FOR IMMEDIATE RELEASE For Further Information Contact:
October 31, 1994 Stanley D. Green
Executive Vice President - Finance
and Corporate Development
(501) 521-1141
SOUTHWESTERN ENERGY COMPANY ANNOUNCES
AGREEMENT TO SETTLE GAS COST ISSUES
FAYETTEVILLE, ARKANSAS--Southwestern Energy Company (NYSE :
SWN)today announced that two of its wholly owned subsidiaries,
Arkansas Western Gas Company (AWG) and SEECO, Inc. (SEECO), have
entered into a stipulation and agreement with the Staff of the
Arkansas Public Service Commission (APSC or Commission) and the
Attorney General of the State of Arkansas (AG) to settle certain
gas cost issues which have been outstanding before the APSC for
almost four years. The stipulation and agreement must be
approved by the APSC before becoming effective.
The issues in question involve the price of gas sold under a
long-term contract (Contract 59) between AWG and SEECO. Under
the stipulation and agreement, the price paid by AWG will be
referenced to an index plus a premium. At current market prices,
the new provision will result in a reduced sales price under the
contract.
"Contract 59 has provided unsurpassed reliability to AWG and
a wide array of services which would be more costly to obtain
from other sources," said Charles E. Scharlau, Chairman and Chief
Executive Officer of Southwestern. "After an extensive
investigation and two
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hearings, we continue to believe that the price paid by AWG under
Contract 59 is fair. But the Commission's investigation has been
expensive and has made it difficult for us to remain focused on
the things we need to do in the other parts of our business. The
settlement, if approved by the Commission, will dispose of this
matter and the financial impact to Southwestern will not impair
our ability to continue growing."
SEECO's net sales in 1993 to AWG under Contract 59 were 6.0
Bcf at an average price of $3.76 per Mcf.
The key provisions of the settlement agreement are as
follows:
1. SEECO and AWG will execute an Amended and Restated
Contract 59 effective July 1, 1994. The contract
annual volume will be changed to a fixed gross volume
of 9.0 billion cubic feet (Bcf), including the
royalty owners' portion of the gas sold. SEECO's net
sales under the contract will be approximately 7.65
Bcf.
2. Of the gross volume to be sold, 7.0 Bcf will be
purchased by AWG at a price equal to the INSIDE FERC
GAS MARKET REPORT index for first of month deliveries
into NorAm Gas Transmission Company from Arkansas and
Oklahoma (NorAm index), plus a fixed term premium of
$.95 per thousand cubic feet (Mcf). The remaining 2.0
Bcf of the gross volume will be sold at the NorAm
index plus a fixed term premium of $.50 per Mcf. The
different premiums will be applied on a pro rata
basis to purchases throughout the year.
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3. No pricing adjustment will be made on volumes sold by
SEECO to AWG prior to July 1, 1994. The parties
agree not to seek refunds of costs incurred by AWG
under Contract 59 prior to July 1, 1994.
4. SEECO will obtain ownership of all storage rights,
equipment, wells and gas in storage presently
utilized by AWG as a part of two storage facilities.
SEECO will purchase these facilities from AWG at book
value. AWG will retain ownership of one other
storage facility and will make pipeline and equipment
improvements which will enable it to meet its storage
requirements from that one facility. The cost of
those improvements is projected to be approximately
$2.6 million. The reduction in AWG's rate base which
will result from the transfer of facilities to SEECO
will not be reflected as a reduction of AWG's revenue
requirement prior to July, 1998.
5. SEECO's existing obligation to dedicate reserves and
leasehold acreage to AWG will be eliminated.
6. SEECO will waive all accumulated take-or-pay,
pricing, buy down, or other contractual claims
against AWG. AWG will take delivery of the amended
contract annual volume from SEECO each year and
deliver to storage any quantity not needed for its
system supply sales. All such volumes delivered to
storage will be added to AWG's rate base investment
in stored gas and AWG will be allowed to earn its
full authorized return on such volumes at the time of
its next rate case.
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7. AWG will agree not to file an application requesting
a general change in the rates and tariffs of its AWG
division prior to January 1, 1996. AWG will also
file for approval by the Commission prior to July 1,
1996, a gas supply plan which addresses the
arrangements to be made upon expiration of the
Amended and Restated Contract 59 in July, 1998.
The original version of Contract 59 was approved by the APSC
in 1979. The pricing issues were raised by the Commission in
connection with AWG's 1990 rate case. In the 1990 rate case, the
APSC Staff hired a consultant who performed an extensive review
of the utility's purchasing practices and gas costs and
recommended in filed testimony that all of AWG's gas costs,
including those under the intercompany contract, be accepted
without adjustment.
After an extended period of time during which the parties
involved attempted to negotiate a settlement, the Commission
conducted a hearing in January, 1993. In November, 1993, the
Commission issued an order which found the purchases of AWG under
Contract 59 to be in violation of an Arkansas statute requiring
that gas purchases be made "from the lowest or most advantageous
market." The order found that the price paid by AWG was too
high, but said that additional evidence was necessary to enable
the Commission to determine a proper price. A hearing was held
in January, 1994, to receive additional evidence, but the
Commission has not yet issued an order reporting its
determination of a more appropriate price under Contract 59.
Southwestern expects the Commission to establish a procedural
schedule for consideration of the stipulation and agreement.
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