper’s contract is
terminated. Although the replacement
shipper has a contract with the pipeline,
the releasing shipper, not the pipeline,
has established the rate for the release.
Under a release transaction, the contract
of the releasing shipper serves to
guarantee that the pipeline receives the
original contract price for the capacity.
Once the releasing shipper’s contract
has been terminated, the pipeline may
no longer wish to continue service to
the replacement shipper at a lower rate,
and should have the opportunity to
remarket the capacity to obtain a higher
rate.44 On the other hand, the
replacement shipper also has an
investment in the use of the capacity,
and should, therefore, have first call on
retaining the capacity if it is willing to
provide the pipeline with the same
43 Tenaska Marketing Ventures v. Northern
Border Pipeline Co., 99 FERC ¶ 61,182 (2002). See
Texas Eastern Transmission, L.P., 101 FERC
¶ 61,071 at P 6 (2002); Trailblazer Pipeline Co., 101
FERC ¶ 61,405 at P 32 (2002); Northern Border
Pipeline Co., 100 FERC ¶ 61,125 (2002); Natural Gas
Pipeline Co. of America, 100 FERC ¶ 61,269 at P 7–
19 (2002); Canyon Creek Compression Co., 100
FERC ¶ 61,283 (2002); Kinder Morgan Interstate Gas
Transmission LLC, 100 FERC ¶ 61,366 (2002).
44 The pipeline is not required to terminate the
replacement shipper’s contract. It could decide to
continue to provide service under that contract at
the rate prescribed in the release. In that event, the
replacement shipper would not have the right to
terminate its contractual obligation since it is
receiving the full service for which it contracted.
See Tenaska Marketing Ventures v. Northern Border
Pipeline Co., 99 FERC ¶ 61,182 (2002) (replacement
shipper could not cancel release contract upon
bankruptcy of releasing shipper).
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Federal Register / Vol. 70, No. 125 / Thursday, June 30, 2005 / Proposed Rules
revenue as the releasing shipper. Under
this policy, the replacement shipper is
given the opportunity to retain the
capacity by paying the releasing
shipper’s contract rate or the maximum
rate for the remaining term of the
contract.
34. With respect to segmented
releases, the Commission will apply the
same general policy. A replacement
shipper will have the right to continue
service if it agrees to take the full
contract path of the releasing shipper at
the rate paid by the releasing shipper.
The Commission will not require the
pipeline to permit the replacement
shipper under a segmented release to
retain its geographic segment of
capacity. The pipeline did not negotiate
the release of the segment and should
not be held to that segmented release
agreement once the releasing shipper’s
contract terminates. The replacement
shipper in that instance should be
required to pay for the full capacity path
of the defaulted shipper at the lower of
the rate the defaulted shipper paid or
the maximum rate applicable to the
defaulted shipper’s full capacity path.45
In the case of multiple replacement
shippers with geographically segmented
releases, a pipeline would have to
propose a reasonable method of
allocating capacity among them if they
each matched the full rate under the
releasing shipper’s contract.46
35. AGA requests that upon
suspension of a replacement shipper’s
contract, the capacity will revert to the
releasing shipper. The Commission
agrees that capacity will revert to the
releasing shipper upon the suspension
or termination of the replacement
shipper, since the releasing shipper
remains liable for reservation charges
under its contract with the pipeline
even if the replacement shipper’s
service is suspended, and the releasing
shipper will no longer be receiving
credits during the time the replacement
shipper is suspended.47 In addition, the
releasing shipper also can reserve recall
rights that will permit it to recall
capacity.48
The Commission orders:
The Notice of Proposed Rulemaking
in this docket is withdrawn.
By the Commission. Commissioner
Brownell dissenting with a separate
statement attached.
Magalie R. Salas,
Secretary.
COMMENTS FILED IN RESPONSE TO THE NOPR ON CREDITWORTHINESS STANDARDS FOR INTERSTATE NATURAL GAS
PIPELINES IN DOCKET NO. RM04–4–000
Commenter
Abbreviation
Alliance Pipeline L.P .............................................................................................................................................................
Amerada Hess Corporation ..................................................................................................................................................
American Gas Association ....................................................................................................................................................
American Public Gas Association .........................................................................................................................................
Aquila, Inc. d/b/a Aquila Networks ........................................................................................................................................
Arizona Public Service Company and Pinnacle West Energy Corporation .........................................................................
BP America Production Company and BP Energy Company ..............................................................................................
Calpine Corporation ..............................................................................................................................................................
CenterPoint Energy Gas Transmission Company and CenterPoint Energy—Mississippi River Transmission Corporation
Consolidated Edison Company of New York, Inc. and Orange and Rockland Utilities, Inc ................................................
Dominion Resources, Inc ......................................................................................................................................................
Duke Energy Gas Transmission Corporation .......................................................................................................................
El Paso Corporation’s Pipeline Group ..................................................................................................................................
Electric Power Supply Association .......................................................................................................................................
EnCana Marketing (USA) Inc ...............................................................................................................................................
Energy America LLC and Direct Energy Marketing, Inc ......................................................................................................
Gulf South Pipeline Company, LP ........................................................................................................................................
Interstate Natural Gas Association of America ....................................................................................................................
Kern River Gas Transmission Company ..............................................................................................................................
KeySpan Delivery Companies ..............................................................................................................................................
Memphis Light, Gas and Water Division ..............................................................................................................................
National Fuel Gas Distribution Corporation ..........................................................................................................................
National Fuel Gas Supply Corporation .................................................................................................................................
National Rural Electric Cooperative Association ..................................................................................................................
New York Independent System Operator, Inc ......................................................................................................................
NiSource, Inc ........................................................................................................................................................................
Northern Municipal Distributors Group and Midwest Region Gas Task Force Association ................................................
Northern Natural Gas Company ...........................................................................................................................................
Northwest Industrial Gas Users ............................................................................................................................................
Pacific Gas and Electric Company .......................................................................................................................................
Peoples Gas Light and Coke Company, North Shore Gas Company and Peoples Energy Wholesale Marketing, LLC ...
Process Gas Consumers Group, American Forest & Paper Association, American Iron and Steel Institute, Georgia Industrial Group, Industrial Gas Users of Florida and Florida Industrial Gas Users.
PSEG Energy Resources & Trade LLC ...............................................................................................................................
Public Service Commission of the State of New York .........................................................................................................
Reliant Resources, Inc ..........................................................................................................................................................
SEMCO Energy Gas Company ............................................................................................................................................
Sempra Energy Global Enterprises and Sempra Energy International ................................................................................
Steuben Gas Storage Company ...........................................................................................................................................
Tenaska Marketing Ventures ................................................................................................................................................
Texas Gas Transmission, LLC .............................................................................................................................................
Vector Pipeline L.P ...............................................................................................................................................................
45 National Fuel Gas Supply Corp., 101 FERC
¶ 61,063 at P12 (2002).
46 In the event of such multiple bids by
replacement shippers, regardless of the allocation
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15:17 Jun 29, 2005
Jkt 205001
method used by the pipeline, the shippers should
be able to replicate their geographically segmented
capacity by releasing segments of capacity to each
other.
PO 00000
Frm 00009
Fmt 4702
Sfmt 4702
Alliance.
Amerada Hess.
AGA.
