Public Service of NM Exits Gas Marketing
Public Service Co. of New Mexico is the latest to exit the
unregulated gas marketing business, joining Consolidated Natural
Gas (CNG) and LG&E Energy. "On August 4, 1998, the company
decided to phase out the non-utility gas trading operations of its
Energy Services Business Unit by the end of 1998. Based on
preliminary estimates, discontinuance of gas trading activities
will not have a material impact on the company's financial
condition or results of operations." Unlike CNG and LG&E, Public
Service Co. has no plans to exit power marketing.
Public Service entered the gas marketing business in the third
quarter of 1996, targeting end-use customers in California and
hoping to create a springboard to power marketing in California.
"It was kind of a way to get our foot in the door in the energy
market in California," said spokesman Bob Hagan. Instead, the
company got its foot caught in the door as the California power
market didn't develop as expected and gas marketing created a drag
on Energy Services results. "Considering the market's slow start,
we changed our strategy to provide value-added services, engaging
in commodity arbitrage, scheduling services and storage and
"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 to
put it. It was not generating the revenues and profits we had hoped
it would." Hagan said the company is "still very active in the bulk
power market in the West. We are not in the retail power market in
any area except in our own service territory. Offsystem we are
strictly in the bulk power business, and the bulk power business
has been extremely valuable. It makes up a large proportion of our
total power sales now." Public Service has not written off the
possibility of reentering gas marketing, he said.
"In its first full year of operation, our gas marketing
business, which serves retail and wholesale customers in
California, Texas and Arizona, generated $114.7 million in revenues
in 1997. However, uncertainties surrounding the potential impact of
El Nino and other factors contributed to unusual volatility in the
natural gas markets during the last half of the year, resulting in
losses of approximately $8 million or 12 cents per share," the
company said in its fourth quarter 1997 earnings release. "While
these results were disappointing, we continue to view gas
marketing, like our other energy services initiatives, as a
necessary investment in PNM's competitive future. Our strategic
plan does not envision these business lines contributing
significantly to earnings in the near term."
The company recognized additional losses in connection with gas
marketing that reduced margin by $5.2 million or 7 cents per share
from the previous year's quarter, Public Service said in it its
first quarter 1998 earnings release.
Hagan said the business' largest gas contracts were fulfilled as
of June. Remaining obligations will either be met by the company or
sold to others, he said. At its peak, the gas marketing operation
had about a dozen employees. Some of them will be retained and
moved over to bulk power marketing while others will lose their
In April, Consolidated Natural Gas (CNG) blamed thin margins for
its exit from wholesale marketing and trading to focus on retail
(See NGI April 27, 1998). The shift in strategy followed the March
announcement CNG would take a $20 to $25 million loss in Energy
Services to close out electricity positions.
LG&E Energy Corp. said in July it was discontinuing its gas
and power marketing operations and would take a $231.8 million
after-tax loss in the second quarter mainly because it was forced
to cover fixed-priced power marketing agreements when Midwest power
prices went through the roof in June, reaching $7,000/MW compared
to $30/MW just days prior (See NGI Aug. 3, 1998).
Joe Fisher, Houston