FERC Filings
Motion for Leave to Intervene and Comment of the Electric Power Supply Association re: Entergy Services, Inc.
Request for Suspension and Technical Conference
Historically, credit issues have not been an overwhelming burden for either electric transmission or gas transmission providers or their customers. However, recent disruptions to energy markets have caused the industry to take a hard look at credit policies. Certainly credit issues are a valid concern to gas transportation and now electric transmission providers. But as EPSA has noted when the Commission first addressed these matters on the gas side, market participants must have clearly detailed credit policies that are implemented in an unbiased manner.
EPSA is concerned that Entergy’s proposal would establish a discriminatory credit policy that is detrimental to the development of a competitive market in the Southeast, which is already one of the most difficult regions to competitively trade power. Additionally, Entergy has been found by the Commission to have market power in its service territory and has been ordered to turn over operation and administration of its OASIS site to an independent third party, largely because of market power and affiliate abuse concerns. Moreover, credit issues have been raised in Entergy’s Fall 2002 RFP process for power purchases. There, market participants complained that Entergy essentially required bidders to collateralize Entergy’s own payment obligation to bidders. The result of this requirement is that, to be a successful bidder, non-affiliates of Entergy must post a prohibitive amount of security that was not required of Entergy’s affiliates. Consequently, any creditworthiness requirements in Entergy’s control area are best implemented by an independent transmission operator in the Southeast. Otherwise, Entergy retains the ability to quash competition in its market area by denying customers comparable service, including credit policies, and favoring the generation of its regulated affiliates. Of course the Commission should expedite the formation of an independently administered market in the Southeast. But in the meantime EPSA recognizes the need to address credit polices. Therefore, we recommend that the Commission accept and suspend the Entergy proposal for five months and convene a technical conference to address creditworthiness issues associated with the filing.
A technical conference will help the Commission ensure that Entergy’s credit policies are not discriminatory and establish credit standards that evaluate all market participants by the same standards. Moreover, a conference will facilitate the Commission’s consideration of whether or not Entergy has sufficient justification to institute credit provisions that are more burdensome than the Commission’s Pro Forma OATT.
A. The Proposed Revisions Are Unjust, Unreasonable and Unduly Discriminatory
Entergy’s creditworthiness provisions are proposed as filing requirements for a transmission service request. Thus, a prospective transmission customer could be required to post five months collateral to determine whether the requested transmission service is even available to that customer. Open access is not facilitated when new customers are presented with creditworthiness standards that are more financially burdensome than existing or affiliated customers. This discriminates against new customers and prevents them from competing in Entergy’s market.
Entergy’s proposal grants it significant discretion. This would give Entergy great ability to discriminate against specific competitors from using its system through excessive security requirements. Section 11.3.3 would give Entergy the ability to require security in excess of four months if Entergy deems that its financial risk is greater than the amounts required in Sections 11.3.1 and 11.3.2. This provision gives Entergy too much discretion and the ability to discriminate against certain transmission customers. The Commission should not allow the establishment of a patchwork of overly restrictive credit policies, giving Entergy yet another method to favor its own generation and discriminate against other generators.
The proposed revisions in this filing have the potential to drive several transmission customers out of the Southeast market entirely. The deleterious effect of Entergy’s proposed tariff revisions on non-investment grade transmission customers and on their customers and counter-parties, could severely and immediately affect wholesale electricity markets across the Southeast.
B. All Customers’ Credit Should be Considered in an Equal, Non-Discriminatory Manner
Entergy needs to justify why non-firm customers need higher credit requirements than firm customers. Non-firm customers with existing sound payment histories with Entergy should not be subject to such discrimination as set forth in the proposed requirements.
The Commission’s pro forma OATT does not require a non-firm transmission customer to post a deposit before receiving non-firm service, and requires short firm transmission customers to deposit one month of transmission charges. In contrast, Entergy’s proposal requires a prospective transmission customer: (1) to post as much as five months collateral in order to simply make a request; and (2) to post five months collateral for service of less than five months. Entergy’s proposal is inconsistent with the quality and availability of non-firm service or the duration of many short term transmission service transactions on the Entergy System.