APGA.
Aquila.
APS/PWEC.
BP.
Calpine.
CEGT/MRT.
ConEd/O&R.
Dominion.
Duke Energy.
El Paso.
EPSA.
EnCana.
Direct Energy.
Gulf South.
INGAA.
Kern River.
KeySpan.
MLGW.
NFGD.
National Fuel.
NRECA.
NYISO.
NiSource.
NMDG/MRGTF.
Northern Natural.
NWIGU.
PG&E.
Peoples.
PGC.
PSEG.
New York.
Reliant.
SEMCO.
Sempra.
Steuben.
Tenaska.
Texas Gas.
Vector.
47 See Tennessee Gas Pipeline Co., 103 FERC
¶ 61,275, at P 99 (2003).
48 Id. at P 74.
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Federal Register / Vol. 70, No. 125 / Thursday, June 30, 2005 / Proposed Rules
COMMENTS FILED IN RESPONSE TO THE NOPR ON CREDITWORTHINESS STANDARDS FOR INTERSTATE NATURAL GAS
PIPELINES IN DOCKET NO. RM04–4–000—Continued
Commenter
Abbreviation
Williston Basin Interstate Pipeline Company ........................................................................................................................
Nora Mead Brownell, Commissioner
dissenting:
I have previously expressed my conviction
that establishing mandatory creditworthiness
principles will promote consistent practices
across markets and service providers and
provide customers with an objective and
transparent creditworthiness evaluation.
Such an approach would lessen the
opportunity for applying these provisions in
an unduly discriminatory manner. Therefore,
I cannot support the majority’s decision to
issue mere guidance, as opposed to a binding
final rule.
The majority concludes that standardizing
the creditworthiness process beyond the
business practices adopted by NAESB is not
necessary. Unfortunately, the NAESB
business practices provide only the scantest
of customer protections, for example,
requiring a pipeline to state the reason it is
requesting credit evaluation information from
existing shippers and to acknowledge receipt
of that requested information.1 Further,
comments from all segments of the
transportation market that use interstate
pipeline services generally support the
issuance of a final rule. The Electric Power
Supply Association asserts that electric
generators need consistent credit terms to
facilitate infrastructure investment.2 The
associations for local utilities argue that the
proposed regulations reflect a balanced
approach in providing the pipelines with
protection against the risks of noncreditworthy shippers while at the same time
assuring that pipelines can not impose
unreasonable burdens on the shippers.3
Peoples Gas Light and Coke Company and
EnCana Marketing (USA) Inc. point out that
the proposed regulations reflect
Commission’s credit policy as it has evolved
in several individual proceedings and declare
that at this point it is appropriate to codify
that policy and apply it to all pipelines.4 The
Northwest Industrial Gas Users argue that,
without consistent credit requirements, their
ability to purchase unbundled service
through interstate pipelines could be
restricted.5 The Process Gas Consumers
Group, the American Forest & Paper
Association, the American Iron and Steel
Institute, the Georgia Industrial Group, the
Industrial Gas Users of Florida and the
Florida Industrial Gas Users (Industrials)
support the overwhelming majority of the
proposed regulations as a fair balance
1 See
Order No. 587–S, 111 FERC ¶ 61,203 (2005).
Comments of Electric Power Supply
Association at 2–3.
3 See Comments of American Gas Association at
1–2 and American Public Gas Association at 1.
4 See Comments of Peoples Gas Light and Coke
Company at 3 and EnCana Marketing (USA) Inc. at
3.
5 See Comments of The Northwest Industrial Gas
Users at 2.
2 See
VerDate jul<14>2003
15:17 Jun 29, 2005
Jkt 205001
between the needs of the pipelines and their
shippers.6 Finally, even the New York
Independent System Operator acknowledges
that standardization is generally beneficial
and suggests that a comprehensive credit
program can serve as a rational, workable
model for the electric industry.7
The majority concludes that
creditworthiness issues should be addressed
on a case-by-case basis. This conclusion
seems premised on the fear that mandatory
principles will lead to institutionalizing a
‘‘one-size-fits-all’’ approach. Let me be clear,
I agree that such an approach is hazardous
and I would not support it. What I am saying
is that creditworthy provisions need to be
more systematic, transparent, and nondiscriminatory with sufficient flexibility to
adapt to specific situations but with customer
safeguards such as written explanations.
Promulgation of a final rule would have
accomplished the goal of providing objective
credit principles in every pipeline tariff
while retaining the necessary flexibility to
adapt to particular situations.
Commenters from all segments of the
interstate transportation market supported
the rulemaking approach and, I believe, the
market would have been better served had
we promulgated a final rule. As I stated in
my dissent to the policy statement on electric
creditworthiness,8 the non-binding effect of
this policy statement seems to result in a
known problem still wanting a remedy, and
therefore, I dissent.
Nora Mead Brownell.
[FR Doc. 05–12874 Filed 6–29–05; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF VETERANS
AFFAIRS
38 CFR Part 19
RIN 2900–AL97
Board of Veterans’ Appeals:
Clarification of a Notice of
Disagreement
Department of Veterans Affairs.
Proposed rule.
AGENCY:
ACTION:
SUMMARY: The Department of Veterans
Affairs (VA) proposes to amend its
regulations governing appeals to the
Board of Veterans’ Appeals (Board) to
clarify the actions an agency of original
6 See
Comments of Industrials at 1 and 4–6.
Comments New York Independent System
Operator at 4.
7 See
8 Policy Statement on Electric Creditworthiness,
109 FERC ¶ 61,186 (2004).
PO 00000
Frm 00010
Fmt 4702
Sfmt 4702
Williston Basin.
jurisdiction must take to determine
whether a written communication from
a claimant that is ambiguous in its
purpose is intended to be a Notice of
Disagreement with an adverse claims
decision.
DATES: Comments must be received on
or before August 29, 2005.
ADDRESSES: Written comments may be
submitted by: mail or hand-delivery to
Director, Regulations Management
(00REG1), Department of Veterans
Affairs, 810 Vermont Ave., NW., Room
1068, Washington, DC 20420; fax to
(202) 273–9026; e-mail to
VAregulations@mail.va.gov; or, through
https://www.regulations.gov. Comments
should indicate that they are submitted
in response to ‘‘RIN 2900–AL97.’’ All
comments received will be available for
public inspection in the Office of
Regulation Policy and Management,
Room 1063B, between the hours of 8
a.m. and 4:30 p.m., Monday through
Friday (except holidays). Please call
(202) 273–9515 for an appointment.
FOR FURTHER INFORMATION CONTACT:
Steven L. Keller, Senior Deputy Vice
Chairman, Board of Veterans’ Appeals
(012), Department of Veterans Affairs,
810 Vermont Avenue, NW.,
Washington, DC 20420 (202–565–5978).
SUPPLEMENTARY INFORMATION: The Board
is the component of VA that decides
appeals from denials of claims for
veterans’ benefits rendered by VA
agencies of original jurisdiction. The
Board is under the administrative
control and supervision of a Chairman
directly responsible to the Secretary of
Veterans Affairs. 38 U.S.C. 7101.
An agency of original jurisdiction
(AOJ) makes the initial decision on a
claim for VA benefits. An AOJ is
typically one of VA’s 57 regional offices
in the case of benefits administered by
the Veterans Benefits Administration
(VBA), or a VA Medical Center in the
case of benefits administered by the
Veterans Health Administration (VHA).
