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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2003 Commission File Number 1-4456
TEXAS EASTERN TRANSMISSION, LP
(Exact name of Registrant as Specified in its Charter)
Delaware 76-0677232
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
5400 Westheimer Court
P.O. Box 1642
Houston, TX 77251-1642
(Address of Principal Executive Offices)
(Zip code)
713-627-5400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes ( x ) No (__)
---
The registrant meets the conditions set forth in General Instructions (H)(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format. Part I, Item 2 has been reduced and Part I, Item 3 and Part
II, Items 2, 3, and 4 have been omitted in accordance with such Instruction H.
All of the registrant's limited partnership interests and all of the limited
liability company interests of its general partner are indirectly owned by Duke
Energy Corporation (File No. 1-4928), which files reports and proxy materials
pursuant to the Securities Exchange Act of 1934.
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TEXAS EASTERN TRANSMISSION, LP
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003
INDEX
Item Page
- ---- ----
PART I. FINANCIAL INFORMATION
1. Financial Statements ............................................................................ 1
Consolidated Statements of Operations for the Three Months Ended
March 31, 2003 and 2002 ..................................................................... 1
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 .................................................................... 2
Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 .......................... 3
Consolidated Statements of Comprehensive Income for the Three Months Ended
March 31, 2003 and 2002 ..................................................................... 5
Notes to Consolidated Financial Statements ...................................................... 6
2. Management's Discussion and Analysis of Results of Operations and Financial Condition ........... 10
4. Controls and Procedures ......................................................................... 12
PART II. OTHER INFORMATION
1. Legal Proceedings ............................................................................... 13
6. Exhibits and Reports on Form 8-K ................................................................ 13
Signature ....................................................................................... 14
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Texas Eastern Transmission, LP's (together with its subsidiaries, the
"Company's") reports, filings and other public announcements may contain or
incorporate by reference statements that do not directly or exclusively relate
to historical facts. Such statements are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. You can
typically identify forward-looking statements by the use of forward-looking
words, such as "may," "will," "could," "project," "believe," "anticipate,"
"expect," "estimate," "continue," "potential," "plan," "forecast" and other
similar words. Those statements represent the Company's intentions, plans,
expectations, assumptions and beliefs about future events and are subject to
risks, uncertainties and other factors. Many of those factors are outside the
Company's control and could cause actual results to differ materially from the
results expressed or implied by those forward-looking statements. Those factors
include:
. State and federal legislative and regulatory initiatives that affect
cost and investment recovery, have an impact on rate structures, and
affect the speed at and degree to which competition enters the natural
gas industry
. The outcomes of litigation and regulatory investigations, proceedings
or inquiries
. Industrial, commercial and residential growth in the Company's service
territories
. The weather and other natural phenomena
. The timing and extent of changes in commodity prices and interest rates
. General economic conditions, including any potential effects arising
from terrorist attacks, the situation in Iraq and any consequential
hostilities or other hostilities
. Changes in environmental and other laws and regulations to which the
Company and its subsidiaries are subject or other external factors over
which the Company has no control
. The results of financing efforts, including the Company's ability to
obtain financing on favorable terms, which can be affected by various
factors, including the Company's credit ratings, the credit ratings of
its parents, and general economic conditions
i
. The level of creditworthiness of counterparties to the Company's
transactions
. Growth in opportunities, including the timing and success of efforts to
develop pipeline infrastructure projects
. The performance of pipeline and gas processing facilities
. The extent of success in connecting natural gas supplies to gathering
and processing systems and in connecting and expanding gas markets and
. The effect of accounting pronouncements issued periodically by
accounting standard-setting bodies.
