The demonstrative trend among the top energy marketers appearsto be that the big movers continue getting much bigger while thesmaller marketers are struggling to maintain previous sales volumesand profitability, according to NGI’s marketing survey. The surveyalso indicates volume growth has very little correlation withfinancial performance.

Only five of the top-20 gas marketers saw their sales volumesdecline from the first quarter of 1998 to 1Q99: Engage, El Paso,Williams, Texaco and Sonat. And six of the top-20 power marketersreported lower volumes compared to the same quarter in 1998: Duke,Entergy, Dynegy, Reliant, Statoil and PacifiCorp. But a significantnumber reported declines in profitability.

On average the gas group grew volumes by 1.2 Bcf/d, while thetop-20 power marketers added 4.6 million MWh to their sales. Thegas group sold a total of 133 Bcf/d of gas and the power group sold409 million MWh.

Enron once again topped both lists with 85 million MWh of powersales and 12.5 Bcf/d of gas sales. And the company reported astrong 28.5% growth in operating income from its wholesalemarketing and services operations, posting $320 million in thefirst quarter compared with $249 million in 1Q98.

But the contrast between volume growth, or decline, andfinancial performance showed up significantly in Dynegy’s results.Operating margin from Dynegy’s power marketing and generationjumped to $37.4 million in 1Q99 from only $7.1 million in 1Q98despite a near 50% drop in power marketing volumes to 13.1 millionMWh from 25 million MWh. The company fell to No. 12 in the powerranking from No. 7

Based on pure volume performance, PG&E Energy Tradingappears to be improving substantially but the full story won’t betold until the company releases its earnings later this month.PG&E Energy Trading has moved right up on Enron’s heels in gasmarketing, jumping to No. 2 in the first quarter from No. 4 in lastyear’s fourth quarter, riding a 4.37 Bcf/d increase in volumes.

Although Aquila Energy saw an almost 2 Bcf/d rise (21%) in gassales, it fell to fourth place. Power marketing volumes soared 86%to 44 million MWh pushing Aquila up a notch in the rankings tosecond. But Aquila’s first quarter earnings before interest andtaxes suffered considerably, dropping 61% to $8.5 million from 1998first quarter EBIT of $21.7 million.

Aquila said earnings from its wholesale power unit improveddramatically from the prior year with good performance in both termorigination and trade operations. But in gas, a warmer-than-normalwinter slowed origination opportunities and reduced margins intrade operations.

Engage Energy continued to report dwindling volume resultsduring the first quarter but the company reported a slightimprovement in its financial performance. Engage parent WestcoastEnergy reported that marketing operations incurred a net lossapplicable to common shares of $3 million for the first quarter of1999 compared with a net loss of $7 million in 1998. Westcoast saidthe reduction in the net loss was a result of “focusing onhigher-value services. Engage Energy’s Canadian operations andindividually structured natural gas and electricity tradingarrangements for customers in the United States have beensuccessful and continue to grow.”

After posting a 7% gain in gas volumes from July to September of1998, Engage posted decreased volumes in both the fourth quarter of1998 and first quarter of 1999. With the latest drop of more than12% to 6.38 Bcf/d, Engage fell to ninth place. With power volumesplummeting 65% on the power side to only 1.9 million MWh, Engagehas some significant ground to make up to reach the top-20.

The company biting at Engage’s heels on the gas side, ColumbiaEnergy, has been rising by leaps and bounds since 3Q98. The firstquarter 1999 marked the second straight 50% rise in gas salesvolumes for the Virginia-based integrated pipeline company.

But Columbia’s marketing division reported an operating loss of$21.5 million for the quarter, which was $16 million more than the$5.5 million loss in 1Q98. Columbia attributed the loss toincreased retail customer acquisition costs, infrastructureinvestments and additional staffing, as well as an effort totemporarily scale down wholesale marketing operations until arestructuring of the division is complete and a new senior officeris found. Total gross marketing margins dropped $5.7 million.

Columbia CFO Michael W. O’Donnell said despite the volume growthColumbia “significantly cut back on the amount of risk activity inthe company,” since trading snafus contributed to a fourth quarterloss of $39.4 million and a loss for the year of $59 million.”We’ve moved the management of the books, the marking of the pricesin the books, from the front office to the mid-office. We thinkthat’s a much better risk management practice than we had before.In addition to that, we’re just doing a lower level of tradingactivity generally.”

Another company achieving a 50% increase in gas marketing volumewas Sempra Energy, which added CNG’s energy marketing portfoliolate last year. The rise placed the San Diego-based marketer in12th place, up two spots from its 4Q98 ranking. This is the thirdstraight quarter Sempra has posted a volume increase of 50%.

