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LG&E Sells Marketing Portfolio To El Paso, Aquila, Others

September 21, 1998
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LG&E Sells Marketing Portfolio To El Paso, Aquila, Others

LG&ampE 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&ampE was forced to cover a power marketing agreement when power prices spiked to $7,000/MWh in June.

LG&ampE 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&ampE 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&ampE 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The gas sales book, which included three groups of contracts, was withdrawn from the proposed auction process and sold as one unit.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 contracts."

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&ampE 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&ampE 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&ampE 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&ampE employees will be looking for new jobs.

Rocco Canonica

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