NGI The Weekly Gas Market Report / NGI All News Access

Tetco Settles Remaining GSR Costs

Tetco Settles Remaining GSR Costs

Texas Eastern Transmission (Tetco) has made big strides toward becoming a more competitive pipeline system in eastern markets. The company agreed last week to pay three producers $496 million to settle all of its remaining gas purchase contracts. Shippers will bear about $396 million of the costs, which is about $100 million less than a payment cap set in 1993 as part of a restructuring settlement.

"This is the first time in Texas Eastern's history that the company does not have any gas supply purchase obligations," said Tetco President Bobby Evans.

The GSR settlement complements the rate settlement approved by FERC last month that will result in an earlier payoff of GSR costs and an earlier reduction in Tetco's firm rates.

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

"We've got contracts that have been noticed through 2002. That gets up to about 660,000 Dth/d of contracts and $130 million in revenue," said Evans. "This will help us remarket that. We've only got about $58 million in 1999 that has been noticed. That goes up to about $117 million in 2000, which is probably over 10% of our revenues. When that $117 million actually comes back to us in late 2000 our rates will be coming down in [soon thereafter]."

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

"That 10 cent rate drop is going to help us remarket this capacity," said Evans. "It's a 17% drop in our rates. We feel like we will be much more in line with our competition."

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

In 1993, Texas Eastern took a $100 million charge to reflect the impact of the Order 636 settlement. In the fourth quarter of 1995, based upon producers' discoveries of additional natural gas reserves, Texas Eastern took an additional $40 million charge. The funds held in escrow will offset the latter amount, said Evans.

Rocco Canonica

©Copyright 1998 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus