El Paso Marketing LP (EPM) plans to sell most of its remaining wholesale power trading portfolio to emerging domestic energy player Morgan Stanley Capital Group Inc. for $442 million. The assets, which have been a huge financial drain on parent company El Paso Corp., include all power positions other than the Cordova tolling arrangement and some positions in the PJM power pool.
El Paso in late 2003 announced it would exit the power business and sell nearly all of its domestic and foreign power facilities to focus exclusively on domestic natural gas pipelines and exploration and production (see NGI, Jan. 19, 2004).
"This sale will significantly advance our goal of exiting the domestic power trading business," said CEO Doug Foshee in a written statement. "In addition, this transaction will eliminate market risk for most of our power positions and further simplify our business, which will allow El Paso Marketing to move closer to its goal of focusing on physical marketing and trading services that support our production business."
As part of the sale, EPM will enter into new transactions with Morgan Stanley to completely offset some long-dated power positions in the remaining PJM power portfolio. The transaction eliminates the company's exposure to power price movement for the assets being sold and, upon gaining all required approvals and third-party consents, will result in EPM receiving $442 million from Morgan Stanley, including return of collateral.
At that point, excluding the Cordova tolling position, EPM's credit exposure will have been reduced from the current 24 counterparties to two, both of which are investment grade. In addition, EPM's power deal count will be reduced to 104 deals from the current 921 deals. EPM will continue to manage the remaining PJM power portfolio with its only exposure the locational basis price volatility associated with delivery obligations in the PJM market.
According to energy consultant Sanford C. Bernstein & Co., Morgan Stanley generated about $1 billion in revenue from domestic energy trading in 2004. And just two months ago, the financial powerhouse teamed up with Cheniere Energy to procure liquefied natural gas supplies that would be delivered to Cheniere's four proposed Gulf Coast import terminals (see NGI, Oct. 24).
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