NGI The Weekly Gas Market Report / NGI All News Access

Marketing Losses, Warm Temps Trouble Columbia

Marketing Losses, Warm Temps Trouble Columbia

A strong performance by Columbia Energy Group's transmission, distribution, and exploration and production operations last year in spite of 17% warmer than normal weather and lower commodity prices was significantly tainted by several major blunders in its energy marketing operations.

A 78% surge in marketing volumes evidently left the company's marketing executives with their heads spinning. Records became mismatched. And to make matters worse, a trader misquoted forward prices for several transactions, triggering a nightmarish wave of losses across the company's books.

Columbia still managed to prevent a major decline in net income, however. The company posted $269.2 million in net income, or $3.23 per share, for the year compared to $273.3 million, or $3.29 per share, for 1997. In fact, its performance topped many of its peers, most of whom averaged 10% declines in net income last year.

"Columbia's earnings did not meet our expectations," said CEO Oliver G. Richard III. "Despite innovative regulatory settlements, cost reductions and business expansion, our net income fell short of 1997's record level, and was restricted by the impact of record warm weather on gas demand and throughput, as well as by substantial costs related to our marketing operations." The weather, which was 19% warmer than in 1997, cost Columbia an estimated $80 million on a pre-tax basis.

"[M]arketing operations expanded dramatically during 1998 and continue to offer a promising challenge for Columbia," said Richard, noting the nearly 80% increase in volumes to 4.3 Bcf/d in gas sales. "This growth has strained the infrastructure of the marketing segment. The marketing segment has established a year-end reserve that reduced pre-tax income by $16.3 million, which included an increase in the allowance for uncollectible accounts stemming from our continuing review of the segment's financial records."

Columbia said its marketing segment analyzed certain financial records and found "amounts that do not appear to have adequate third party documentation, primarily resulting from the ongoing implementation of new accounting systems and the strain on the infrastructure caused by rapid growth." As a result, the marketing segment reported an operating loss of $39.4 million for the fourth quarter and $59 million for the year compared to 13.2 million in 1997.

The loss included a $6.5 million charge related to "certain unusual trading activity." A spokesman said Columbia Energy Services experienced an incident in which an individual trader "misstated the prices in the forward book." Columbia Energy Services has taken action to address the situation and the trader has been terminated, the spokesman said. "The size of permitted trading positions has been reduced, and a more aggressive audit program has been [implemented]."

Energy analyst Ronald J. Barone of PaineWebber said he's convinced the problems in Columbia's marketing operations "are contained, and that overall this is a very well-run company with a highly attractive asset base, highly diverse portfolio of growth projects and very innovative and respected management team."

Barone pointed to the many positives in Columbia's year-end financial report. Despite an 8% drop in transmission throughput, a 2% decline in distribution volume sold and transported, and temperatures well below normal and nearly 20% below the prior year, operating income for Columbia's major divisions, except marketing, was on the rise. Operating income for transmission and storage grew 26%, including a 48% jump in the fourth quarter compared to 4Q97. For distribution, it grew 0.7% for the year and 23% in the fourth quarter. For E&ampP, it jumped 20% for the year and 7% in the fourth quarter. Total operating income was $540 million, a $30.6 million improvement over 1997. Columbia's total revenues grew $1.5 billion last year to nearly $6.6 billion.

Reviewing other changes that took place during the year, Richard noted that Columbia's transmission and storage segment had more than 3 Bcf/d of expansion projects underway or planned at the end of 1998. Columbia's distribution segment is 86% unbundled, and on the nonregulated side, more than 1,500 MW of new power projects are in various stages of development.

Rocco Canonica

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

Copyright ©2018 Natural Gas Intelligence - All Rights Reserved.
ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus