The Coming Transmission Credit Crisis

How can transmission providers safely serve noncreditworthy customers?

In 2001, with California and Midwest energy markets in turmoil, the Federal Energy Regulatory Commission (FERC) warned that such market uncertainty had sounded a "wake-up call" for electricity transmission providers to assure customer creditworthiness to pay for services.¹ While the natural gas pipeline industry has responded to increased credit risk with an industrywide initiative and numerous tariff filings that enhance credit security, most electric utilities have failed to heed FERC's warning by modifying their tariffs.

The precarious financial situation of some market participants has ceased to be headline news, but the potential for significant financial risk remains. Electric utilities owe it to their ratepayers and their stockholders to focus with care on their credit security issues. Plainly, how utilities address the issues of whether to do business with companies that do not meet creditworthiness standards, the amount and type of credit security to require, and how and when to suspend or terminate service to noncreditworthy customers can have significant financial consequences.