Falcon Gas Storage has reached a settlement with Tractebel Energy Marketing Inc. (TEMI) to terminate a contract that had provided natural gas storage service to TEMI through a central Texas storage facility. The details of the settlement are confidential, according to a Falcon spokesman.

Earlier this month, Falcon’s central Texas storage facility, Hill-Lake Gas Storage LP, had threatened to shut off storage service to TEMI and put a lien on its gas in storage, alleging that TEMI failed to comply with the creditworthiness requirements of its contract (see Daily GPI, May 21). The two had entered into a storage service contract in August 2002 and another in October 2002, which were combined and superseded by another contract effective Jan. 1, 2003.

In the predictable legal battle, TEMI in turn sought help from the Federal Energy Regulatory Commission, the Railroad Commission of Texas and a Harris County, TX district court to protect its storage rights and prevent Falcon from confiscating its $3.2 million of gas at Hill-Lake. By the end of last week, the Texas court had rejected TEMI’s request for a temporary restraining order, and the outcome of the battle appeared to rest with FERC.

TEMI claimed in its FERC complaint that Hill-Lake’s demand for added credit assurances was in retaliation for allegations that it was under-delivering its contract. However, Hill-Lake countered with a 21-page answer to FERC on Tuesday (No. PR03-14-000), requesting FERC dismiss TEMI’s complaint.

“Even if Hill-Lake was subject to the policies reflected in the Commission’s decisions with regard to the credit policies of natural gas companies subject to the Natural Gas Act, the TEMI contract would have been properly terminated,” Hill-Lake claimed. Hill-Lake noted that it was dependent on bank loans and other outside sources of capital in order to develop its high-deliverability multiple-cycle storage facility.

“Hill-Lake and companies like it will only have access to the capital necessary to maintain and enhance the country’s natural gas infrastructure if they can maintain their credit standing,” it stated to FERC.

Falcon said Tractebel’s decision to exit the marketing and trading business “should not be permitted to affect Hill-Lake’s access to capital. TEMI is apparently done, for the time being, with its dalliance in the area of ‘speculative gas marketing.’ Apparently, TEMI overextended itself, may have made some ill-advised business decisions, and its creditworthiness may be deteriorating… [However] TEMI should not be allowed to turn its credit problems, which are the product of its business decisions, into Hill-Lake’s credit problems.”

When asked if Falcon foresaw any problem in filling the storage space that would be open with TEMI’s exit from Hill-Lake, the spokesman said he did not know. However, he added, “when you consider the fact that we have overbid on the capacity for our recent open seasons, I don’t foresee that as a problem.”

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