Coral Taming Mountaineer's Price Peaks, Valleys

A rate case that fixed the price of Mountaineer Gas Co. sales for the next three years has led the LDC to seek supply and asset management services from Coral Energy. Coral became the principal gas supplier to Mountaineer through an agreement giving Coral management of virtually all of Mountaineer's total firm transportation and storage entitlements.

Effective Nov. 1, Coral will begin supplying Mountaineer, West Virginia's largest LDC, with about 25 Bcf/year for three years. Gas will be supplied at a fixed price. Local gas supplies are not part of the deal and will continue to be managed by Mountaineer.

The contract follows a Mountaineer rate case settlement with the West Virginia Public Service Commission that fixed the price of Mountaineer's sales for the next three years. Coral is using its risk management abilities to provide the fixed price. "We've used a variety of risk management products including swaps and weather derivatives and just straight hedges," said Jim Whalen, Coral chief operating officer. "We tried to do it in such a fashion that we could get the price as low as we could so we could be competitive, and that required more than one different kind of hedge product."

Services will include management of Mountaineer's interstate transportation and storage entitlements on the Columbia Gas, Columbia Gulf and Tennessee Gas pipeline systems. Coral and Mountaineer will capitalize on the LDC's local presence and Coral's physical supply and financial capabilities. In addition to its risk management expertise, Coral offered a strong supply position by virtue of gas supplies coming from both Shell and Tejas. Also, Coral's credit rating is triple-A. "It sure doesn't hurt if you're a triple-A."

"Mountaineer and Coral have a history of working well together, and we recognize the benefits of expanding our working relationship in the future," said Mike Fletcher, Mountaineer president. "Coral provided the fixed price that we needed to lock in a price for our residential and small commercial customers over the next three years. In addition, our new supply partnership with Coral enhances the capabilities to provide expanded services by both companies in the future." A representative from Mountaineer will be working with Coral's risk management and trading employees to identify other opportunities, Whalen said. The companies have some things in mind now but don't want to tip their hand to competitors.

Mountaineer is a wholly owned subsidiary of Energy Corporation of America. The company has headquarters in Charleston, WV and serves about 200,000 customers, about 60% of the state of West Virginia.

Arrangements such as those between Coral and Mountaineer are becoming increasingly common. Whalen said he expects more asset management deals down the pike. "A lot of the transactions I think you've seen have been in the Northeast, and I think you will see it spread across the United States. Some of that has been tied to deregulation of the business and it's been more proactive in the Northeast."

Last month, Dynegy agreed to manage all of Rochester Gas &amp Electric's (RG&ampE) gas supply, transportation and storage assets, and help find ways to cut costs and optimize assets in a two-year deal (See Daily GPI Sept. 21). Dynegy will manage citygate delivery of about 450 MMcf/d of firm capacity combined with 12 Bcf of firm storage. Dynegy will become a major gas supplier to RG&ampE and act as agent for all third-party supply contracts. "We believe that relationships such as this represent the future of local distribution company asset management," said Steve Bergstrom, Dynegy senior vice president.

In August, NorAm Energy Services (NES), a subsidiary of Houston Industries Trading and Transportation Group, signed a three-year asset management contract with Owensboro, KY-based Western Kentucky Gas Co. (See Daily GPI Aug. 3). The contract, effective July 1, entails about 60 Bcf/year of firm transportation, 8 Bcf of storage capacity and 26 Bcf/year of gas supply, as well as citygate delivery asset management services.

Joe Fisher, Houston

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