In light of these risks, uncertainties and assumptions, the events described in
the forward-looking statements might not occur or might occur to a different
extent or at a different time than the Company has described. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TEXAS EASTERN TRANSMISSION, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions)
Three Months Ended
March 31,
--------------------
2003 2002
--------------------
Operating Revenues
Transportation of natural gas $170 $159
Storage of natural gas and other services 49 41
---- ----
Total operating revenues 219 200
---- ----
Operating Expenses
Operation and maintenance 57 61
Depreciation and amortization 22 21
Property and other taxes 12 12
---- ----
Total operating expenses 91 94
---- ----
Operating Income 128 106
Other Income and Expenses 1 -
Interest Expense 21 11
---- ----
Earnings Before Income Taxes 108 95
Income Taxes 39 33
---- ----
Net Income $ 69 $ 62
==== ====
See Notes to Consolidated Financial Statements.
1
TEXAS EASTERN TRANSMISSION, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three Months Ended
March 31,
------------------
2003 2002
-------- ------
CASH FLOWS FROM OPERATING ACTIVITIES $ 85 $ 121
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (21) (22)
Net increase in advances receivable - affiliates (65) (99)
Retirements and other 1 -
------- ------
Net cash used in investing activities (85) (121)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES - -
------- ------
Net change in cash and cash equivalents - -
Cash and cash equivalents at beginning of period - -
------- ------
Cash and cash equivalents at end of period $ - $ -
======= ======
See Notes to Consolidated Financial Statements.
2
TEXAS EASTERN TRANSMISSION, LP
CONSOLIDATED BALANCE SHEETS
(In millions)
March 31, December 31,
2003 2002
(Unaudited)
----------- ------------
ASSETS
Current Assets
Accounts receivable, net of allowances for doubtful accounts $ 72 $ 74
Inventory 25 25
Other 73 32
----------- ------------
Total current assets 170 131
----------- ------------
Investments and Other Assets
Advances receivable - affiliates 1,406 1,282
Goodwill, net of accumulated amortization 136 136
----------- ------------
Total investments and other assets 1,542 1,418
----------- ------------
Property, Plant and Equipment
Cost 3,978 4,039
Less accumulated depreciation and amortization 1,246 1,252
----------- ------------
Net property, plant and equipment 2,732 2,787
----------- ------------
Regulatory Assets and Deferred Debits 136 137
----------- ------------
Total Assets $ 4,580 $ 4,473
=========== ============
See Notes to Consolidated Financial Statements.
3
TEXAS EASTERN TRANSMISSION, LP
CONSOLIDATED BALANCE SHEETS
(In millions)
March 31, December 31,
2003 2002
(Unaudited)
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable $ 11 $ 22
Taxes accrued 161 136
Interest accrued 21 28
Other 120 102
----------- ------------
Total current liabilities 313 288
----------- ------------
Long-term Debt 1,185 1,185
----------- ------------
Deferred Credits and Other Liabilities
Deferred income taxes 751 748
Other 121 109
----------- ------------
Total deferred credits and other liabilities 872 857
----------- ------------
Partners' Capital
Partners' capital 2,219 2,150
Accumulated other comprehensive loss (9) (7)
----------- ------------
Total partners' capital 2,210 2,143
----------- ------------
Total Liabilities and Partners' Capital $ 4,580 $ 4,473
=========== ============
See Notes to Consolidated Financial Statements.
4
TEXAS EASTERN TRANSMISSION, LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
Three Months Ended
March 31,
------------------------
2003 2002
-------- --------
Net Income $ 69 $ 62
Other Comprehensive Loss, net of tax
Unrealized net loss on cash flow hedges (net of tax of $3 in 2003 and
$3 in 2002) (6) (5)
Reclassification adjustment into earnings (net of tax of $3 in 2003 and
$1 in 2002) 4 (2)
-------- --------
Total Other Comprehensive Loss (2) (7)
-------- --------
Total Comprehensive Income $ 67 $ 55
======== ========
See Notes to Consolidated Financial Statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations
Texas Eastern Transmission, LP (together with its subsidiaries, the "Company")
is an indirect, wholly-owned subsidiary of Duke Energy Corporation (Duke
Energy). The Company is primarily engaged in the interstate transportation and
storage of natural gas. The Company's interstate natural gas transmission and
storage operations are subject to the rules and regulations of the Federal
Energy Regulatory Commission (FERC).
