TEPPCO Case 6 10

The Federal Energy Regulatory Commission (FERC) has approved a settlement favorable to the propane industry in a long-running TEPPCO rate case. The National Propane Gas Association (NPGA) notes the May 31 judgment caps more than a year of effort to ensure just and reasonable rates on the pipeline, and that through the agreement the industry will enjoy rate certainty for shippers for the two-year duration of the agreement.

Benefits of the settlement include a seven-month delay for the initial implementation of Enterprise TE Products Pipeline Co. LLC’s proposed rate increase—the longest period allowed by law—that on average will save marketers about $1000 per transport load. In addition, rates to ship propane will generally be lower than originally proposed. NPGA reports a key component of the settlement was achieved by reversing a subsidization of shipments to New England by shorter-haul shipments. Also, the settlement reflects a substantial reduction to TEPPCO’s cost of services of about $367 million, resulting in a reduction of approximately $40 million to $70 million in revenue to TEPPCO (depending on volume and related assumptions), producing lower rates.

The settlement provides that the pipeline not increase rates by the annual FERC index until July 1, 2014, avoiding an approximate 4.5% rate increase on July 1, 2013. Significantly, legal and consulting costs of undertaking the rate challenge are being recovered through a settlement payment, which would not have been the case had NPGA been forced to carry the litigation through the hearing and oral argument phases of the FERC administrative law process.

NPGA emphasizes that the settlement arrives as the TEPPCO system undergoes changes over the next two years that include the removal of the 14-in./16-in. line from service, reversing it and placing it into ethane service. As a result, TEPPCO’s costs and revenue structure are expected to change substantially over the next two years. The association adds that TEPPCO has agreed to provide substantial cost and revenue information for calendar years 2013 and 2014, which will aid it in evaluating appropriate rates going forward.