Tetco held a 637 "settlement" conference last Fiday to discuss their latest 
proposal dated March 8th.  Their new proposal involved the institution of a 
weekly cash-out mechanism along with a daily variance penalty based on 
overall system position.

In brief:
PENALTIES
Stage One--on any day where a shipper's imbalance in greater than 7% in any 
zone, the "daily imbalance charge" would be 2x the maximum PAL rate for the 
entire balance (not just the piece that's over 7%) in each zone.
Stage Two--on any day where either the Market Area or Access Area is out of 
balance by greater than 4%, Tetco would have the discretion to issue a Stage 
Two notice, establishing a tolerance level (which could be 0, subject to 
Tetco's sole discretion) that all shippers would have not less than 12 hours' 
notice with which to comply.  Under Tetco's propsal, any volumes in excess of 
the level stated in the notice would be assessed a "daily imbalnce charge" 
equal to 4x the maximum PAL rate.
In a Stage 2 situation, if your imbalance is in the opposite direction of the 
pipe, no penalty would be charged (but you'd still cash-out)

CASH-OUT
Weekly monetization of cash-out positions based on a Sunday to Saturday week 
(Tetco needs to revise this so that the weeks are managed depending on how 
the calendar falls so that they minimize problems like a 2-day week).
Monetization by Zone in 2 tiers
 0-4% to be cashed-out at the average of each day's mid point price for the 
weekly period
 4%+ ENTIRE IMBALANCE cashed-out at the weekly highest/lowest common price 
for the week 
This is a significant change since under the current tariff, shippers pay a 
staggered fee, such that volumes with in the first tier are charged that 
tier's price, then overflow into the next tier is charged at that tier's 
price, etc.  Now, the entire amount would be assessed the higher price.

NETTING & TRADING
would be limited to the week in which the imbalance was incurred and would be 
limited by zone (contrary to Order 637)
Any netting or trading would not decrease the daily imbalance charge (the 
positions would be frozen each day) but could decrease the cash-out exposure 
(completely contrary to 637 which indicates that netting & trading should be 
a tool used to limit penalties)

Results:
it would be possible, in fact likely, that a shipper would pay both an 
imbalance penalty and a cash-out fee on the same volume (contrary to Order 
637)
under the Zero tolerance Stage Two scenario, Tetco would have complete 
discretion to set the level (not itself a bad thing, they need to be able to 
control their system)--they've indicated that they'd set a 2% floor for 
penalties but that doesn't really solve the problem.
not only would the cash-out mechanism be more difficult to administer, it 
could significantly increase our cash-out liability and subject us to 
penalties that do not exist today.

Dynegy, PGC and Indicated Shippers indicated to Tetco that we don't see any 
progress towards settlement, or even a foundation to go forward on and that 
we're ready at this point to go to the Commission for a decision on their 637 
filing as a whole.  Several of the LDC's stated that they want to continue to 
pursue settlement so we agreed to submit a status report to Staff indicating 
that we'll continue to talk, setting an April 30th deadline.  At that point, 
I expected that Tetco would attempt to establish an aggressive negotiation 
schedule in an effort to make some progress--instead all they did was agree 
to my request to provide a comparison of the different offers and scheduled a 
follow up meeting for April 10th.

Tetco indicated that they don't plan to make another offer and would not 
agree to entertain counter-offers.  At this point, I doubt that we'll make 
any significant progress and believe that this issue will end up being 
litigated, or at least submitted to  the FERC for a decision.  Based strictly 
on the letter of the Order (or at least our interpretation of it), I think we 
have 

Please let me know if you have any questions / concerns / comments.

Thanks,
Suzanne
x54880