Enron North America Corp. was identified yesterday as the buyerof Columbia Energy Group’s wholesale marketing and trading arm. Thedeal is expected to boost Enron’s wholesale gas sales volumes tomore than 16 Bcf/d and move its power sales above 410 millionMWh/year, according to year-end 1998 volumes reported by bothcompanies. And although Columbia won’t be rolling in the doughafter this one, it will be relieved of a business that has been aheadache for years.

Columbia subsidiary Columbia Energy Services said the dealincludes a package of gas already in storage and most of thedivision’s contracts for gas, power, storage, transportation, andasset management. In addition, Enron will become the primarywholesale provider to CES’s retail operations and the primary buyerof Columbia Natural Resources’ Appalachian production into early2001.

“This transaction fits perfectly with our core business ofproviding energy and risk management solutions to wholesalecustomers and expands the scale and scope of our operations,” saidCliff Baxter, chairman and CEO of Enron North America. “In additionto the existing business, we are excited about the opportunity toexpand our relationship with Columbia Energy Group companiesthrough our supply agreement with Columbia Energy Services.”

Although the purchase price was not disclosed, Columbia alreadyhas said it received significantly less for the operations thanexpected. It originally accounted the sale as break-even butrevised that earlier this month to reflect a $13 million (16cents/share) loss. It’s revised third quarter earnings show a $22.7million net loss ($0.28/share). It previously had reported only a$9.7 million net loss ($0.12/share).

Columbia has struggled in the wholesale arena. It’s wholesaleand retail operations combined reported a $59 million operatingloss for 1998 and an operating loss of $13.2 million in 1997 due tocosts of investment in marketing infrastructure and customeracquisitions and partly because of trading mishaps. During thefourth quarter of last year the company found that an individualtrader misstated prices in its forward books resulting in a loss,which when combined with all other gas trading positions, caused anet loss of $6.5. The trader was fired, but the incidentessentially got the snowball rolling toward this sale. A thoroughreview was undertaken in February, leading to changes in wholesaleoperating methods and personnel. Then in June Columbia brought inBrian Watt, who holds a doctorate of sciences degree from MIT, tostraighten CES out.

“The decision to sell the CES wholesale and trading operationswas announced in August 1999 as part of a move to focus itsstrategy upon retail energy marketing operations in areas whereColumbia’s existing geographic footprint provides a competitiveadvantage,” Watt, president and CEO of CES, said yesterday. Henoted Columbia’s principal operations are in the East, in keystates expected to provide the best development opportunities asderegulation of gas and electrical power markets proceeds.

The sale to Enron is expected to be completed by year-end.

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