2. Summary of Significant Accounting Policies
Consolidation. The Consolidated Financial Statements include the accounts of the
Company and all wholly-owned subsidiaries, after eliminating significant
intercompany transactions and balances. These Consolidated Financial Statements
reflect all normal recurring adjustments that are, in the opinion of management,
necessary to present fairly the financial position and results of operations for
the respective periods. Amounts reported in the interim Consolidated Statements
of Operations are not necessarily indicative of amounts expected for the
respective annual periods due to the effects of seasonal temperature variations
on energy consumption.
Conformity with generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and notes. Although these estimates are based on
management's best available knowledge of current and expected future events,
actual results could be different from those estimates.
Asset Retirement Obligations. As of January 1, 2003, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations," which addressed financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or normal use of the asset.
The implementation of SFAS No. 143 in the first quarter of 2003 resulted in a
net $6 million increase in property, plant and equipment. Liabilities increased
approximately $6 million representing the establishment of an asset retirement
obligation. If SFAS No. 143 had been in effect for the three prior years, the
pro forma effects on the asset retirement obligation liability for each year
would have been immaterial. The asset retirement obligation is adjusted each
quarter for any liabilities incurred or settled during the period, accretion
expense and any revisions made to the estimated cash flows. For the first
quarter of 2003, the accretion expense was approximately $0.1 million. As of
March 31, 2003, the Company has no assets that are legally restricted for the
purposes of settling asset retirement obligations.
3. Regulatory Matters
Order 637. In 2000, the FERC issued Order 637, which revised its regulations for
the intended purpose of improving the competitiveness and efficiency of natural
gas markets. Order 637 effected changes in capacity segmentation, rights of
first refusal (ROFR), scheduling procedures, as well as various reporting
requirements intended to provide more transparent pricing information and permit
more effective monitoring of the market. The FERC also required each interstate
pipeline to submit individual compliance filings to implement the requirements
of Order 637. Several parties, including the Company, filed appeals in the
District of Columbia Court of Appeals seeking court review of various aspects of
Order 637, including (i) the right of customers to segment their capacity rights
in a manner that would allow both a forwardhaul and a backhaul transportation
transaction to a single delivery point, and (ii) the ROFR granted to existing
customers to extend contracts beyond the end of the contract's primary term. In
April 2002, the District of Columbia Court of Appeals generally affirmed Order
637 but remanded certain issues to the FERC for further disposition, including
the forwardhaul/backhaul and ROFR issues. These matters are still under review
by the FERC.
6
In addition to the FERC's general Order 637 rulemaking proceeding, the FERC also
required each interstate pipeline company to make individual compliance filings
to implement the specific requirements of Order 637. The Company made its Order
637 compliance filing with the FERC during the third quarter of 2001. On
February 27, 2002, the FERC issued an order approving, subject to modifications,
the pro forma tariff sheets submitted by the Company. The Company, as well as
several other parties, filed for rehearing of the February 27, 2002, order with
respect to certain issues. The Company also submitted revised tariff sheets on
May 29, 2002, reflecting the modifications required by the FERC. The FERC issued
an order on February 24, 2003 addressing the various rehearing requests as well
as the Company's tariff filings, and requiring the Company to implement certain
findings from the order in the second quarter of 2003 and other findings in the
third quarter of 2003. On March 25, 2003, the Company submitted a complete set
of Order 637 compliance tariff sheets reflecting the changes required by the
order issued on February 24, 2003. The Company is awaiting final approval of its
compliance filing from the FERC.
Management believes that the implementation of Order 637 will have no material
adverse effect on the Company's future consolidated results of operations, cash
flows or financial position.
Fuel Tracker. Other Current Assets on the Consolidated Balance Sheets included
$14 million as of March 31, 2003 and $9 million as of December 31, 2002, for
costs related to fuel and balancing activity of the pipeline system that are
recovered annually in transportation rates in accordance with the Company's FERC
gas tariff.
