Texas Eastern Transmission’s proposed settlement professing morethan $260 million in customer savings over the next five to sixyears isn’t all it’s cracked up to be, state regulators and pipeline customers insist.

Shippers are concerned that the savings may be illusory, andthat they might have to forego greater rate relief in the future inreturn for more modest rate reductions offered in Tetco’ssettlement.

“The word ‘savings’ is misleading at best,” said DavidD’Alessandro, attorney for the New York Public Service Commission,because the lower rates in the Tetco settlement would be realizedfrom reductions in the pipeline’s depreciation rates. Under itsplan, Tetco would cut its depreciation rates by $34 million peryear until its GSR surcharge is paid off,” which it hopes to do byJan. 1, 2001, he noted. “Once the GSR surcharge is paid off, thenTetco would again reduce its system depreciation rates by another$34 million…Those depreciation reductions would be reflected inthe rate reductions for customers” of about $65.7 million a yearthrough Dec. 31, 2003.

But D’Alessandro and others believe that providing rate reliefin this manner just postpones the headache for the pipeline’scustomers. “If a company reduces its depreciation rates by $260million today and reflects a reduction in the depreciation’sexpense in rates today, the rate base that is in effect when theyfile the next case is going to be $260 million higher.”

In addition to paying potentially higher future rates,D’Alessandro said Tetco’s system customers will find themselvesfooting the $38 million a year rate decrease that the pipeline’sincremental customers would get under the settlement. The amountwould be rolled into system rates effective Jan. 1, 2001.

Aside from the incremental customers, Tetco itself would benefitfrom the proposed settlement, the New York commission noted in itsfiling at FERC last week [RP98-198]. The pipeline said it would”contribute” $2.83 million per month to reduce its share of theabove-spot costs of its firm gas supply contracts. But a “moreaccurate description” of what’s occurring is Tetco is usingdepreciation dollars to reimburse itself for the 20% of the GSRcosts above $330 million that it agreed to pay earlier, it said.

Tetco “also makes much out of allegedly assuming the [full] riskof capacity turnback,” Sun Co. Inc. told FERC. “Texas Eastern’snumbers assume that [its] turned-back capacity has no value. Thisis clearly not correct. The capacity-release market values thiscapacity at approximately 80-85% of Texas Eastern’s maximum firmservice rates (on a 100% load factor basis). Thus, the real riskbeing borne by Texas Eastern is only 15-20% of the amount claimed,or less than $70 million” in 2003. Based on contract terminationnotices received so far, the pipeline estimated it would assume the”sole risk” for the costs associated with $135 million ofturned-back capacity in 2003.

Sun believes Tetco’s risk to turned-back capacity could be”readily managed by discounting the pipeline’s unrealistic anduncompetitive rates,” but the pipeline it said appears unwilling to”bit the bullet” and write off costs that can’t be recovered in themarketplace.

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