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Columbia Forms Marketing Venture with Metromedia

October 25, 1999
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Columbia Forms Marketing Venture with Metromedia

Columbia Energy Group (CEG) announced a letter of intent to form a marketing joint venture with Metromedia Energy, Inc. (MME) last week. The venture, called Columbia Metromedia Energy, is subject to execution of a definitive agreement and other conditions and is expected to be operational by the end of the first quarter of 2000. No financial terms were announced.

The transaction will merge the operations of CEG's marketing unit, Columbia Energy Services (CES) with the marketing operations of MME. The new entity will be owned equally by CEG and the New Jersey-based MME. It will market retail gas, power, and energy-related warranty services. Plans call for the joint venture to build on the present retail platform of electricity and natural gas sales to homes and businesses, Columbia said.

In addition to the new high growth markets, the venture's geographic coverage of 20 states will create a presence in markets served by Columbia's local distribution companies, and other areas where CES or MME currently have residential, small commercial and industrial customers, Columbia said in a statement.

The companies have not yet figured out how this will affect CES employees. "This is only a letter of intent," a Columbia spokesman said. "There are still details, such as any potential layoffs, which have yet to be worked out."

Columbia's marketing segment reported an operating loss of $59 million for 1998, versus an operating loss of $13.2 million in 1997. Columbia said the 1998 loss stemmed from costs of investment in infrastructure, a significant investment for customer acquisition and certain trading losses.

During the fourth quarter last year, "certain unusual trading activity" (which turned out to be a rogue trader misstating prices in the forward book) resulted in a loss, which when combined with all other gas trading positions, caused a net loss of $6.5 million and reduced the gross margin to $42.7 million, Columbia said. The company took "corrective action designed to prevent similar incidents from recurring." CES' poor performance caused the company to put its wholesale trading operations up for sale last August.

A Columbia spokesman said this retail joint venture does not affect the sale of the wholesale unit. He also said that this move had nothing to do with CEG's possible merger with NiSource (see related story).

MME is a private and independent energy marketer serving thousands of customers in 11 states. So far in 1999, the company has sold gas at a rate of 30 MMcf/d and sold 200,000 MWh of electricity.

John Norris

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