Texas Eastern Transmission (Tetco) has made big strides towardbecoming a more competitive pipeline system in eastern markets. Thecompany agreed last week to pay three producers $496 million tosettle all of its remaining gas purchase contracts. Shippers willbear about $396 million of the costs, which is about $100 millionless than a payment cap set in 1993 as part of a restructuringsettlement.

“This is the first time in Texas Eastern’s history that thecompany does not have any gas supply purchase obligations,” saidTetco President Bobby Evans.

The GSR settlement complements the rate settlement approved byFERC last month that will result in an earlier payoff of GSR costsand an earlier reduction in Tetco’s firm rates.

Tetco will face a serious challenge retaining customers over thenext few years. It has been the high-cost transportation providerto eastern markets, but because of the two settlements thatchallenge may be a bit easier to overcome.

“We’ve got contracts that have been noticed through 2002. Thatgets up to about 660,000 Dth/d of contracts and $130 million inrevenue,” said Evans. “This will help us remarket that. We’ve onlygot about $58 million in 1999 that has been noticed. That goes upto about $117 million in 2000, which is probably over 10% of ourrevenues. When that $117 million actually comes back to us in late2000 our rates will be coming down in [soon thereafter].”

With decontracting expected to increase significantly on thepipeline, Tetco drew up a plan to reduce its GSR expenses withfunds generated by lowering the company’s depreciation rates 56%.The depreciation reduction will allow the company to reduce theamount of GSR costs shippers have to pay by an additional $68million. It also will enable them to pay off the GSR costs a yearahead of schedule. Together, the GSR settlement and depreciationreduction ensure Tetco will be able to lower its firm rates by 10cents/Dth in January 2001.

“That 10 cent rate drop is going to help us remarket thiscapacity,” said Evans. “It’s a 17% drop in our rates. We feel likewe will be much more in line with our competition.”

Also as a result of the GSR settlement, Texas Eastern can nowrelease $39 million that was previously reserved for the settlementof those liabilities, which brings it back in line with theoriginal charge made in 1993.

In 1993, Texas Eastern took a $100 million charge to reflect theimpact of the Order 636 settlement. In the fourth quarter of 1995,based upon producers’ discoveries of additional natural gasreserves, Texas Eastern took an additional $40 million charge. Thefunds held in escrow will offset the latter amount, said Evans.

Rocco Canonica

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.