FERC Filings
MOTION TO INTERVENE OUT OF TIME OF THE ELECTRIC POWER SUPPLY ASSOCIATION re: NORTHERN NATURAL GAS COMPANY
BACKGROUND
With the demise of Enron, significant changes in the industry have occurred, including subsequent credit downgrades among several major industry participants in the energy sector. The Enron fallout and the subsequent credit downgrades have caused the constriction of energy industry participants, especially energy marketers. Adding to these problems has been the overall downturn in the U.S. economy, with the recession putting significant downward pressure on wholesale electric prices across the nation, and the shift in credit rating agency standards.
Historically, credit issues in the FERC-regulated natural gas interstate transportation sector were not an overwhelming concern of either pipelines or their customers. The vast majority of, if not all, energy providers paid their transportation obligations in full and on time and continue to do so, with no disruption in day-to-day business activity. As a result, many pipeline gas tariffs vary and are ambiguous on how creditworthiness is determined. With Enron’s and various utility bankruptcies, and the more conservative approach by credit analysts, credit issues have become a primary focus for the industry. Pipelines have recently begun proposing extensive changes to their credit requirements, which, in turn, significantly impacts energy providers and the energy infrastructure they support. Given the number of various sudden industry events that have impacted credit policies, pipeline responses have been varied and therefore difficult for shippers to sort out.
In the September 20 Order, the Commission recognized the importance of developing a generic standard for creditworthiness and encouraged parties to initiate the standards development process at NAESB in order to see whether a consensus standard can be developed. The Commission also ordered that a status report be filed by June 1, 2003 to aid the Commission in determining whether further action is necessary.
EPSA has two significant concerns with the Commission’s September 20 Order similar to the points EPSA raised in its Tennessee Gas Pipeline Co. filing of August 14, 2002 (Tennessee filing). First, the Commission did not provide NAESB with the necessary policy guidance in order to develop a generic standard on creditworthiness. Second, the Commission should expedite the development of a generic standard on creditworthiness.
EPSA agrees with the Commission that the issue of credit standards must be addressed at the industry level for natural gas. As raised in its Tennessee filing, EPSA believes that there are numerous and far-reaching policy issues that must be addressed in establishing creditworthiness guidelines. It is not sound policy for pipelines to impose excessive credit requirements at a time when the U.S. economy faces the challenge of much-needed energy infrastructure investment. Billions of dollars in potential investment capital for the energy sector could be needlessly tied up in unnecessary credit assurances such as letters of credit, surety bonds and prepayments. Since the issue of creditworthiness standards is contingent upon sound policymaking, the Commission needs to provide NAESB with the necessary guidance from which a generic standard can be built. NAESB was not formed for the purpose of policymaking with which the Commission has now tasked it. While NAESB often must balance policy considerations in developing industry standards, it does this best when the Commission gives specific policy guidance and parameters for NAESB to follow.
Given the need to address credit issues in a timely manner and the limited scope of NAESB’s purpose, the Commission should consider expanding the role of the technical conference established in this proceeding to address the development of generic guidelines on creditworthiness and credit requirements. Industry participants should be asked to comment on the following fundamental issues surrounding a generic credit standard:
- How should creditworthiness be measured?
- Who should be required to provide additional assurance?
- What forms should that assurance take?
- Should these forms of assurance vary, and if so, based on what criteria?
- What are the costs of the various forms of assurance?
- Should customers and transmission providers be allowed to negotiate credit provisions?
- Should different credit requirements exist for contracting for expansions as compared to contracting for existing capacity? Why or why not?
- Does the pipeline’s risk change after service begins? If so, how?
- Do pipelines have a duty to mitigate credit risk, and if so, how?
- Should there be sunset dates in place for collateral and prepays?
- What is the impact on other shippers if a customer defaults?
- Are the rating agencies the proper measure for determining the creditworthiness of transmission customers?
- Are there adequate safeguards against potential discriminatory behavior?
- What is the pipeline’s risk and how should it be measured?
- Are there other issues that the Commission should consider?
EPSA notes here, as it did in its Tennessee filing, that the market has indeed changed, and it is unfair to shippers and pipelines alike not to have clarity and consistency on credit issues, especially since several pipelines have already filed for controversial modifications to their credit requirements. The Commission should act in a timely manner with proper deliberation so that all energy market participants’ concerns can be addressed. As the September 20 Order now stands, Northern’s suspension period will have long expired by the time the Commission receives any feedback from NAESB, and it will be too late to prevent the harm that Northern’s tariff provisions will cause customers. Given the impact of Northern’s filing, along with others, to industry participants, EPSA suggests that the Commission utilize the Tennessee technical conference as a vehicle to develop standard guidelines regarding credit evaluation and credit requirements, with a goal of reaching conclusion on or prior to February 23, 2003.