FERC has given the go-ahead to a major settlement that attemptsto resolve the looming decontracting problem on Texas EasternTransmission’s (Tetco) system while offering a significant ratereduction to its customers.

In the settlement, which was first proposed in April, the DukeEnergy pipeline said it would assume the “sole risk” for all thecosts associated with existing and potential turned-back capacityon its system, and would provide its customers with more than $260million in rate savings through the end of 2003.

The centerpiece of the package calls for Tetco’s customers toreceive a reduction of 10 cents/Dth in long-haul FT-1 rates on a100% load basis (as well as reductions in other rates). The lowerrates would be realized through reductions in the pipeline’sdepreciation rates. Under its settlement, Tetco would cut itsdepreciation rates by $34 million a year until its gas supplyrealignment (GSR) obligation is paid off, which it hopes toaccomplish by late 2000 or early 2001. When that is done, Tetcoagain would cut its system depreciation rates by another $34. Thedepreciation rate reductions together, according to the pipeline,will enable it to more quickly to pay down its GSR cost obligationand subsequently will generate the 10 cent rate savings, or about$65.7 million a year through Dec. 31, 2003.

The proposal came under attack in May when customers and stateregulators claimed that the rate savings would be mostly “illusory”since they would be realized through cuts in the pipeline’sdepreciation rate. If anything, the customers said that byproviding rate relief in this manner Tetco was setting the stagefor much higher system rates in the future.

In the order, the Commission said it was “concerned” withTetco’s two-stepped approach to reducing its depreciation rates by56%, saying it was “inconsistent” with FERC accountingrequirements. It ordered certain modifications for financialaccounting and reporting purposes, butsaid this would not changethe proposed rates in the settlement.

The settlement’s objective is to reduce customers’ GSR costsbefore the amount of Tetco’s turned-back capacity, and theassociated costs, rise significantly in 2000. Based on the noticesof contract termination that it has received to date, the pipelineestimates that the amount of turned-back capacity will grow from 70MMcf/d this year to about 500 MMcf/d in 2003, or about 15% ofTetco’s system. From a cost standpoint, it projects it will climbfrom $15 million in 1998 to at least $135 million in 2003. Thebiggest growth spurt is expected to come in 2000 when unsubscribedcapacity will double from $58 million (1999) to $117.

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