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Tetco Settlement Gets Nod at FERC

Tetco Settlement Gets Nod at FERC

FERC has given its approval to a major settlement that attempts to resolve the looming decontracting problem on Texas Eastern Transmission's (Tetco) system while offering a significant rate reduction to its customers.

In the settlement package, which was first unveiled in April, the Duke Energy pipeline said it would assume the "sole risk" for all the costs associated with existing and potential turned-back capacity on its system, and would provide its customers with more than $260 million in rate savings through the end of 2003.

The centerpiece of the package calls for Tetco's customers to receive a reduction of 10 cents/Dth in long-haul FT-1 rates on a 100% load basis (as well as reductions in other rates). The lower rates would be realized through reductions in the pipeline's depreciation rates. Under its settlement, Tetco would cut its depreciation rates by $34 million a year until its gas supply realignment (GSR) obligation is paid off, which it hopes to accomplish by January 2001. When that is done, Tetco again would cut its system depreciation rates by another $34. The depreciation rate reductions, according to the pipeline, will enable it to more quickly pay down its GSR cost obligation and subsequently will generate rate savings of about $65.7 million a year through Dec. 31, 2003. The rate reduction for customers would take effect January 2000.

The proposal came under attack in May when customers and state regulators claimed that the rate savings would be mostly "illusory" since they would be realized through cuts in the pipeline's depreciation rate. If anything, the customers said that by providing rate relief in this manner Tetco was setting the stage for much higher system rates in the future.

In the Aug. 28th letter order approving the settlement, the Commission said it was "concerned" with Tetco's two-step approach to reducing its depreciation rates by 56%, saying it was "inconsistent" with FERC accounting requirements [RP98-198]. It ordered certain modifications for financial accounting and reporting purposes, but said this would not change the proposed rates in the settlement.

The settlement's objective is to reduce customers' GSR costs before the amount of Tetco's turned-back capacity, and associated costs, rise significantly in 2000. Based on the notices of contract termination that it has received to date, the pipeline estimates that the amount of turned-back capacity will grow from 70 MMcf/d this year to about 500 MMcf/d in 2003, or about 15% of Tetco's system. From a cost standpoint, it projects it will climb from $15 million in 1998 to at least $135 million in 2003. The biggest growth spurt is expected to come in 2000 when unsubscribed capacity will double from $58 million (1999) to $117.

The settlement, which takes effect in October, was uncontested. "We're very happy that everyone could come together on what we consider a win-win deal," said Tetco Vice President and General Counsel Richard J. Kruse.

Susan Parker

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