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Industry Briefs

Industry Briefs

Sempra Energy Resources, the independent power generation subsidiary of Sempra Energy, announced plans to build a $350 million, 600 MW power plant near Mexicali, Baja California, Mexico. The plant, known by its Spanish name, Termoelectrica de Mexicali, will be connected to the U.S. electric grid via a new, 230,000-volt transmission line. "Electricity from this new power plant can help alleviate California's energy crisis," said Donald E. Felsinger, group president of Sempra Energy. "Energy is the lifeblood of the California/Baja California region's economy. This power plant --- along with our North Baja Pipeline --- will help ensure that the border region has adequate infrastructure to meet its future energy needs." The company decided to build the plant near Mexicali because of its proximity to a source of natural gas for fuel --- the North Baja Pipeline, which begins construction this summer --- and to the Southwest Powerlink, a high-voltage transmission line connecting California and Arizona. The power plant is expected to begin operations in the summer of 2003, one year after the North Baja Pipeline is due to begin delivering natural gas to the region. The North Baja Pipeline - a $230 million, 215-mile pipeline jointly being developed by Sempra Energy International, PG&E Corp.'s National Energy Group, and Proxima Gas S.A. de C.V. of Mexico - will bring natural gas from the Arizona border to fuel businesses and new power plants being built in Baja California.

Houston-based independent KCS Energy Inc., which is emerging from bankruptcy, announced it has signed a production agreement with Enron North America Corp. to sell about 17.3% of its oil and gas reserves over the next five years for $176 million. KCS held nearly 277 Bcfe of reserves in 2000. The Enron deal, as well as proceeds from issuing $30 million in preferred stock and cash, were used to repay KCS's two bank credit facilities and $60 million of senior notes. Approved by the U.S. Bankruptcy Court for the District of Delaware, the plan also gives KCS money to pay its trader creditors, the $90 million principal amount of its senior notes and $125 million principal amount of senior subordinated notes with no change in interest rates. Shareholders will retain 100% of their common stock. The independent energy company's business is centered on the Midcontinent and Gulf Coast regions, and it also purchases reserves through its Volumetric Production Payment program. It began to reorganize in 2000, and the approved plan was the third one offered.

A Virginia State Corporation Commission hearing examiner has recommended that the planned merger between NUI Corp. and the Virginia Gas Co. include a condition that may affect the location of an intrastate gas pipeline near Roanoke. The merger and proposed conditions require SCC approval and the commission must act by March 27. Under terms of the proposed merger, NUI will acquire VGC and its three operating subsidiaries, Virginia Gas Distribution Co., Virginia Gas Storage Co. and Virginia Gas Pipeline Co. Through its subsidiaries, VGC markets, stores, distributes, gathers, explores and produces natural gas, and the company has been extensively expanding its capabilities throughout southwestern Virginia. It also has constructed a 45-mile natural gas pipeline from Radford to Roanoke that the SCC approved in December 1999. However, before approving the merger, the SCC must be satisfied that the transfer won't jeopardize rates and service to Virginia customers. SCC Hearing Examiner Alexander F. Skirpan Jr. wants the proposed merger to include a condition that requires VGC to consider locating its new pipeline within the right-of-way of any existing pipeline inside the SCC-approved 1,000-foot corridor.

The Pennsylvania Public Utility Commission has approved a tentative settlement agreement with Equitable Gas Co. following an explosion in September 1998 that killed one person. The explosion occurred after an Equitable employee failed to accurately mark a gas line to a home for repair by Duquesne Light Co. Duquesne Light then damaged the line, which caused the explosion in McKeesport, PA. Under terms of the settlement, Equitable will enhance its damage prevention program by improving the process of how it inspects pipeline facilities, which will require employees to perform site inspections during and after excavation work to verify the integrity of a pipeline. Equitable also will conduct more training for its street crews and customer service employees, and agreed to spend $100,000 to train smaller, regulated utilities that may not be able to afford extensive training in damage prevention, leak management and safety and operator qualification. Equitable would not be able to recover the costs involved with enhancing its program in any future ratemaking procedure, said the PUC.

Dynegyconnect LP, a new e-business subsidiary of Houston-based Dynegy Inc., has launched an Internet service that allows service providers to expand their networks or add access to their portfolios. The service is designed to assist Dynegy's current and future customers to be more competitive in the workplace through the Internet. Dynegyconnect Internet service provides access services at DS3, OC3 and above, and gives the user options to form multiple peering and transit relationships. It also allows users to select and pay only for the bandwidth it needs with flat-rate, tiered or burstable billing options. The Denver-based company, which is a joint venture of Dynegy and Telstra Corp. Ltd., is now developing a nationwide optically switched data network that will have nearly 16,000 route miles and more than 40 points of presence by the fourth quarter of this year. Dynegyconnect selected Fujitsu Network Communications Inc., a subsidiary of Fujitsu Ltd., as its equipment and services provider. Fujitsu will be the primary supplier of division multiplexing equipment and services, and will increase the network capacity by simultaneously transmitting up to 176 channels, each capable of carrying 10 gigabits per second of traffic through a single fiber.

Duke Energy North America (DENA) is making good on its promise to bring a significant amount of new electricity generation online by summer 2002. The company broke ground last week on its previously announced Arlington Valley Energy Facility located in Maricopa County, AZ. The 570 MW natural gas-fired facility is expected to cost upwards of $250 million. DENA expects the project to take about 18 months and be in service in time to supply electric power to the wholesale market by summer 2002. The facility recently completed the required permitting process and has gained approval from Maricopa County and the Arizona Corporation Commission. DENA said the plant will supply enough energy to light and heat 570,000 homes, greatly increasing the reliability of the power generating market in Arizona and the Southwest. DENA said earlier this month that it currently has 6,200 MW in its electricity generating portfolio, with an additional 6,000 MW of new power generation capacity in place by summer 2002.

