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The Coming Transmission Credit Crisis

How can transmission providers safely serve noncreditworthy customers?
Fortnightly Magazine - July 15 2003

gas pipelines and electric utilities are designed to protect the pipeline or utility. FERC cited with approval the CP&L/FPC creditworthiness provisions, which it characterized as "more like standards seen in the gas industry." 16

FERC established four guidelines in the Duquesne order for transmission providers seeking to modify the credit provisions of the tariff. 17 First, the transmission provider must show a direct correlation between a risk of default and the level of security required. Second, it must also be able to show that its provisions will be applied in a nondiscriminatory manner. Therefore, creditworthiness criteria must specifically identify and quantify how particular criteria will be weighed and scored. Third, the creditworthiness provisions must balance the risks of default against the amount of security that must be posted so that the amount of security does not stifle competition. Finally, the criteria must apply only to transmission service, and not to any retail access program.

Prudent Management

FERC has recognized that enhanced credit security provisions decrease the risk to creditworthy customers associated with providing service to noncreditworthy customers. 18 This is because transmission providers are less likely to incur unrecoverable costs that they will attempt to recover from their other customers. FERC also has acknowledged that credit security reform protects customers from unduly burdensome creditworthiness standards. 19 That certainly is true if the revised standards result in noncreditworthy customers being able to obtain transmission service that they would have been denied under the OATT provisions. Improved credit security provisions protect utilities and their ratepayers against the risk that the utilities will be unable to recover payments for the services they provide. Consequently, modification of credit security provisions to protect against the risk of nonpayment, while ensuring that customers can receive service, is consistent with prudent utility management. That process should begin on an industrywide basis as soon as possible.

  1. California Independent System Operator Corp., 94 FERC 61,132, 61,505 & 61,510 & nn.13-16.
  2. Order No. 888, OATT, Sections 7.3, 11, 17.3 and 29.2, FERC Stat. & Regs. 31,036, 31,935-37, 31,944 & 31,952 (1996).
  3. Section 7.1 of the OATT provides that a customer must pay a bill not more than 20 days after it is received, which means that the transmission provider typically has provided nearly two months of service before the customer is obligated to pay its bill. Section 7.3 requires the transmission provider to give notice of nonpayment and wait another 30 days (for a total of 3 months after service commenced) before making a filing with FERC for termination of service for default. Under 18 C.F.R. § 35.15, a notice of termination of service must be filed at least 60 days in advance of the termination. While the regulations provide for terminations on less than 60 days' notice for good cause, FERC is unlikely to act on a notice of termination in significantly less than that period of time. Consequently, five to six months elapse between the commencement of service to a customer and the date on which service can be terminated for nonpayment.
  4. Gulf South Pipeline Co., LP, 103 FERC 61,129,