A claimant who wishes to appeal the
AOJ’s decision to the Board must file a
timely Notice of Disagreement (NOD)
with the AOJ that decided the claim. We
propose an amendment to the rules
governing NODs to clarify the actions an
AOJ must take to determine whether a
written communication received from a
claimant, which is ambiguous in its
purpose, is intended to be an NOD.
E:\FR\FM\30JNP1.SGM
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]]>Agencies
[Federal Register Volume 70, Number 125 (Thursday, June 30, 2005)]
[Proposed Rules]
[Pages 37717-37723]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-12874]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 284
[Docket Nos. PL05-8-000 and RM04-4-000]
Policy Statement on Creditworthiness for Interstate Natural Gas
Pipelines and Order Withdrawing Rulemaking Proceeding
Issued June 16, 2005.
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Proposed rule; withdrawal; policy statement.
-----------------------------------------------------------------------
SUMMARY: On February 2, 2004, the Federal Energy Regulatory Commission
(Commission) issued a notice of proposed rulemaking (NOPR) proposing to
amend its open access regulations governing capacity release and
standards for business practices and electronic communications with
interstate natural gas pipelines. The NOPR proposed to incorporate by
reference ten creditworthiness standards promulgated by the Wholesale
Gas Quadrant of the North American Energy Standards Board (NAESB) and
adopt additional regulations related to the creditworthiness of
shippers on interstate natural gas pipelines. The Commission adopted
the NAESB creditworthiness standards in Docket No. RM96-1-026 (70 FR
28204), and is now issuing a policy statement on creditworthiness.
Therefore, the proposed rulemaking in Docket No. RM04-4-000 is
withdrawn.
DATES: The withdrawal of the proposed rulemaking is made on the date of
publication in the Federal Register.
FOR FURTHER INFORMATION CONTACT: David Faerberg, Office of the General
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426, (202)-502-8275, david.faerberg@ferc.gov.
Frank Karabetsos, Office of the General Counsel, Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)-502-8133, frank.karabetsos@ferc.gov.
SUPPLEMENTARY INFORMATION:
Before Commissioners: Pat Wood, III, Chairman; Nora Mead
Brownell, Joseph T. Kelliher, and Suedeen G. Kelly.
1. The Commission is issuing a policy statement setting forth its
approach to credit issues relating to transportation on natural gas
pipelines. The policy statement is intended to provide the industry
with guidance on the Commission's policies with respect to credit and
the way in which the Commission will evaluate future proceedings
involving changes to the creditworthiness provisions of pipeline
tariffs.
I. Background
2. In 2002, a number of interstate natural gas pipelines made
filings with the Commission to revise the creditworthiness provisions
in their tariffs. These pipelines claimed that, due to increased credit
rating downgrades for many energy companies, industry attention has
focused on issues relating to a pipeline's risk profile and its credit
exposure. The pipelines argued that tariff revisions are needed to
strengthen creditworthiness provisions and minimize the risk to the
pipeline and its shippers in the event that a shipper defaults on its
obligations.
3. In September 2002, the Commission issued orders that began to
examine and investigate issues relating to a pipeline's ability to
determine the creditworthiness of its shippers.\1\ Several parties in
these proceedings requested that the Commission develop uniform
guidelines for pipeline creditworthiness provisions. The parties argued
that generic guidelines would reduce the potential burden faced by
customers who otherwise would need to comply with inconsistent and
overly burdensome credit requirements.
---------------------------------------------------------------------------
\1\ See Tennessee Gas Pipeline Co., 100 FERC ] 61,267 (2002);
Northern Natural Gas Co., 100 FERC ] 61,278 (2002); Natural Gas
Pipline Co. of America, 101 FERC ] 61,269 (2002).
---------------------------------------------------------------------------
4. The Commission concluded that developing generic standards for
creditworthiness determination could be valuable since shippers would
be able to provide the same documents to every pipeline to obtain
capacity. The Commission encouraged the parties to initiate the
standards development process at the Wholesale Gas Quadrant (WGQ) of
the North American Energy Standards Board (NAESB) to see whether a
consensus standard could be developed for creditworthiness
determinations. In June 2003, NAESB filed a progress report with the
Commission in Docket No. RM96-1-000 stating that its Wholesale Gas
Quadrant had adopted ten standards relating to creditworthiness. A
number of parties filed comments with the Commission after NAESB filed
its report.
5. On February 2, 2004, the Commission issued a Notice of Proposed
Rulemaking (NOPR) in Docket
[[Page 37718]]
No. RM04-4-000 \2\ that proposed to amend the Commission's open access
regulations governing capacity release and standards for business
practices and electronic communications with interstate natural gas
pipelines. The NOPR proposed to incorporate by reference the ten
creditworthiness standards promulgated by NAESB's WGQ and to adopt
additional regulations related to the creditworthiness of shippers on
interstate natural gas pipelines.\3\ Forty-two comments were filed in
response to the NOPR.\4\
---------------------------------------------------------------------------
\2\ Creditworthiness Standards for Interstate Natural Gas
Pipelines, Notice of Proposed Rulemaking, 69 FR 8587 (Feb. 25,
2004), FERC Stats. & Regs., Proposed Regulations ] 32,573 (Feb. 12,
2004).
\3\ On May 9, 2005, the Commission issued Order No. 587-S, in
which the Commission incorporated by reference the most recent
version, Version 1.7, of the consensus standards promulgated by the
WGQ of NAESB. 111 FERC ] 61,203 (2005). Among other things, Version
1.7 contains the ten standards regarding creditworthiness which the
Commission proposed to adopt in its NOPR in Docket No. RM04-4-000.
The standards include procedures for the following practices:
requesting additional information for credit evaluation;
acknowledging and responding to requests and receipt of information;
notice regarding creditworthiness and notice regarding contract
termination due to credit-related issues; forms of communication;
reevaluation of determinations that a Service Requester is not
creditworthy; and awarding capacity release offers only after a
service requester has been determined to meet the creditworthiness
requirements applicable to all services.
\4\ The commenters and the abbreviations for each commenter are
listed in the Appendix.
---------------------------------------------------------------------------
II. Discussion
6. The Commission has determined not to go forward with a final
rule on creditworthiness, but to issue this policy statement to provide
the industry with guidance as to the Commission's credit policies and
the way in which the Commission will examine future proceedings in
which creditworthiness issues are considered. Since the issuance of the
NOPR, filings by pipelines to revise their creditworthiness standards
have declined markedly, and, in general, the circumstances in the
energy industry that led to concern about shippers' credit status and
their effect on pipeline risk profiles have improved. Based on the
comments filed in the NOPR and changes in the financial picture of the
natural gas industry, we conclude that standardizing the
creditworthiness process beyond the business practices adopted by NAESB
is not necessary at this time and that creditworthiness issues that
arise in individual filings can be addressed on a case-by-case basis.
The guidance provided here will assist the industry in evaluating the
issues that may arise in individual cases.
