FEDERAL ENERGY REGULATORY COMMISSION

WASHINGTON, D.C. 20426

February 6, 2006

In Reply Refer To:

Tennessee Gas Pipeline Company

Docket No. RP06-125-000

Tennessee Gas Pipeline Company

PO Box 2511

Houston, TX 77252-2511

Attention: Jacques A. Hodges, Attorney

Reference: Annual Cashout Report

Dear Mr. Hodges:

1.  On November 30, 2005, Tennessee Gas Pipeline Company (Tennessee)
    filed its annual cashout report for the period September 2004
    through August 2005 (2005 Cashout Report). The 2005 Cashout Report
    was filed in accordance with the reconciliation methodology
    established by Tennessee\'s Cashout Settlement which became
    effective September 1, 1998.[^1] The report reflects that Tennessee
    experienced a loss of \$3,412,407 from cashout operations during the
    period covered by the report. Tennessee states that, included in
    this amount are certain penalty credits as provided for by Article
    XXXVIII of the General Terms and Conditions of Tennessee's tariff.
    The cashout loss, when combined with the prior cumulative cashout
    loss of \$532,183 results in a cumulative loss of \$3,944,590. In
    accordance with Tennessee\'s Rate Schedules LMS-MA and LMS-PA,
    Tennessee states that it will roll this loss forward into its next
    annual cashout period. The 2005 Cashout Report satisfactorily
    complies with the methodology established in the Cashout Settlement
    and is accepted for filing.

2.  Public notice of the filing was issued on December 6, 2005.
    Interventions and protests were due as provided in section 154.210
    of the Commission's regulations.[^2]

Pursuant to Rule 214 of the Commission\'s Rules of Practice and
Procedure, all timely motions to intervene and all motions to intervene
out of time filed before the issuance of this order are granted.[^3]
Granting late intervention will not disrupt the proceeding or place
additional burdens on existing parties. Chattanooga Gas Company
(Chattanooga) and Pivotal Utility Holdings, Inc. d/b/a Elizabethtown Gas
Company (Elizabethtown) filed comments which are discussed below. New
England Local Distribution Companies (New England) filed comments and a
request for technical conference. Subsequently, New England filed a
notice of withdrawal of comments and request for technical conference.

3.  Chattanooga and Elizabethtown state that because the loss that
    Tennessee reports to have experienced for the period September 2004
    through August 2005 is significantly greater than for the previous
    period, the Commission should consider re-examining the current
    cashout formula to determine if it is reasonable.

4.  On December 16, 2004, Tennessee filed an answer to Chattanooga and
    Elizabethtown's comments.[^4] Tennessee states that the comments are
    outside the scope of this proceeding and the parties have not
    satisfied their burden of proof pursuant to the Cashout Settlement
    and section 5 of the Natural Gas Act to give reason why the
    Commission should review the just and reasonableness of the cashout
    mechanism. Tennessee also states that over the long term the Cashout
    Settlement and methodology have benefited its customers. Finally,
    Tennessee states that the cashout costs and revenues were near
    break-even until the final months of the period when hurricane
    Katrina hit the Gulf Coast. Tennessee states that hurricane Katrina
    severly impacted gas supplies for pipelines in the United States. It
    states that, as gas supply was reduced, the level of imbalance
    activity increased, resulting in a net cashout sale of 1,126,869 Dth
    in August, 2005, the last month of the annual period. Tennessee
    further states that, because it was forced to purchase its cashout
    gas on the spot market, it was forced to pay spot market prices
    which resulted in a loss of over \$4 million to balance the cashout
    activity for the final two months of the annual period.

5.  Chattanooga and Elizabethtown request that the Commission reexamine
    the current cashout formula to determine if it is reasonable based
    only on the fact that there is an increase in the cumulative loss
    relative to that reflected in Tennessee's previous cash-out report.
    Chattanooga and Elizabethtown have not provided any other
    information to warrant such an inquiry and we find that, in its
    Answer, Tennessee has provided a

reasonable explanation for the increase. Tennessee has made its filing
in satisfactory compliance with its tariff provisions and with the
methodology established in the Cashout Settlement. Accordingly, the
filing is accepted.

By direction of the Commission.

Magalie R. Salas,

Secretary.

[^1]: 87 FERC & 61,106 (1999).

[^2]: 18 C.F.R. §154.210 (2005).

[^3]: 18 C.F.R. §385.214 (2005).

[^4]: We will accept the Answer as it has aided in the disposition of
    the issue raised by the comments.