Enron and Peoples Energy put their Chicago market muscletogether last week in a wholesale services partnership and energyasset optimization package that likely will impact the Midwestmarket for years to come. With the help of Enron, Peoples will beefup its Chicago gas infrastructure and secure about two thirds ofits gas supply requirements for the next five years.

The two companies signed a partnership agreement that calls forEnron to optimize a major share of Peoples Gas’ and North ShoreGas’ gas transportation and to provide an average of 100 Bcf/yearof supply. The gas supply contract uses a market-based index, butmore details are not being disclosed.

In addition, the companies plan to form a joint entity that willexpand and enhance Peoples’ existing Chicago Hub and providemarketing services to the 1.1 Tcf/year Chicago marketplace. The newentity will optimize 10 to 20 Bcf/year of Chicago area storagecapacity and related transportation and will provide physical andfinancial product and service offerings, such as balancing,storage, exchange, and title tracking for hub customers.

“By combining Enron’s experience in marketing and riskmanagement with Peoples Energy’s regional expertise, we have aunique opportunity to develop and offer creative wholesale gassolutions to the Chicago marketplace,” said Kenneth L. Lay, EnronCEO.

The Chicago-based entity plans to invest in the area’s gasinfrastructure to augment the flexibility inherent in Peoples’Chicago Hub. “They’re going to be doing things like helping us withcertain gate stations and things that serve our hub, differentparts of the infrastructure that enhance our hub and allow us to domore from there,” said Rodrigo Sierra, a Peoples spokesman.Infrastructure enhancements have not been decided upon, he said,but could include additional storage and pipeline assets. Thealliance is expected to be operational early next year.

“This alliance provides for essential asset optimization and thefurther development of hub services,” said Richard E. Terry, CEO ofPeoples Energy. “Working with Enron allows us to make significantprogress on our long-term strategy of enhancing our utilities andgrowing our diversified energy businesses.”

The companies also signed a letter of intent saying Enron willprovide wholesale electricity and risk management services toPeoples Energy Services Corp. (PESC), the retail division ofPeoples that markets power to end-use customers in Illinois. PESCwill be participating in the retail electric market as one of onlysix companies certified to do so in Illinois.

Joe Fisher, Houston

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