A. Shipper Information Provided to the Pipeline
7. The WGQ Executive Committee considered, but did not adopt, a
proposed standard which would have established a uniform set of
documents that shippers would have to provide to pipelines,
distinguishing between the various customer groups that use pipeline
services. The list of information under this proposed standard was as
follows:
a. Audited Financial Statements;
b. Annual Report;
c. List of Affiliates, Parent Companies, and Subsidiaries;
d. Publicly Available Information from Credit Reports of Credit and
Bond Rating Agencies;
e. Private Credit Ratings, if obtained by the shipper;
f. Bank References;
g. Trade References;
h. Statement of Legal Composition;
i. Statement of Length of Time Business has been in Operation;
j. Most recent filed statements with the Securities and Exchange
Commission (or an equivalent authority) or such other publicly
available information;
k. For public entities, the most recent publicly available interim
financial statements, with an attestation by its Chief Financial
Officer, Controller, or equivalent (CFO) that such statements
constitute a true, correct, and fair representation of financial
condition prepared in accordance with Generally Accepted Accounting
Principles (GAAP) or equivalent;
l. For non-public entities, including those that are state-
regulated utilities:
i. The most recent available interim financial statements, with an
attestation by its CFO that such statements constitute a true, correct,
and fair representation of financial condition prepared in accordance
with GAAP or equivalent;
ii. An existing sworn filing, including the most recent available
interim financial statements and annual financial reports filed with
the respective regulatory authority, showing the shipper's current
financial condition;
m. For state-regulated utility local distribution companies,
documentation from their respective state regulatory commission (or an
equivalent authority) of an authorized gas supply cost recovery
mechanism which fully recovers both gas commodity and transportation
capacity costs and is afforded regulatory asset accounting treatment in
accordance with GAAP or equivalent;
n. Such other information as may be mutually agreed to by the
parties;
o. Such other information as the pipeline may receive approval to
include in its tariff or general terms and conditions.
In comments, Reliant argues that item ``o'', which makes the list
non-exclusive, would create uncertainty as to exact requirements and
could lead to discriminatory treatment of shippers.\5\ Pipelines urge
the Commission to include item ``o'' in the regulations.\6\
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\5\ See Comments of Reliant at 6.
\6\ See Comments of National Fuel; INGAA; El Paso; NiSource;
NFGD.
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8. The Commission generally finds this list to be a reasonable
compilation of information that, in most cases, will provide pipelines
with sufficient data with which to evaluate shipper credit. Pipelines
may, in appropriate cases, seek to require additional information, but
they should be able to justify why the additional data is necessary in
the particular case.
B. Criteria for Determining Creditworthiness
9. Several shippers recommend in their comments that the Commission
require that pipelines have defined, objective criteria in their
tariffs that detail when a customer is creditworthy.\7\ Pipelines, as
well as some shippers, maintain the Commission should not establish a
defined set of criteria since pipelines need to take into account the
individual circumstances and complexities of shipper relationships.\8\
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\7\ See Comments of PGC; Reliant; SEMCO; Tenaska; AGA; APS/PWEC;
EPSA; Calpine.
\8\ Comments of AGA; NYISO; NRECA; Peoples; Amerada Hess;
Alliance; Northern Natural; Vector; Dominion; Duke Energy; Kern
River; National Fuel; NiSource; Williston Basin; INGAA; El Paso.
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10. The Commission's policy is that pipelines must establish and
use objective criteria for determining creditworthiness.\9\ However,
the Commission recognizes that there may not be a defined set of
criteria for evaluating the circumstances facing each shipper, and that
pipelines need to take into account the individual circumstances and
complexities of different shipper relationships in making their
determinations. Pipelines, however, should promptly inform a shipper in
writing of the reasons for any determination that the shipper is not
creditworthy, so that the shipper can
[[Page 37719]]
evaluate and challenge the determination.\10\
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\9\ See Tennessee Gas Pipeline Co., 102 FERC ] 61,075 at P 41,
order on reh'g, 103 FERC ] 61,275 at P 40-41 (2003), PG&E Gas
Transmission, Northwest Corp., 103 FERC ] 61,137 at P 67 (2003).
\10\ Tennessee, 102 FERC ] 61,075 at P 46; 103 FERC ] 61,275 at
P 45.
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C. Collateral Requirements for Non-Creditworthy Shippers
11. Since Order Nos. 436 and 636, the Commission's general policy
in order to ensure that open access service is reasonably available has
been to permit pipelines to require shippers that fail to meet the
pipeline's creditworthiness requirements for pipeline service to put up
collateral equal to three months' worth of reservation charges.\11\ The
Commission has viewed a customer's on-going credit risk as a business
risk of the pipeline that should be reflected in its rate of return on
equity.\12\ The Commission has also recognized that in cases of new
construction, particularly project-financed pipelines,\13\ pipelines
and their lenders could require larger collateral requirements from
initial shippers before committing funds to the construction
project.\14\
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\11\ See Florida Gas Transmission Co., 66 FERC ] 61,140 at
61,261 n.5&6, order vacating prior order, 66 FERC ] 61,376 at 62,257
(1994); Southern Natural Gas Co., 62 FERC ] 61,136 at 61,954 (1993);
Valero Interstate Transmission Co., 62 FERC ] 61,197 at 62,397
(1993); Texas Eastern Transmission Corp., 41 FERC ] 61,373 at 62,017
(1987); Williams Natural Gas Co., 43 FERC ] 61,227 at 61,596 (1988);
Pacific Gas Transmission Co., 40 FERC ] 61,193 at 61,622 (1987);
Tennessee Gas Pipeline Co., 40 FERC ] 61,194 at 61,636 (1987);
Natural Gas Pipeline Co. of America, 41 FERC ] 61,164 at 61,409, n.4
(1987); Northern Natural Gas Co., 37 FERC ] 61,272 at 61,822 (1986).
\12\ See Ozark Gas Transmission Co., 68 FERC ] 61,032 at 61,107-
108 (1994) (business and financial risk determine where the pipeline
should be placed within the zone of reasonableness); Williston Basin
Interstate Pipeline Co., 67 FERC 61,137 at 61,360 (1994) (``Bad
debts are a risk of doing business that is compensated through the
pipeline's rate of return'').
\13\ Project-financed pipelines are projects in which the lender
secures its loans to the pipeline by the service agreements
negotiated with the contract shippers. See Kern River Gas
Transmission Co., 50 FERC ] 61,069 at 61,145 (1990).
\14\ Calpine Energy Services, L.P. v. Southern Natural Gas Co.,
103 FERC ] 61,273, reh'g denied, 105 FERC ] 61,033 (2003) (30
months' worth of reservation charges found to be reasonable for an
expansion project); North Baja Pipeline, LLC, 102 FERC ] 61,239 at P
15 (2003) (approving 12 months' worth of reservation charges as
collateral for initial shippers on new pipeline); Maritimes &
Northeast Pipeline, L.L.C., 87 FERC ] 61,061 at 61,263 (1999) (12
months prepayment); Alliance Pipeline L.P., 84 FERC ] 61,239 at
62,214 (1998); Kern River Gas Transmission Co., 64 FERC ] 61,049 at
61,428 (1993) (stringent creditworthiness requirements required by
lenders); Mojave Pipeline Co., 58 FERC ] 61,097 at 61,352 (1992)
(creditworthiness provisions required by lender); Northern Border
Pipeline Co., 51 FERC ] 61,261 at 61,769 (1990) (12 months' worth of
collateral for new project).
