A rate case that fixed the price of Mountaineer Gas Co. salesfor the next three years has led the LDC to seek supply and assetmanagement services from Coral Energy. Coral became the principalgas supplier to Mountaineer through an agreement giving Coralmanagement of virtually all of Mountaineer’s total firmtransportation and storage entitlements.

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

The contract follows a Mountaineer rate case settlement with theWest Virginia Public Service Commission that fixed the price ofMountaineer’s sales for the next three years. Coral is using itsrisk management abilities to provide the fixed price. “We’ve used avariety of risk management products including swaps and weatherderivatives and just straight hedges,” said Jim Whalen, Coral chiefoperating officer. “We tried to do it in such a fashion that wecould 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 interstatetransportation and storage entitlements on the Columbia Gas,Columbia Gulf and Tennessee Gas pipeline systems. Coral andMountaineer will capitalize on the LDC’s local presence and Coral’sphysical supply and financial capabilities. In addition to its riskmanagement expertise, Coral offered a strong supply position byvirtue of gas supplies coming from both Shell and Tejas. Also,Coral’s credit rating is triple-A. “It sure doesn’t hurt if you’rea triple-A.”

“Mountaineer and Coral have a history of working well together,and we recognize the benefits of expanding our working relationshipin the future,” said Mike Fletcher, Mountaineer president. “Coralprovided the fixed price that we needed to lock in a price for ourresidential and small commercial customers over the next threeyears. In addition, our new supply partnership with Coral enhancesthe capabilities to provide expanded services by both companies inthe future.” A representative from Mountaineer will be working withCoral’s risk management and trading employees to identify otheropportunities, Whalen said. The companies have some things in mindnow but don’t want to tip their hand to competitors.

Mountaineer is a wholly owned subsidiary of Energy Corporationof America. The company has headquarters in Charleston, WV andserves about 200,000 customers, about 60% of the state of WestVirginia.

Arrangements such as those between Coral and Mountaineer arebecoming increasingly common. Whalen said he expects more assetmanagement deals down the pike. “A lot of the transactions I thinkyou’ve seen have been in the Northeast, and I think you will see itspread across the United States. Some of that has been tied toderegulation of the business and it’s been more proactive in theNortheast.”

Last month, Dynegy agreed to manage all of Rochester Gas &ampElectric’s (RG&ampE) gas supply, transportation and storage assets,and help find ways to cut costs and optimize assets in a two-yeardeal (See Daily GPI Sept. 21). Dynegy will manage citygatedelivery of about 450 MMcf/d of firm capacity combined with 12 Bcfof firm storage. Dynegy will become a major gas supplier to RG&ampEand act as agent for all third-party supply contracts. “We believethat relationships such as this represent the future of localdistribution company asset management,” said Steve Bergstrom,Dynegy senior vice president.

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

Joe Fisher, Houston

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.