Syracuse-based combination utility Niagara Mohawk, which provides natural gas to nearly 560,000 customers and power to 1.5 million customers in upstate New York, has signed an 11-month natural gas portfolio management agreement with New Jersey Resources subsidiary NJR Energy Services (NJRES). Most of the terms of the transaction were not disclosed.

The deal calls for the two companies to jointly manage and optimize Niagara Mohawk’s natural gas assets, including 800 MMcf/d of natural gas transportation capacity, 20 Bcf of storage capacity and related gas supply purchases. About 350,000 Dth/d of the transportation capacity is on Dominion Transmission, and 430,000 MMcf/d of storage deliverability also is on Dominion.

“It is more efficient [for us to outsource this] than keep it in house,” said Lee Klowsowski, director of supply and transportation with Niagara Mohawk. “Our corporate strategy is to get out of the merchant function. We’re looking to outsource, and we think that there is an advantage to going with somebody where that is their core business and they can bring a lot of tools that we don’t see [a need] to develop.”

Klowsowski noted that the utility must prepare for a peak demand day, and therefore, ends up buying more gas transportation and storage than it uses on an average day. In order to get the most from that excess capacity, it must be active in the market on a daily basis.

“Some of this is back office stuff, but our transportation and storage are procured to meet our design day requirements which don’t occur most days so there is slack capacity on certain days,” he said. “Our design day in the winter, for example, for our own system supply needs is somewhere around 800,000-900,000 Dth/d. But normal is probably in the 500,000-600,000 Dth/d, so there is that much in the margin.”

He said this transaction with NJRES is really an agent-client partnering relationship, which differs from a deal the utility signed with Southern Energy (now named Mirant) in 2001. “The Mirant contract was more of a release of assets over to the market, but because of bankruptcy concerns or financial risk issues, we didn’t think that structure worked anymore. There was a concern that if the entity went bankrupt [as Mirant did shortly after the portfolio management agreement expired] we [might not] get the assets back.”

This new partnership approach allows Niagara Mohawk to retain control over the assets while providing NJRES the flexibility to do business with the assets in Niagara Mohawk’s own name.

“This took a while to structure, get bids and work through the regulatory approval process,” Klowsowski said. The profits will go into a pot that is shared by both companies, and Niagara Mohawk’s portion of the proceeds will be shared with its ratepayers, who will receive an 85% cut.

“We’re enthusiastic about the value we can bring to Niagara Mohawk customers and other stakeholders through the expertise of our knowledgeable staff and extensive system infrastructure,” said Joseph P. Shields, senior vice president of energy services at NJRES. “The reliability that’s central to all we do is paramount in managing the lifeline assets of a local distribution company.”

NJRES provides unregulated wholesale energy services to customers in New Jersey, and in states from the Gulf Coast to New England, and Canada. The company maintains storage positions in the Gulf Coast, Appalachia, Mid-Continent and Canada. In 2004, natural gas sold or managed by NJRES was 1 Bcf/d.

©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.