Standards of Conduct. In September 2001, the FERC issued a Notice of Proposed
Rulemaking (NOPR) announcing they would substantially modify the current
standards of conduct uniformly applicable to natural gas pipelines and electric
transmitting public utilities currently subject to differing standards. The
proposal impacts how companies and their affiliates interact and share
information by broadening the definition of "affiliate" covered by the standards
of conduct. Duke Energy filed extensive comments on the NOPR with the FERC in
December 2001. In April 2002, the FERC Staff issued an analysis of all comments
received which reflected important progress in several areas. With regard to
corporate governance, however, the FERC Staff's analysis recommended adoption of
an automatic imputation rule which could impact parent company oversight of
subsidiaries with pipeline and storage functions. A public conference was held
in May 2002 to discuss the proposed revisions to the gas and electric standards
of conduct. Duke Energy filed supplemental comments with respect to the FERC
Staff's analysis in June 2002. The FERC is expected to take further action on
the NOPR in the first half of 2003.
4. Gas Imbalances
The Consolidated Balance Sheets include in-kind balances as a result of
differences in gas volumes received and delivered. As the settlement of
imbalances are in-kind, changes in the balances do not have an impact on the
Company's Consolidated Statements of Cash Flows. Other Current Assets include
$57 million as of March 31, 2003 and $21 million as of December 31, 2002, and
Other Current Liabilities include $82 million as of March 31, 2003 and $51
million as of December 31, 2002, related to gas imbalances. Natural gas volumes
owed to (by) the Company are valued at natural gas market prices as of the
balance sheet dates. When comparing 2003 and 2002, the increased balances are
primarily the result of increased market prices for natural gas.
5. Related Party Transactions
- --------------------------------------------------------------------------------
Balance Sheet Transactions (in millions)
- --------------------------------------------------------------------------------
March 31, December 31,
2003 2002
----------------------------------
Accounts receivable $ 13 $ 11
Other current assets - gas imbalances 30 4
Accounts payable 3 6
Other current liabilities - gas imbalances 13 31
Taxes accrued 123 89
- --------------------------------------------------------------------------------
7
- -----------------------------------------------------------------------
Income Statement Transactions (in millions)
- -----------------------------------------------------------------------
For the Three Months
Ended March 31,
-------------------------
2003 2002
-------------------------
Transportation of natural gas /a/ $ 10 $ 8
Storage of natural gas and other services /a/ 27 14
Operation and maintenance /b/ 22 14
- -----------------------------------------------------------------------
/a/ In the normal course of business, the Company provides natural gas
transportation, storage and other services to affiliates such as Duke Energy
Trading and Marketing, LLC (DETM) and Duke Energy Field Services, LLC (DEFS).
/b/ Includes reimbursement of costs incurred by affiliates on behalf of the
Company, gas purchased from affiliates such as DETM and DEFS for operations, and
allocations from Duke Energy affiliates for various services and other costs.
Duke Energy affiliates charge such expenses based on the cost of actual services
provided or using various allocation methodologies based on the Company's
percentage of assets, employees, earnings, or other measures, as compared to
other Duke Energy affiliates.
Advances receivable-affiliates do not bear interest. Advances are carried as
open accounts and are not segregated between current and non-current amounts.
Increases and decreases in advances result from the movement of funds to provide
for operations, capital expenditures and debt payments of the Company. In March
2003, the Company transferred its interests in its primary office building in
Houston, Texas to the Company's limited partner at its net book value, which
increased Advances receivable-affiliates by approximately $59 million.
The Company also has two notes payable issued to an affiliate, PanEnergy Corp,
totaling $1.6 billion, which were outstanding at March 31, 2003 and December 31,
2002. Interest expense related to these notes totaled approximately $38 million
for the three months ended March 31, 2003 and 2002, respectively. In addition,
the Company has two notes receivable from PanEnergy Corp totaling $1.6 billion
which were outstanding at March 31, 2003 and December 31, 2002. Interest income
related to these notes totaled approximately $38 million for the three months
ended March 31, 2003 and 2002, respectively. These notes contain a right of
setoff and are presented, along with their interest components, net in the
consolidated financial statements.