Sonat Marketing appears to be headed in the opposite directionof Sempra. It posted a decrease in volumes marketed for the thirdstraight quarter. The 1Q99 drop was the most significant, however,as the volumes fell 20% from 1Q98 levels.

One result of the poor performance was Atlanta Gas Light’s (AGL)announced its intention to sell its 35% interest in SonatMarketing. Due to disappointing results from the venture, includinga $3.5 million non-recurring accounting charge last quarter, AGLexercised its option to sell its interest back to Sonat for no lessthan the original investment plus interest. The AGL announcement,however, also allowed Sonat to buy back from AGL a 35% share inSonat Power Marketing last Friday.

Duke’s Gas Sales Jump, Power Falls

Despite a 9% decline in power volumes to 21.8 million MWh, DukeEnergy’s trading and marketing operation, reported EBIT of $33million versus $13 million for the same quarter last year. A 39%increase in the amount of natural gas marketed helped boostmargins. Duke sold 11.4 Bcf/d of gas during 1Q99.

Brad Karp, president of the North Carolina-based company’smarketing and trading division said all signs are pointing toprolonged positive results.

“We are very encouraged by the power division’s performance. Wearen’t a volume-based company, so the decline isn’t very worrisome.What impresses us is the quality of the sales improved. We boughtmore power directly from generators and sold more power to endusers and to distribution companies. Less of our volumes wereincluded in the daisy chains that are so common in the power marketthese days.”

One company losing major ground in the power ranking wasPacificorp. After knocking on the door of the top-10 in 4Q98 withan 11th place finish, the Oregon-based company plummeted to 17thplace in 1999’s first quarter. Power volumes were down 62% from1Q98 finishing at 7.59 MMWh.

“Our volumes were down as a result of our new focus,” said DavidKvamme, a Pacificorp spokesman. “Last year at this time, we had amajor power marketing office in Ohio, a trading floor in Houstonand an unregulated trading office here in Oregon. Now, the Ohiooffice and the Houston trading floor have been sold, and the Oregonoffice is pursuing other options. We are more focused on ourelectric operations in our core area, as well as Australia.”

Reliant’s posted a 32% increase in gas volumes but power volumesdeclined 27%. The company’s wholesale energy segment reported anincrease in operating income to $1.2 million for the first quarterof 1999 compared to $0.5 million for the same period of 1998. Thecompany said it showed improved operating results from trading andmarketing activities, but those were offset by operating expensesrelated to investments in non-regulated generating assets whoseearnings are seasonal. Reliant acquired 3,776 MW of non-regulatedgenerating capacity in the second quarter of 1998.

Avista Corp.’s national energy trading and marketing businessunit, which showed 148% growth in power volumes and 191% growth ingas volumes to 2.4 Bcf/d, suffered a loss of $0.14 per dilutedshare in the first quarter. This compares with $0.03 per dilutedshare positive earnings from national energy trading and marketingin the first quarter of 1998. Prior to this year’s first quarter,Avista Energy had been profitable in every quarter since it beganoperating as a separate entity in July of 1997, said CEO T.M.Matthews, who expressed confidence in Avista ability to compete andsucceed in the national energy marketplace.

“The national commercial energy business will be dominated bycompanies like ours that understand markets, have strongfundamentals, and are able to cost-effectively move energy andrelated services to customers across the country,” Matthews stated.

But the contrast between volume growth and financial struggleduring the first quarter at least reveals that the future is farfrom certain for the wholesale marketing community and significantconsolidation lies ahead.

Enron Withdraws EOG Proposal

Enron announced it has notified the independent committee of theboard of directors of Enron Oil & Gas Company that the EnronCorp. has withdrawn the previously announced proposal made by athird party relating to the sale of Enron’s 53.5% interest in EOG.In light of the withdrawal, Enron has filed an amendment to itsSchedule 13D with the Securities and Exchange Commission.

“Our principal motivation in evaluating offers for our interestin EOG has always been, and will continue to be, maximizing thevalue of that investment to Enron’s shareholders,” said Kenneth L.Lay, Enron chairman and CEO. “We will continue to exploreopportunities to maximize the value of our investment in EOG.”

Enron notified the SEC last December the third party wouldacquire Enron’s shares in EOG and make an offer for all theoutstanding shares. At the time EOG’s stock price had sunk toaround $13 a share. It has moved up since then and closed Fridayabove $18 a share.

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.