Other sections of the Entergy filing where customers are treated differently and that need clarification are:
• Section 11.2 (ii), Entergy references counterparties that will get different treatment under the proposal without explanation of whom the counterparties are or why they will be treated differently. Without consistent treatment for all transmission customers, there is potential for discrimination.
• Section 11.2 (iii) and (iv) Federal, municipal and state agencies are set out for different treatment in regard to credit, without explanation. Entergy has not explained why one type of transmission customer would be evaluated differently for credit purposes. All customers should be evaluated against the same credit standard.
C. Entergy’s Tariff Revisions Need to Support Why They are More Burdensome than Provisions in the Pro-Forma OATT
Order No. 888 requires a transmission provider to demonstrate that a proposed tariff provision that departs from the Pro Forma tariff in Order No. 888 is consistent with, or superior to, the Pro Forma tariff. Entergy’s proposed tariff revisions are significantly more burdensome than the creditworthiness provisions of the Pro Forma tariff.
Before the Commission can accept Entergy’s more stringent credit provision changes, Entergy must establish that some monetary harm is occurring. Without such a showing, the proposed changes to the Pro-forma OATT are not justified.
When pipelines proposed similar changes to their tariffs they demonstrated a history of defaults by customers and established the need for more stringent credit requirements. While Entergy cites Commission precedent from these gas cases, it has not provided the Commission with the same sufficient justification for the deviations from the OATT in its proposal.
D. Detailed Aspects of Entergy’s Filing Require Clarity
There are several other aspects of Entergy’s filing that require the kind of deliberate consideration and evaluation that a technical conference would provide.
• Security Requirements
In Section 11.3.1 and Section 11.3.2, Entergy proposes to require “non-creditworthy” customers to post security equal to four months of estimated transmission charges and ancillary service (for new service customers taking Non-Firm Point-To-Point Service) and four months of the customer’s average transmission charges (for existing customers). EPSA assumes that Entergy proposes to require existing customers to post both the one month’s security required under Section 11.3.2(i) and the three months security required under Section 11.3.2(ii). The Commission should require Entergy clarification on this point. In a series of gas transmission cases the Commission has established a limit of three months on such security requirements, except in cases where new pipeline construction is involved. Similarly, in the Carolina Power & Light case, the Commission found that “90 days is an appropriate time frame for the Companies to protect their interests. Entergy has offered no explanation for its proposal to require an additional months worth of security.
• Security Requirements – Application Deposits
Section 11.3.1 requires new customers to post security and additionally pay the application deposits required by Sections 17.3 or 29.2 of the Tariff. The application deposits already provide a level of financial security for the transmission provider. Entergy needs to clarify the need for an additional security.
• Posting Requirements
Entergy’s proposed use of a 12-month historical average for determining credit posting requirements for non-firm service should be rejected. The volatility associated with this type of service does not allow volume predictions based on historical performance.
• Credit Evaluation and Credit Rating
Entergy proposes in Section 11.2 significant reliance on Standard & Poors and Moody’s to assess a customer’s financial risk. Not all market participants are rated by these firms.
• Notice
Section 11.3.5 lacks sufficient detail on Entergy’s non-creditworthy notice to a customer. Upon receipt of a non-creditworthy notification, Entergy should be required to provide a written explanation for the non-creditworthy determination, specifically stating the reason(s) a customer is now non-creditworthy. The written explanation should be as detailed as possible.
• Suspension
If Entergy decides to suspend a customer (Section 11.4), it cannot hold that customer liable for charges accrued while service is suspended. The Commission has held that since a customer is no longer receiving service, it is no longer obligated to pay the reservation charges either.
• Deposit Interest Accrual
In Section 11.5, Entergy’s proposal does not provide that a customer that pays a cash deposit is entitled to receive interest accrued while being held by the transmission provider. In gas credit considerations the Commission has established that the customer is entitled to the interest accrued on its deposit.