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
"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.
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