Columbia Gas System Inc. yesterday said it has reached an agreement with four natural gas producers that eventually will lower the overall costs of purchasing gas by 20 percent or more.
The Wilmington-based company said subsidiaries of Amoco Corp., Chevron Corp., Shell Oil Co. and Texas Oil & Gas Corp. agreed to amend high-cost gas contracts with Columbia Gas Transmission Corp., a subsidiary of Columbia Gas System. The agreement is not subject to approval by the Federal Energy Regulatory Commission, the company said.
Gas supplied by the four companies comes from the Rocky Mountain region and the Southwest. The amendments to the contracts cover more than 75 percent of the high-cost gas purchased by Columbia Gas Transmission for distribution to utilities in D.C., Maryland, Virginia, West Virginia and other states.
"We are very pleased that each of these four producers, after considerable study and discussions with us, has negotiated a settlement agreeable to the producer and Columbia," said Columbia Gas System Chairman John Croom. "We believe that these settlements provide reasonable solutions to difficult and mutual problems."
Utilities, which usually purchase gas from a mix of suppliers, might be expected to lower prices to consumers as a result of the deal, said Bruce Quayle, a spokesman for Columbia Gas System. "Ultimately, the benefit of lower prices that the transmission company will charge, I would think would be reflected in the rates" of utilities, he said. Washington Gas Light Co.'s offices were closed yesterday, and officials could not be reached for comment.
The agreement includes lower prices, reductions in take-or-pay levels to 50 percent rather than 90 percent of gas offered, and gas price adjustments four times a year, Quayle said. In exchange, the four suppliers will receive about $600 million. Columbia Gas plans to reach an agreement with another 18 gas producers and has set aside $800 million that eventually will be paid to them all.
Columbia ran into problems earlier when it signed contracts with producers that locked the company into taking high-priced gas, or paying for it, to secure gas supplies for the future. But a natural gas glut has caused prices to fall.
The price of high-cost gas, which now is about $3.61 per 1,000 cubic feet, could be reduced by about 25 percent beginning in 1986 if negotiations with all the producers are successful. The company's overall gas purchase costs could fall more than 20 percent from $3.54 per 1,000 cubic feet, Quayle said.
Quayle said the company "would have been in a financial bind" if not for this agreement with the suppliers because of a FERC agreement reached earlier this year that reduced its wholesale gas rates 11.5 percent for two years.
Columbia had "recklessly disregarded" its legal obligation to provide service at the lowest reasonable cost, FERC had said. Columbia must lower prices to 4.2 million natural gas customers, which will cost the company nearly $1 billion.
Columbia Gas also yesterday reported a third-quarter loss of $12.8 million (40 cents a share), compared with a profit of $7.9 million (11 cents) for the same period a year earlier. Revenue for the third quarter was $560.1 million compared with $635.5 million a year earlier. Columbia also reported a nine-month loss of $188.6 million ($3.21) on revenue of $2.9 billion, compared with a profit of $125 million ($2.92) on revenue of $3.4 billion a year earlier.
Sales of natural gas fell 15.5 percent to 487.9 billion cubic feet from 577.1 billion between January and September, Quayle said.
Columbia had estimated that the FERC settlement agreement would result in losses of between $60 million and $80 million in 1985, but has upped the figure to more than $100 million. The estimated losses have been increased because negotiation with all 22 producers has taken longer than expected and the fourth quarter has been warmer than expected, leading to decreased sales, Quayle said.