6. Commitments and Contingencies
Environmental. The Company is subject to federal, state and local regulations
regarding air and water quality, hazardous and solid waste disposal and other
environmental matters.
Remediation activities. The Company is responsible for environmental remediation
at various impacted properties or contaminated sites. These include some sites
that are part of ongoing Company operations or are owned by the Company as well
as sites owned by third parties. These matters typically involve management of
contaminated soils and may involve ground water remediation. They are managed in
conjunction with the relevant federal, state, and local agencies. These sites or
matters vary, for example, with respect to site conditions and location,
remedial requirements, sharing of responsibility by other entities, and
complexity. Certain matters can involve statutory joint and several liability
provisions, strict liability, or cost recovery or contribution actions, whereby
the Company could potentially be held responsible for contamination caused by
other parties. In some instances, the Company may share any liability associated
with contamination with other potentially responsible parties, and the Company
may benefit from insurance policies or contractual indemnities that cover some
cleanup costs. All of these sites generally are managed in the normal course of
business. At March 31, 2003 and December 31, 2002, the Company has recorded
reserves for remediation activities on an undiscounted basis for approximately
$26 million. Management believes that completion or resolution of these matters
will have no material adverse effect on consolidated results of operations, cash
flows, or financial position.
8
Air Quality Control. The Company operates compressor stations located in 15
different states. From time to time states, as well as the Environmental
Protection Agency (EPA), will modify the regulatory requirements in order to
maintain compliance with the Federal Clean Air Act requirements. These
regulatory modifications sometimes necessitate the addition of emission
controls. Management estimates that the Company will spend up to approximately
$30 million in capital costs for additional emission controls through 2007 in
order to comply with new EPA and state regulatory requirements. These estimates
remain subject to change, however, due to continuing changes to the
requirements. Management believes that completion or resolution of these matters
will have no material adverse effect on consolidated results of operations, cash
flows, or financial position.
Litigation. The Company is involved in legal, tax and regulatory proceedings
before various courts, regulatory commissions and governmental agencies
regarding performance, contracts and other matters arising in the ordinary
course of business, some of which involve substantial amounts. Management
believes that the final disposition of these proceedings will have no material
adverse effect on consolidated results of operations, cash flows or financial
position.
9
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
INTRODUCTION
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements. Because all of the partnership interests of
the Company are owned indirectly by Duke Energy Corporation (Duke Energy), the
following discussion has been prepared in accordance with the reduced disclosure
format permitted by Form 10-Q for certain issuers that are wholly-owned
subsidiaries of reporting companies under the Securities Exchange Act of 1934
set forth in General Instruction H (1)(a) and (b) for Form 10-Q.
Texas Eastern Transmission, LP (Texas Eastern) is an indirect wholly-owned
subsidiary of Duke Energy. Texas Eastern and its subsidiaries (the "Company")
are primarily engaged in the interstate transportation and storage of natural
gas for customers primarily in the Mid-Atlantic and northeastern states.
Interstate natural gas transmission and storage operations are subject to the
Federal Energy Regulatory Commission's (FERC's) rules and regulations.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2003 increased $7 million
compared to the same period in 2002. The increase was mainly attributable to new
firm contracts in addition to higher usage revenue as a result of colder weather
in comparison to the same period during the prior year, and higher prices of
energy-related products. These increases were partially offset by increased
interest expense as a result of bond issuances in July 2002.
The Company's throughput was 395 trillion British thermal units (TBtu) for the
three months ended March 31, 2003 and 334 TBtu for same period in 2002. The
increase of approximately 18% was a result of the colder weather in early 2003
in the Company's market areas.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003 and December 31, 2002, the Company had no cash or cash
equivalents since all cash is managed collectively at the parent-company level
and is therefore advanced to/from affiliates as cash is generated or paid by the
Company. The Company's working capital was a $143 million deficit as of March
31, 2003, compared to a $157 million deficit as of December 31, 2002. The
Company's capital expenditures, debt repayments and operating requirements are
expected to be funded by cash from operations. Management believes the Company
has adequate financial flexibility and resources to meet its future needs.
