LG&E Sells Marketing Portfolio To El Paso, Aquila, Others
LG&E Energy said last week its exit from the speculative
energy marketing business is nearly complete. The company, which
was among the top-10 largest power marketers and top-20 largest gas
marketers last year, completed four groups of portfolio sales
transactions that are designed to offset a $232 million
second-quarter loss suffered when LG&E was forced to cover a
power marketing agreement when power prices spiked to $7,000/MWh in
LG&E said it has sold its coal contracts book to Aquila
Energy, its domestic and Canadian gas sales book to El Paso Energy
and its gas options book to several unnamed buyers for undisclosed
sums. LG&E also completed restructuring of several individual
electric contracts. A number of other electric contracts remain to
be sold through the competitive bidding process.
Paul W. Thompson, LG&E Energy's group vice president of
energy marketing, said the company was pleased with the strong
bidding competition for the company's portfolio. "The remaining
contracts are also drawing the attention of many bidders
nationwide," he added.
The gas sales book, which included three groups of contracts,
was withdrawn from the proposed auction process and sold as one
unit. "We were in ongoing negotiations with [El Paso] and reached
agreement with them before the completion of the auction," said
Thompson. "We have notified the bidders in the auction of this
change and have confirmed to them there will not be further changes
in the bidding process for the remaining groups of electricity
The company sold 2.6 Bcf/d of gas last year, but would not
comment on the volume of gas included in the contracts sold to El
Paso. In 1997, LG&E also sold more than 53 million MWh of power.
It is the biggest energy marketer by volume that has decided to
exit the wholesale marketing business.
The last straw apparently was the impact of a long-term unhedged
transaction with Oglethorpe Power. The sales agreement was based on
speculation that the wholesale price of power was headed down.
LG&E also underestimated Oglethorpe's load growth, which
exacerbated the problem. The company was increasingly pressured to
serve the growing demand with power purchased in a highly volatile
marketplace. The Oglethorpe deal alone was responsible for $171
million in losses.
But LG&E insists it isn't exiting the energy marketing
business entirely. The company will maintain its asset-based
marketing business, which will sell and purchase the gas and power
for its generation facilities and distribution business. It plans
to retain the systems and personnel required to optimize its
physical assets. However, exiting the speculative side of market
will mean 80 LG&E employees will be looking for new jobs.
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