FERC has given its approval to a major settlement that attemptsto resolve the looming decontracting problem on Texas EasternTransmission’s (Tetco) system while offering a significant ratereduction to its customers.

In the settlement package, which was first unveiled in April,the Duke Energy pipeline said it would assume the “sole risk” forall the costs associated with existing and potential turned-backcapacity on its system, and would provide its customers with morethan $260 million in rate savings through the end of 2003.

The centerpiece of the package calls for Tetco’s customers toreceive a reduction of 10 cents/Dth in long-haul FT-1 rates on a100% load basis (as well as reductions in other rates). The lowerrates would be realized through reductions in the pipeline’sdepreciation rates. Under its settlement, Tetco would cut itsdepreciation rates by $34 million a year until its gas supplyrealignment (GSR) obligation is paid off, which it hopes toaccomplish by January 2001. When that is done, Tetco again wouldcut its system depreciation rates by another $34. The depreciationrate reductions, according to the pipeline, will enable it to morequickly pay down its GSR cost obligation and subsequently willgenerate rate savings of about $65.7 million a year through Dec.31, 2003. The rate reduction for customers would take effectJanuary 2000.

The proposal came under attack in May when customers and stateregulators claimed that the rate savings would be mostly “illusory”since they would be realized through cuts in the pipeline’sdepreciation rate. If anything, the customers said that byproviding rate relief in this manner Tetco was setting the stagefor much higher system rates in the future.

In the Aug. 28th letter order approving the settlement, theCommission said it was “concerned” with Tetco’s two-step approachto reducing its depreciation rates by 56%, saying it was”inconsistent” with FERC accounting requirements [RP98-198]. Itordered certain modifications for financial accounting andreporting purposes, but said this would not change the proposedrates in the settlement.

The settlement’s objective is to reduce customers’ GSR costsbefore the amount of Tetco’s turned-back capacity, and associatedcosts, rise significantly in 2000. Based on the notices of contracttermination that it has received to date, the pipeline estimatesthat the amount of turned-back capacity will grow from 70 MMcf/dthis year to about 500 MMcf/d in 2003, or about 15% of Tetco’ssystem. From a cost standpoint, it projects it will climb from $15million in 1998 to at least $135 million in 2003. The biggestgrowth spurt is expected to come in 2000 when unsubscribed capacitywill 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 weconsider a win-win deal,” said Tetco Vice President and GeneralCounsel Richard J. Kruse.

Susan Parker

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