Enron North America has closed on the purchase of ColumbiaEnergy Services, the remainder of Columbia Energy Group’swholesale marketing and trading division, for $38.3 million.

The deal was first announced in late November. (See Daily GPI, Nov.24, 1999) It includes a package of gasalready in storage and most of the division’s contracts for gas,power, storage, transportation, and asset management. In addition,Enron will become the primary wholesale provider to CES’s retailoperations and the primary buyer of Columbia Natural Resources’Appalachian production into early 2001.

With the sale Columbia joins a list of wholesale tradingdrop-outs or down-graders that has lengthened over the last fewyears as margins thinned and risks increased. Prominent on thatlist are Avista, CNG Trading and LG&E Energy Trading.

With Columbia’s 4.3 Bcf/d of gas sales and 14.4 million MWh ofpower (for 1998), Enron’s wholesale gas sales volumes will rise tomore than 16 Bcf/d and its power sales will move above 410 millionMWh/year.

Columbia already has said it received significantly less for theoperations than expected. It originally counted the sale asbreak-even, but bids for the division came in lower thananticipated. As a result, it revised third quarter 1999 resultsrelated to discontinued operations as a loss on the disposal of theassets of $13 million, or 16 cents per share. Its revised totalthird quarter earnings show a $22.7 million net loss ($0.28/share).It previously had reported only a $9.7 million net loss($0.12/share).

The divestiture should help earnings. The operations showed a$25 million loss for the first nine months of the year. It’s fairto say Columbia has struggled in the wholesale arena. Its 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 the fourth quarter of last year the company found that anindividual trader misstated prices in its forward books resultingin a loss, which when combined with all other gas tradingpositions, caused a net loss of $6.5 million. The trader was fired,and a thorough review was undertaken in February, leading tochanges in wholesale operating methods and personnel.

“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,” said Brian Watt, recently-installed president of CES.He noted 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.

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