Public Service Co. of New Mexico is the latest to exit theunregulated gas marketing business, joining Consolidated NaturalGas (CNG) and LG&ampE Energy. “On August 4, 1998, the companydecided to phase out the non-utility gas trading operations of itsEnergy Services Business Unit by the end of 1998. Based onpreliminary estimates, discontinuance of gas trading activitieswill not have a material impact on the company’s financialcondition or results of operations.” Unlike CNG and LG&ampE, PublicService Co. has no plans to exit power marketing.

Public Service entered the gas marketing business in the thirdquarter of 1996, targeting end-use customers in California andhoping to create a springboard to power marketing in California.”It was kind of a way to get our foot in the door in the energymarket in California,” said spokesman Bob Hagan. Instead, thecompany got its foot caught in the door as the California powermarket didn’t develop as expected and gas marketing created a dragon Energy Services results. “Considering the market’s slow start,we changed our strategy to provide value-added services, engagingin commodity arbitrage, scheduling services and storage andpipeline services.

“We didn’t do as well as we had hoped in the trading business.We got on the wrong side of some contracts is the most blunt way toput it. It was not generating the revenues and profits we had hopedit would.” Hagan said the company is “still very active in the bulkpower market in the West. We are not in the retail power market inany area except in our own service territory. Offsystem we arestrictly in the bulk power business, and the bulk power businesshas been extremely valuable. It makes up a large proportion of ourtotal power sales now.” Public Service has not written off thepossibility of reentering gas marketing, he said.

“In its first full year of operation, our gas marketingbusiness, which serves retail and wholesale customers inCalifornia, Texas and Arizona, generated $114.7 million in revenuesin 1997. However, uncertainties surrounding the potential impact ofEl Nino and other factors contributed to unusual volatility in thenatural gas markets during the last half of the year, resulting inlosses of approximately $8 million or 12 cents per share,” thecompany said in its fourth quarter 1997 earnings release. “Whilethese results were disappointing, we continue to view gasmarketing, like our other energy services initiatives, as anecessary investment in PNM’s competitive future. Our strategicplan does not envision these business lines contributingsignificantly to earnings in the near term.”

The company recognized additional losses in connection with gasmarketing that reduced margin by $5.2 million or 7 cents per sharefrom the previous year’s quarter, Public Service said in it itsfirst quarter 1998 earnings release.

Hagan said the business’ largest gas contracts were fulfilled asof June. Remaining obligations will either be met by the company orsold to others, he said. At its peak, the gas marketing operationhad about a dozen employees. Some of them will be retained andmoved over to bulk power marketing while others will lose theirjobs.

In April, Consolidated Natural Gas (CNG) blamed thin margins forits exit from wholesale marketing and trading to focus on retail(See NGI April 27, 1998). The shift in strategy followed the Marchannouncement CNG would take a $20 to $25 million loss in EnergyServices to close out electricity positions.

LG&ampE Energy Corp. said in July it was discontinuing its gasand power marketing operations and would take a $231.8 millionafter-tax loss in the second quarter mainly because it was forcedto cover fixed-priced power marketing agreements when Midwest powerprices went through the roof in June, reaching $7,000/MW comparedto $30/MW just days prior (See NGI Aug. 3, 1998).

Joe Fisher, Houston

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