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12. In the NOPR, the Commission requested comment on these policies
and, in particular, requested comment on whether pipelines should be
permitted to take into account a shipper's credit status in determining
the amount of collateral to be required when prospective shippers are
bidding for available capacity. The pipelines generally maintain that
the three months collateral may not be sufficient.\15\ Pipelines and
some shippers \16\ support flexibility in setting collateral
requirements based on contract term, volume, rate, and credit status.
Pipelines also support the proposal for allowing pipelines to take into
account credit status in determining collateral requirements when
allocating capacity among bidders. Most shippers generally support the
three-month period or less.\17\ But some shippers support the proposal
for considering creditworthiness as part of a non-discriminatory
process for determining net present value when considering bids for new
capacity.\18\
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\15\ See, e.g., Comments of Alliance; Duke Energy; INGAA;
National Fuel; NiSource; Northern Natural; Texas Gas; El Paso;
Vector.
\16\ See Comments of BP.
\17\ See Comments of NWIGU; PG&E; PGC; PSEG; Reliant; SEMCO;
Tenaska; APS/PWEC; Calpine.
\18\ See Comments of BP; ConEd; O&R; Peoples.
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13. The termination of an existing shipper's service is abandonment
under the Natural Gas Act,\19\ and, accordingly, it is important to
ensure that collateral requirements do not unnecessarily cause the
termination of a shipper's service. The collateral requirement asked of
existing shippers whose credit status has fallen below the pipeline's
credit standards must be reasonable and directly related to the risks
faced by the pipeline. In many if not most cases, the existing shipper
is continuing to pay for service under its contracts even though its
credit status has been lowered, and that shipper should not be pressed
into default by overly onerous collateral requirements.
---------------------------------------------------------------------------
\19\ American Gas Ass'n v. FERC, 912 F.2d 1496, 1516-18 (D.C.
Cir., 1990).
---------------------------------------------------------------------------
14. For existing shippers under contract, the Commission generally
finds that its traditional policy of requiring no more than the
equivalent of three months' worth of reservation charges reasonably
balances the shippers' right to continued service with the pipelines'
risk. Three months corresponds to the length of time it takes a
pipeline to terminate a shipper in default and be in a position to
remarket the capacity. Three months also is an appropriate measure of
the pipeline's current remarketing risk. The amount of collateral
advanced by a shipper under an existing contract does not directly
reduce the current risk faced by the pipeline. When a shipper's credit
rating has declined so that it is no longer creditworthy under the
pipeline's tariff, the pipeline faces a risk no matter what the
collateral requirement. If the shipper defaults, the pipeline is faced
with remarketing the capacity. Similarly, if the shipper cannot meet a
higher collateral requirement, and is terminated for that reason, the
pipeline also would be faced with remarketing the capacity.\20\
Further, requiring more collateral will increase the current risk of
default from a shipper that cannot provide such expensive
collateral.\21\
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\20\ Certainly, if the shipper could put up more collateral, the
pipeline would be better protected for a potential future default,
since it would have a longer period to try to remarket the capacity.
But such a potential future benefit does not change the current
remarketing risk to the pipeline.
\21\ See PG&E Gas Transmission, Northwest Corporation, 105 FERC
] 61,382, at P 18-28 (2003).
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15. The Commission needs to consider on a case-by-case basis any
pipeline proposal to take into account a shipper's credit status in
determining whether more than three months collateral can be required
when shippers are bidding for available capacity on the pipeline's
existing system. In allocating available capacity, the pipeline is
generally permitted to allocate capacity to the highest valued
bidder.\22\ A shipper's credit status may be a relevant factor in
assessing of the value of its bid as compared with bids by more
creditworthy shippers, and in determining the amount of collateral that
a non-creditworthy shipper must provide to have its bid considered on
an equivalent basis.
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\22\ See Tennessee Gas Pipeline Co., 76 FERC ] 61,101 at 61,518
(1996) (accepting net present value formula for allocating
capacity), aff'd, Process Gas Consumers Group v. FERC, 292 F.3d 831
(D.C. Cir. 2002) (affirming no length of contract cap for NPV bids);
Texas Eastern Transmission Corp., 79 FERC ] 61,258 (1997), aff'd on
rehearing, 80 FERC ] 61,270 (1997) (use of net present value to
allocate capacity), aff'd, Municipal Defense Group v. FERC, 170 F.3d
197 (D.C. Cir. 1999) (finding use of NPV allocation method not
unduly discriminatory when applied to small customers seeking to
expand service).
---------------------------------------------------------------------------
16. However, the Commission is concerned that any such proposal not
impede open access as well as competition and market development by
reducing the pool of potential shippers that can acquire capacity. Any
pipeline that puts forth such a proposal must ensure that its method
for evaluating credit status is objective, non-discriminatory, and
results in collateral requirements that are reasonably related to the
risk posed by the non-creditworthy shipper. In addition, the pipeline
will need to ensure that its proposal reasonably reflects risks
associated with contract term or volumes and may need to apply a
reasonable limit on the amount of collateral a non-creditworthy shipper
[[Page 37720]]
would have to provide in order to have its bid considered equivalent to
that of creditworthy bidders.
17. The Commission will continue its policy of permitting larger
collateral requirements for construction projects. For new construction
projects, pipelines need sufficient collateral from non-creditworthy
shippers to ensure, prior to the investment of significant resources in
the project, that it can protect its financial commitment to the
project. For mainline projects, the pipeline's collateral requirement
must reasonably reflect the risk of the project, particularly the risk
to the pipeline of remarketing the capacity should the initial shipper
default.\23\ Because these risks may vary depending on the specific
project, no predetermined collateral amount would be appropriate for
all projects. However, the collateral may not exceed the shipper's
proportionate share of the project's cost.
---------------------------------------------------------------------------
\23\ See Calpine Energy Services, L.P. v. Southern Natural Gas
Co., 103 FERC ]Sec. 61,273 at P 31 (2003) (approving 30 month
collateral requirement based on the risks faced by the pipeline).
---------------------------------------------------------------------------
18. Issues relating to collateral for construction projects should
be determined in the precedent agreements at the certificate stage, and
collateral requirements for new construction projects should not
ordinarily be included in the pipeline's tariff.\24\ In the absence of
any specified collateral requirement in the precedent agreement, the
pipeline's standard creditworthiness provisions in its tariff would
apply once the facilities go into service.
---------------------------------------------------------------------------
\24\ North Baja Pipeline, LLC, 102 FERC ] 61,239, at P 15
(2003).
---------------------------------------------------------------------------
19. The collateral requirements in the precedent agreements would
apply only to the initial shippers on the project, and would continue
to apply to these initial shippers even after the project goes into
service.\25\ The pipeline also should reduce the amount of collateral
it holds as the shipper's contract term is reduced.\26\ Once the
contractual obligation is retired, the standard creditworthiness
provisions of the pipeline's tariff would apply. In addition, in the
event of a default by an initial shipper, the pipeline will be required
to reduce the collateral it retains by mitigating damages.\27\
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\25\ See Northern Natural Gas Co., 103 FERC ] 61,276, at P 17.