Moody's Investors Service assigned a Baa2 issuer rating to PG&E National Energy Group Inc. (NEG) and confirmed the ratings of subsidiaries, PG&E Gas Transmission-Northwest (GTN: senior unsecured debt at Baa1) and PG&E Generating Co. LLC (PG&E Gen: bank loan rating of Baa2). PG&E Gen's rating is removed from review for possible downgrade where it was placed on Jan. 29, 2001. The ratings of PG&E Gen's subsidiaries are also confirmed. The rating outlook for NEG and all rated subsidiaries is stable. The Baa2 issuer rating reflects the consolidated strength of NEG's business units, including the cash flows and operating income from GTN, PG&E Gen, USGenNE, and PG&E Energy Trading, Moody's said. Of particular note is the amount of cash flows provided by highly predictable sources, including the regulated cash flows coming from GTN, the dividends sourced by the contracted portfolio of PG&E Gen and the cash flows expected from the standard offer tariff customers of USGenNE. NEG's Baa2 issuer rating incorporates the legal ring-fencing structure implemented by PG&E Corp. on Jan. 12 to insulate the credit quality of NEG and its subsidiaries from the effects of any credit deterioration at PG&E Corp. Specifically, PG&E Corp. established PG&E National Energy Group LLC (NEG LLC) as a bankruptcy-remote entity and the direct parent of NEG. PG&E Corporation contributed 100% of the issued and outstanding shares of NEG to NEG LLC. Specific provisions were established which help to insulate NEG from the financial condition and the creditors of its parent company.

Westcoast Energy reported that colder than normal weather, tax rate reductions and strong performance from its BC Pipeline, Engage Energy and Union Gas business units led to record net income last year of $340 million, compared with $222 million for 1999, an increase of 53%. Earnings per common share were $2.92 in 2000, compared with $1.95 in 1999. Included in the 2000 earnings is $0.40/share from implementing the substantively enacted corporate income tax rate reductions. Results for 1999 include the sale of Centra Gas Manitoba of $0.52 per common share. Adjusting for these items result in earnings per common share of $2.56 for 2000 compared with $1.58 for 1999, an increase of 62%. "I am particularly pleased with the turnaround in our services businesses which generated an improvement of $77 million over last year," said CEO Michael Phelps. "In particular, Engage Energy contributed $26 million to net income this year compared with $5 million last year." He added that Westcoast's shareholders benefited from a total return of 62% on their investment over the past year and an 18% return per year over the past five years.

Mitchell Energy & Development increased its proven gas equivalent reserves for the thirteenth consecutive year during calendar 2000. The company added a net 530 Bcfe of gas to its reserve base and finished the year with 1.5 Tcfe of gas reserves, of which 95% is gas. The increase represents a 412% replacement of the 129 Bcfe produced during the year. Mitchell also reported natural gas liquids reserves of 175 million barrels. The record level of gas equivalent reserves was driven largely by the success in the Newark East Barnett shale field where step-out drilling using light sand fracture completion technology expanded the field's economically developable area. Over 600 wells drilled to date have proven up 91,000 acres of the total 230,000 acres held within the play and the company is proceeding with a planned 12-rig program to further develop and extend the proven area. "Last year's reserve increase resulted from evolving technology that allowed us to increase per well reserves 25%, and step-out drilling that expanded the proven area 50%," said CEO George P. Mitchell.

The Bonneville Power Administration's rates staff reached a partial settlement with many of its utility customers over wholesale power rates for the five-year period beginning Oct.1. The agreement, part of a new BPA rate proposal, results in rates that will be adjusted every six months based on actual demand for BPA power and the prices BPA has to pay in the wholesale market. A final decision by the BPA administrator on wholesale power rates will be made at the completion of the rate case in June. The proposal comes after several months of discussion during which it became clear that BPA rate increases could average 60% or more over the five-year period. Originally, BPA had proposed a fixed rate for each year. "We had been on a course for fixed rates but, given the volatility of the market, that strategy just wasn't going to work," said BPA Senior Vice President for Power Paul Norman. "While a flexible rate that can change every six months does not fully meet the stability goal we had hoped for, it does meet our fundamental goal that we collect adequate revenues to cover our costs but no more revenues than we actually need. This proposal effectively addresses the turbulent market we are operating in." The analysis on the variable rates shows a wide range of potential rate impacts, from a 2.4% increase to add 500 MW in a $30/MWh market, to a 453% increase to acquire 3,000 MW in a $325/MWh market. Actual rates would depend on market conditions, customer actions, consumer energy conservation and BPA management actions. For more information visit BPA's web site.

During a time of mega-deals, PG&E National Energy Group (NEG) reported that it has entered into one of the U.S. power industry's largest with GE Power Systems' Energy Services unit. Bethesda, MD-based NEG entered into a long-term service agreement for more than $1 billion. Under the agreement, GE will supply parts, services and repairs for more than 20 GE gas-fired turbines at power plants to be developed by NEG throughout North America. The maintenance will take place for the life of the 12-year contract. "The agreement with PG&E National Energy Group is an outstanding example of how power producers in today's competitive market recognize the value of forming service relationships with companies that can help them extract the greatest sustained efficiency and reliability from their power plants," said Ricardo Artigas, president of GE Energy Services, the global services arm of GE Power Systems. GE said it has received orders or commitments for more than 1,000 of its F-class gas-fired turbines over the last decade. The company said it currently has $17 billion in commitments for long-term service agreements and operation and maintenance agreements for power plants worldwide.

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