Cash flows from operating activities decreased $36 million from the same period
of the prior year mostly due to negative changes in working capital compared to
the 2002 period and fuel tracker gas purchases in 2003.
Capital expenditures for the first three months of 2003 were $21 million and $22
million for the comparable 2002 period. Projected 2003 capital expenditures,
including allowance for funds used during construction, are approximately $74
million, with market-expansion expenditures approximating 26% of the capital
budget. All projected capital expenditures are subject to periodic review and
revision and may vary significantly depending on a number of factors, including,
but not limited to, industry restructuring, regulatory constraints, acquisition
opportunities, market volatility and economic trends.
In March 2003, Moody's Investor Service (Moody's) placed its long-term and
short-term ratings of Duke Energy and Duke Capital Corporation, an indirect
parent company, and its long-term ratings of the Company and PanEnergy Corp, an
indirect parent company, on review for potential downgrade. Moody's review was
prompted by concerns regarding cash flow coverage metrics at Duke Capital
Corporation and uncertainties associated with forecasting cash flow
contributions from other, non-regulated subsidiaries of Duke Energy.
10
As of March 31, 2003, the Company's senior unsecured credit ratings were
"A-"(S&P), "Baa1" (Moody's), and "BBB+" (Fitch). The ratings of the Company and
its parent companies are dependent on, among other factors, Duke Energy's
ability to generate sufficient cash to fund its capital and investment
expenditures and dividends, while strengthening the balance sheet through debt
reductions. If, as a result of market conditions or other factors affecting Duke
Energy's business, Duke Energy is unable to execute its business plan, including
disposition of non-core assets, or if Duke Energy's earnings outlook
deteriorates, Duke Energy's and the Company's ratings could be further affected.
CURRENT ISSUES
Regulatory Matters. In 2000, the FERC issued Order 637, which revised its
regulations for the intended purpose of improving the competitiveness and
efficiency of natural gas markets. Order 637 effected changes in capacity
segmentation, rights of first refusal (ROFR), scheduling procedures, as well as
various reporting requirements intended to provide more transparent pricing
information and permit more effective monitoring of the market. The FERC also
required each interstate pipeline to submit individual compliance filings to
implement the requirements of Order 637. Several parties, including the Company,
filed appeals in the District of Columbia Court of Appeals seeking court review
of various aspects of Order 637, including (i) the right of customers to segment
their capacity rights in a manner that would allow both a forwardhaul and a
backhaul transportation transaction to a single delivery point, and (ii) the
ROFR granted to existing customers to extend contracts beyond the end of the
contract's primary term. In April 2002, the District of Columbia Court of
Appeals generally affirmed Order 637 but remanded certain issues to the FERC for
further disposition, including the forwardhaul/backhaul and ROFR issues. These
matters are still under review by the FERC.
In addition to the FERC's general Order 637 rulemaking proceeding, the FERC also
required each interstate pipeline company to make individual compliance filings
to implement the specific requirements of Order 637. The Company made its Order
637 compliance filing with the FERC during the third quarter of 2001. On
February 27, 2002, the FERC issued an order approving, subject to modifications,
the pro forma tariff sheets submitted by the Company. The Company, as well as
several other parties, filed for rehearing of the February 27, 2002, order with
respect to certain issues. The Company also submitted revised tariff sheets on
May 29, 2002, reflecting the modifications required by the FERC. The FERC issued
an order on February 24, 2003 addressing the various rehearing requests as well
as the Company's tariff filings, and requiring the Company to implement certain
findings from the order in the second quarter of 2003 and other findings in the
third quarter of 2003. On March 25, 2003, the Company submitted a complete set
of Order 637 compliance tariff sheets reflecting the changes required by the
order issued on February 24, 2003. The Company is awaiting final approval of its
compliance filing from the FERC.