\26\ See Natural Gas Pipeline Co. of America, 102 FERC ] 61,355
at P 80-85; PG&E Northwest Corp., 103 FERC ] 61,137 at P 33, n.18,
order on rehearing, 105 FERC ] 61,382 at P 64 (2003).
\27\ One method of mitigation would be for the pipeline to
determine its damages by taking the difference between the highest
net present value bid for the capacity and the net present value of
the remaining terms of the shipper's contract. The pipeline could
then retain as much of the collateral as necessary to cover the
damages. Pipelines could also develop alternative measures for
determining mitigation.
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20. For lateral line construction,\28\ consistent with the
Commission's current policy, the Commission will allow pipelines to
require collateral up to the full cost of the project.\29\ Unlike
mainline projects, lateral lines are built to connect one or perhaps a
few shippers, and the facilities may not be of significant use to other
potential shippers. The likelihood of the pipeline remarketing that
capacity in the event of a default by the shipper, therefore, is far
less than for mainline construction. Because lateral line construction
policies are part of a pipeline's tariff, collateral requirements for
such projects should be included in the pipeline's tariff.
---------------------------------------------------------------------------
\28\ A lateral line includes facilities as defined in 18 CFR
154.109(b) and 18 CFR 157.202 (2003).
\29\ See Natural Gas Pipeline Co. of America, 102 FERC ] 61,355
at P 80-85 (2003) (allowing pipeline to request security in an
amount up to the cost of the new facilities from its customers prior
to commencing construction of new interconnecting facilities). See
also Panhandle Eastern Pipe Line Co., 91 FERC ] 61,037 at 61,141
(2000).
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D. Forms of Security
21. Pipelines should accept reasonable forms of security. Such
security could include cash deposits, letters of credit, surety bonds,
parental guarantees, security in gas reserves, gas in storage,
contracts or asset liens. A pipeline must not unreasonably discriminate
in the forms of security it determines to accept from customers.
22. The Commission has held that a pipeline must provide its
shippers with the opportunity to earn interest on collateral either by
paying the interest itself, or giving the shipper the option to
designate an escrow account to which the pipeline may gain access to
payments for services provided, if needed.\30\ Under either option, the
shipper could retrieve any interest that accrued on the principal
amount. If a pipeline holds the collateral, the applicable interest
rate will be at least the same rate that the pipeline earns.\31\
Moreover, in such situations, the Commission will require that the
pipeline be responsible for any expenses related to the maintenance of
this escrow account.
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\30\ Tennessee Gas Pipeline Co., 102 FERC ] 61,075 at P 38
(2003).
\31\ The pipeline will have the option, but is not required to,
pay a higher interest rate if it chooses.
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E. Suspension and Termination of Service
23. Termination of service is an abandonment of service, and the
Commission's regulations, therefore, require a pipeline to provide 30
days notice to the Commission prior to terminating service.\32\ This
notice ensures that the Commission has the opportunity to determine if
termination is in the public convenience and a necessity.\33\
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\32\ See 18 CFR 154.602 (2003) (requiring 30 days of advance
notice to the customer and the Commission prior to contract
termination).
\33\ Northern Natural Gas Co., 103 FERC ] 61,276, at P 51
(2003).
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24. The Commission allows pipelines to suspend service on shorter
notice than termination, since it allows the pipeline to protect itself
against potential losses arising from the continuation of service to a
non-creditworthy shipper, such as the incurrence of large imbalances
that may be extinguished in bankruptcy. Pipelines that suspend service
are making an election of remedies: they are determining that the risks
of continued service outweigh the potential collection of reservation
or other charges during the time of the suspension. Since the pipeline
is making an election to suspend and is not providing the service
required under the contract during suspension, the Commission has not
permitted pipelines to impose reservation charges during the period of
suspension.\34\ At the same time, the Commission does not permit a
suspended shipper to release or recall capacity.\35\ This permits the
pipeline to resell the capacity as interruptible or short-term firm.
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\34\ The Commission has not wanted to create an incentive for
pipelines to suspend service by making this a more attractive
alternative than contract termination.
\35\ Trailblazer Pipeline Co., 103 FERC ] 61,225, at P 53
(2003).
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25. The Commission recognizes that when a pipeline suspends a firm
shipper's contract, it is still providing some value to the shipper by
reserving the capacity for the shipper's use.\36\ Pipelines may propose
some lesser charge to reflect the value of reserving the capacity for a
short period of time. Such a filing, however, must address the
shipper's ability to release capacity or otherwise share in the
pipeline's generation of revenue from the use of the capacity for which
the shipper is paying.
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\36\ In Tennessee Gas Pipeline Co. v. FERC, 400 F.3d 23 (D.C.
Cir. 2005), the court affirmed the Commission's policy of not
permitting a pipeline to recover full reservation charges during
suspension. The court noted that the Commission had not yet
considered whether the pipeline should be able to impose a lesser
charge during suspension and left such an issue to the Commission
when a case is properly filed.
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26. Some of the pipelines contend that the Commission's suspension
policy may result in pipeline's more quickly seeking to terminate
service
[[Page 37721]]
rather than working with shippers to overcome financial
difficulties.\37\ The Commission's policy on suspensions and
termination goes only to unilateral decisions by the pipelines to
terminate or suspend service. The Commission encourages pipelines and
shippers to mutually negotiate suspension or other provisions to apply
during the period when the shipper is trying to work out financial
issues.
---------------------------------------------------------------------------
\37\ See Comments of INGAA; NiSource.
---------------------------------------------------------------------------
27. The Commission has required that pipelines provide shippers
that have become non-creditworthy with a reasonable period of time to
obtain the requisite collateral, taking into account the amount of
money that may be involved and that the shipper may be faced with
requests from multiple pipelines to provide collateral. The Commission,
for instance, found proposals to require shippers to provide the total
amount of collateral required within five days to be unreasonably
short.\38\
---------------------------------------------------------------------------
\38\ Northern Natural Gas Co., 102 FERC ] 61,076, at P 49
(2003); Tennessee Gas Pipeline Co., 102 FERC ] 61,075 at P 18
(2003).
---------------------------------------------------------------------------
28. The Commission has developed a timeline that applies to
suspension and termination procedures that it finds reasonable,\39\
although pipelines may seek to justify alternative proposals. Under
this timeline, when a shipper is no longer creditworthy, the pipeline
may not terminate or suspend the shipper's service without providing
the shipper with an opportunity to satisfy the collateral requirements.
In this circumstance, the shipper must be given at least five business
days within which to provide advance payment for one month's service,
and must satisfy the collateral requirements within 30 days. This
procedure would allow the shipper to have at least 30 days to provide
the next three months of security for service. If the shipper fails to
provide the required security within these time periods, the pipeline
may suspend service immediately. Further, the pipeline may provide
simultaneous written notice that it will terminate service in 30 days
if the shipper fails to provide security. After a shipper either
defaults or fails to provide the required collateral, pipelines would
need to provide the shipper and the Commission with 30 days notice
prior to terminating the shipper's contract.
---------------------------------------------------------------------------
\39\ See Northern Natural Gas Co., 102 FERC ] 61,076, at P 49
(2003); Tennessee Gas Pipeline Co., 102 FERC ] 61,075 at P 18
(2003); Natural Gas Pipeline Co. of America, 102 FERC ] 61,355 at P
52 (2003); Gulf South Pipeline Co., LP, 103 FERC ] 61,129 at P 49-52
(2003).
