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
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.
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