Management believes that the implementation of Order 637 will have no material
adverse effect on the Company's future consolidated results of operations, cash
flows or financial position.
For information on additional regulatory matters, see Note 3 to the Consolidated
Financial Statements, "Regulatory Matters."
Environmental. The Company is subject to federal, state and local regulations
regarding air and water quality, hazardous and solid waste disposal and other
environmental matters.
Remediation activities. The Company is responsible for environmental remediation
at various impacted properties or contaminated sites. These include some sites
that are part of ongoing Company operations or are owned by the Company as well
as sites owned by third parties. These matters typically involve management of
contaminated soils and may involve ground water remediation. They are managed in
conjunction with the relevant federal, state, and local agencies. These sites or
matters vary, for example, with respect to site conditions and location,
remedial requirements, sharing of responsibility by other entities, and
complexity. Certain matters can involve statutory joint and several liability
provisions, strict liability, or cost recovery or contribution actions, whereby
the Company could potentially be held responsible for contamination caused by
other parties. In some instances, the Company may share any liability associated
with contamination with other potentially responsible parties, and the Company
may benefit from insurance policies or contractual indemnities that cover some
cleanup costs. All of these sites generally are managed in the normal course of
business. At March 31, 2003 and December 31, 2002, the Company has recorded
reserves for remediation activities on an undiscounted basis for approximately
$26 million. Management believes
11
that completion or resolution of these matters will have no material adverse
effect on consolidated results of operations, cash flows, or financial position.
Air Quality Control. The Company operates compressor stations located in 15
different states. From time to time states, as well as the Environmental
Protection Agency (EPA), will modify the regulatory requirements in order to
maintain compliance with the Federal Clean Air Act requirements. These
regulatory modifications sometimes necessitate the addition of emission
controls. Management estimates that the Company will spend up to approximately
$30 million in capital costs for additional emission controls through 2007 in
order to comply with new EPA and state regulatory requirements. These estimates
remain subject to change, however, due to continuing changes to the
requirements. Management believes that completion or resolution of these matters
will have no material adverse effect on consolidated results of operations, cash
flows, or financial position.
Item 4. Controls and Procedures.
During April and May 2003, the Company's management, including the President and
Chief Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures as defined in Exchange Act Rule 13a-14. Based on that
evaluation, they concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion. The required
information was effectively recorded, processed, summarized and reported within
the time period necessary to prepare this quarterly report. The Company's
disclosure controls and procedures are effective in ensuring that information
required to be disclosed in the Company's reports under the Exchange Act are
accumulated and communicated to management, including the President and the
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. There have been no significant changes in internal
controls, or in factors that could significantly affect internal controls, after
the President and Chief Financial Officer completed their evaluation.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For information concerning material litigation and other contingencies, see Note
6 to the Consolidated Financial Statements, "Commitments and Contingencies."
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number
- ------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the first quarter of 2003.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXAS EASTERN TRANSMISSION, LP
By: Duke Energy Gas Transmission Services, LLC,
its General Partner
Date: May 15, 2003 /s/ Dorothy M. Ables
---------------------------
Dorothy M. Ables
Senior Vice President and Chief Financial Officer
14
CERTIFICATIONS
I, Thomas C. O'Connor, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Texas Eastern
Transmission, LP;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ Thomas C. O'Connor
----------------------------------------
Thomas C. O'Connor
President
Duke Energy Gas Transmission Services, LLC
General Partner of Texas Eastern Transmission, LP
15
CERTIFICATIONS
I, Dorothy M. Ables, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Texas Eastern
Transmission, LP;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ Dorothy M. Ables
----------------------------------------
Dorothy M. Ables
Senior Vice President and Chief Financial Officer
Duke Energy Gas Transmission Services, LLC
General Partner of Texas Eastern Transmission, LP
16