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F. Capacity Release
29. The Commission will clarify its policies relating to
creditworthiness and capacity release in two areas: creditworthiness
requirements for replacement shippers; and rights of releasing and
replacement shippers upon contract termination or suspension.
1. Creditworthiness Requirements for Replacement Shippers
30. Since Order No. 636, the Commission has held that in capacity
release situations, both the releasing and replacement shippers must
satisfy a pipeline's creditworthiness requirements.\40\ The Commission
further found that releasing shippers could not establish
creditworthiness provisions for released capacity different from those
in the pipeline's tariff.\41\ As the Commission explained, the same
criteria should be applied to released capacity and pipeline capacity
in order to ensure that all capacity, including released capacity, is
available on an open access, non-discriminatory basis to all
shippers.\42\
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\40\ See Pipeline Service Obligations and Revisions to
Regulations Governing Self-Implementing Transportation; and
Regulation of Natural Gas Pipelines After Partial Wellhead
Decontrol, Order No. 636-A, FERC Statutes and Regulations,
Regulations Preambles, January 1991-June 1996 ] 30,950 at 30,588
(1992). Under the capacity release regulations, 18 CFR Sec.
284.8(f) (2003), the releasing shipper remains obligated under its
contract to the pipeline, and must, therefore, satisfy the
creditworthiness and other obligations associated with that
contract, regardless of how many subordinate releases take place.
For example, even if a replacement shipper is creditworthy, it may
default and the releasing shipper would be responsible for payment.
Moreover, given the ability of releasing shippers to recall and
segment releases, both the releasing and replacement shippers need
to be creditworthy to ensure their respective obligations.
\41\ See El Paso Natural Gas Co., 61 FERC ] 61,333 at 62,299
(1992); Panhandle Eastern Pipe Line Co., 61 FERC ] 61,357 at 62,417
(1992); Texas Eastern Transmission Corp., 62 FERC ] 61,015 at 61,098
(1993); CNG Transmission Corp., 64 FERC ] 61,303 at 63,225 (1993).
\42\ See Tennessee Gas Pipeline Co., 102 FERC ] 61,075 at P 62
(2003) (a releasing shipper cannot impose creditworthiness
conditions on a replacement shipper that are different from the
creditworthiness conditions imposed by the pipeline.)
---------------------------------------------------------------------------
31. Most commenters favor the continuation of the Commission's
current policy, although EPSA maintains that the releasing shipper
should be permitted to set lower collateral requirements than the
pipeline's requirements. Since the replacement shipper has obligations
to the pipeline (usage charges, penalties, imbalance cash outs, etc.)
that are not covered by the releasing shipper's underlying contract,
the pipeline does have a legitimate independent interest in assuring
sufficient creditworthiness (or collateral) to cover the replacement
shipper's obligations. The Commission, therefore, would not require a
pipeline to permit a releasing shipper to establish a lesser collateral
requirement. However, a pipeline can propose a tariff change to permit
a releasing shipper to establish a lower collateral requirement.
2. Termination and Suspension
32. Pipelines will be permitted to terminate a release of capacity
to the replacement shipper if the releasing shipper's service agreement
is terminated, provided that the pipeline provides the replacement
shipper with an opportunity to continue receiving service if it agrees
to pay, for the remaining term of the replacement shipper's contract,
the lesser of: (1) The releasing shipper's contract rate; (2) the
maximum tariff rate applicable to the releasing shipper's capacity; or
(3) some other rate that is acceptable to the pipeline.\43\
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\43\ Tenaska Marketing Ventures v. Northern Border Pipeline Co.,
99 FERC ] 61,182 (2002). See Texas Eastern Transmission, L.P., 101
FERC ] 61,071 at P 6 (2002); Trailblazer Pipeline Co., 101 FERC ]
61,405 at P 32 (2002); Northern Border Pipeline Co., 100 FERC ]
61,125 (2002); Natural Gas Pipeline Co. of America, 100 FERC ]
61,269 at P 7-19 (2002); Canyon Creek Compression Co., 100 FERC ]
61,283 (2002); Kinder Morgan Interstate Gas Transmission LLC, 100
FERC ] 61,366 (2002).
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33. This policy establishes a reasonable balance between the
pipeline and replacement shippers in the event a releasing shipper's
contract is terminated. Although the replacement shipper has a contract
with the pipeline, the releasing shipper, not the pipeline, has
established the rate for the release. Under a release transaction, the
contract of the releasing shipper serves to guarantee that the pipeline
receives the original contract price for the capacity. Once the
releasing shipper's contract has been terminated, the pipeline may no
longer wish to continue service to the replacement shipper at a lower
rate, and should have the opportunity to remarket the capacity to
obtain a higher rate.\44\ On the other hand, the replacement shipper
also has an investment in the use of the capacity, and should,
therefore, have first call on retaining the capacity if it is willing
to provide the pipeline with the same
[[Page 37722]]
revenue as the releasing shipper. Under this policy, the replacement
shipper is given the opportunity to retain the capacity by paying the
releasing shipper's contract rate or the maximum rate for the remaining
term of the contract.
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\44\ The pipeline is not required to terminate the replacement
shipper's contract. It could decide to continue to provide service
under that contract at the rate prescribed in the release. In that
event, the replacement shipper would not have the right to terminate
its contractual obligation since it is receiving the full service
for which it contracted. See Tenaska Marketing Ventures v. Northern
Border Pipeline Co., 99 FERC ] 61,182 (2002) (replacement shipper
could not cancel release contract upon bankruptcy of releasing
shipper).
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34. With respect to segmented releases, the Commission will apply
the same general policy. A replacement shipper will have the right to
continue service if it agrees to take the full contract path of the
releasing shipper at the rate paid by the releasing shipper. The
Commission will not require the pipeline to permit the replacement
shipper under a segmented release to retain its geographic segment of
capacity. The pipeline did not negotiate the release of the segment and
should not be held to that segmented release agreement once the
releasing shipper's contract terminates. The replacement shipper in
that instance should be required to pay for the full capacity path of
the defaulted shipper at the lower of the rate the defaulted shipper
paid or the maximum rate applicable to the defaulted shipper's full
capacity path.\45\ In the case of multiple replacement shippers with
geographically segmented releases, a pipeline would have to propose a
reasonable method of allocating capacity among them if they each
matched the full rate under the releasing shipper's contract.\46\
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\45\ National Fuel Gas Supply Corp., 101 FERC ] 61,063 at P12
(2002).
\46\ In the event of such multiple bids by replacement shippers,
regardless of the allocation method used by the pipeline, the
shippers should be able to replicate their geographically segmented
capacity by releasing segments of capacity to each other.
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35. AGA requests that upon suspension of a replacement shipper's
contract, the capacity will revert to the releasing shipper. The
Commission agrees that capacity will revert to the releasing shipper
upon the suspension or termination of the replacement shipper, since
the releasing shipper remains liable for reservation charges under its
contract with the pipeline even if the replacement shipper's service is
suspended, and the releasing shipper will no longer be receiving
credits during the time the replacement shipper is suspended.\47\ In
addition, the releasing shipper also can reserve recall rights that
will permit it to recall capacity.\48\
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\47\ See Tennessee Gas Pipeline Co., 103 FERC ] 61,275, at P 99
(2003).
\48\ Id. at P 74.
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The Commission orders:
The Notice of Proposed Rulemaking in this docket is withdrawn.
By the Commission. Commissioner Brownell dissenting with a
separate statement attached.
Magalie R. Salas,
Secretary.
Comments Filed in Response to the NOPR on Creditworthiness Standards for
Interstate Natural Gas Pipelines in Docket No. RM04-4-000
------------------------------------------------------------------------
Commenter Abbreviation
------------------------------------------------------------------------
Alliance Pipeline L.P.............. Alliance.
Amerada Hess Corporation........... Amerada Hess.
American Gas Association........... AGA.
American Public Gas Association.... APGA.
Aquila, Inc. d/b/a Aquila Networks. Aquila.
Arizona Public Service Company and APS/PWEC.
Pinnacle West Energy Corporation.
BP America Production Company and BP.
BP Energy Company.
Calpine Corporation................ Calpine.
CenterPoint Energy Gas Transmission CEGT/MRT.
Company and CenterPoint Energy--
Mississippi River Transmission
Corporation.
Consolidated Edison Company of New ConEd/O&R.
York, Inc. and Orange and Rockland
Utilities, Inc.
Dominion Resources, Inc............ Dominion.
Duke Energy Gas Transmission Duke Energy.
Corporation.
El Paso Corporation's Pipeline El Paso.
Group.
Electric Power Supply Association.. EPSA.
EnCana Marketing (USA) Inc......... EnCana.
Energy America LLC and Direct Direct Energy.
Energy Marketing, Inc.
Gulf South Pipeline Company, LP.... Gulf South.
Interstate Natural Gas Association INGAA.
of America.
Kern River Gas Transmission Company Kern River.
KeySpan Delivery Companies......... KeySpan.
Memphis Light, Gas and Water MLGW.
Division.
National Fuel Gas Distribution NFGD.
Corporation.
National Fuel Gas Supply National Fuel.
Corporation.
National Rural Electric Cooperative NRECA.
Association.
New York Independent System NYISO.
Operator, Inc.
NiSource, Inc...................... NiSource.
Northern Municipal Distributors NMDG/MRGTF.
Group and Midwest Region Gas Task
Force Association.
Northern Natural Gas Company....... Northern Natural.
Northwest Industrial Gas Users..... NWIGU.
Pacific Gas and Electric Company... PG&E.
Peoples Gas Light and Coke Company, Peoples.
North Shore Gas Company and
Peoples Energy Wholesale
Marketing, LLC.
Process Gas Consumers Group, PGC.
American Forest & Paper
Association, American Iron and
Steel Institute, Georgia
Industrial Group, Industrial Gas
Users of Florida and Florida
Industrial Gas Users.
PSEG Energy Resources & Trade LLC.. PSEG.
Public Service Commission of the New York.
State of New York.
Reliant Resources, Inc............. Reliant.
SEMCO Energy Gas Company........... SEMCO.
Sempra Energy Global Enterprises Sempra.
and Sempra Energy International.
Steuben Gas Storage Company........ Steuben.
Tenaska Marketing Ventures......... Tenaska.
Texas Gas Transmission, LLC........ Texas Gas.
Vector Pipeline L.P................ Vector.
[[Page 37723]]
Williston Basin Interstate Pipeline Williston Basin.
Company.
------------------------------------------------------------------------
Nora Mead Brownell, Commissioner dissenting:
I have previously expressed my conviction that establishing
mandatory creditworthiness principles will promote consistent
practices across markets and service providers and provide customers
with an objective and transparent creditworthiness evaluation. Such
an approach would lessen the opportunity for applying these
provisions in an unduly discriminatory manner. Therefore, I cannot
support the majority's decision to issue mere guidance, as opposed
to a binding final rule.
The majority concludes that standardizing the creditworthiness
process beyond the business practices adopted by NAESB is not
necessary. Unfortunately, the NAESB business practices provide only
the scantest of customer protections, for example, requiring a
pipeline to state the reason it is requesting credit evaluation
information from existing shippers and to acknowledge receipt of
that requested information.\1\ Further, comments from all segments
of the transportation market that use interstate pipeline services
generally support the issuance of a final rule. The Electric Power
Supply Association asserts that electric generators need consistent
credit terms to facilitate infrastructure investment.\2\ The
associations for local utilities argue that the proposed regulations
reflect a balanced approach in providing the pipelines with
protection against the risks of non-creditworthy shippers while at
the same time assuring that pipelines can not impose unreasonable
burdens on the shippers.\3\ Peoples Gas Light and Coke Company and
EnCana Marketing (USA) Inc. point out that the proposed regulations
reflect Commission's credit policy as it has evolved in several
individual proceedings and declare that at this point it is
appropriate to codify that policy and apply it to all pipelines.\4\
The Northwest Industrial Gas Users argue that, without consistent
credit requirements, their ability to purchase unbundled service
through interstate pipelines could be restricted.\5\ The Process Gas
Consumers Group, the American Forest & Paper Association, the
American Iron and Steel Institute, the Georgia Industrial Group, the
Industrial Gas Users of Florida and the Florida Industrial Gas Users
(Industrials) support the overwhelming majority of the proposed
regulations as a fair balance between the needs of the pipelines and
their shippers.\6\ Finally, even the New York Independent System
Operator acknowledges that standardization is generally beneficial
and suggests that a comprehensive credit program can serve as a
rational, workable model for the electric industry.\7\
---------------------------------------------------------------------------
\1\ See Order No. 587-S, 111 FERC ] 61,203 (2005).
\2\ See Comments of Electric Power Supply Association at 2-3.
\3\ See Comments of American Gas Association at 1-2 and American
Public Gas Association at 1.
\4\ See Comments of Peoples Gas Light and Coke Company at 3 and
EnCana Marketing (USA) Inc. at 3.
\5\ See Comments of The Northwest Industrial Gas Users at 2.
\6\ See Comments of Industrials at 1 and 4-6.
\7\ See Comments New York Independent System Operator at 4.
---------------------------------------------------------------------------
The majority concludes that creditworthiness issues should be
addressed on a case-by-case basis. This conclusion seems premised on
the fear that mandatory principles will lead to institutionalizing a
``one-size-fits-all'' approach. Let me be clear, I agree that such
an approach is hazardous and I would not support it. What I am
saying is that creditworthy provisions need to be more systematic,
transparent, and non-discriminatory with sufficient flexibility to
adapt to specific situations but with customer safeguards such as
written explanations. Promulgation of a final rule would have
accomplished the goal of providing objective credit principles in
every pipeline tariff while retaining the necessary flexibility to
adapt to particular situations.
Commenters from all segments of the interstate transportation
market supported the rulemaking approach and, I believe, the market
would have been better served had we promulgated a final rule. As I
stated in my dissent to the policy statement on electric
creditworthiness,\8\ the non-binding effect of this policy statement
seems to result in a known problem still wanting a remedy, and
therefore, I dissent.
\8\ Policy Statement on Electric Creditworthiness, 109 FERC ]
61,186 (2004).
Nora Mead Brownell.
[FR Doc. 05-12874 Filed 6-29-05; 8:45 am]
BILLING CODE 6717-01-P
