LG&E Energy said last week its exit from the speculativeenergy marketing business is nearly complete. The company, whichwas among the top 10 largest power marketers and top 20 largest gasmarketers last year, completed four groups of portfolio salestransactions that are designed to offset a $232 million secondquarter loss suffered when LG&E was forced to cover a powermarketing agreement when power prices spiked to $7,000/MWh in June.

LG&E said it has sold its coal contracts book to AquilaEnergy, its domestic and Canadian gas sales book to El Paso Energyand its gas options book to several unnamed buyers for undisclosedsums. LG&E also completed restructuring of several individualelectric contracts. A number of other electric contracts remain tobe sold through the competitive bidding process.

Paul W. Thompson, LG&E Energy’s group vice president ofenergy marketing, said the company was pleased with the strongbidding competition for the company’s portfolio. “The remainingcontracts are also drawing the attention of many biddersnationwide,” he added.

The gas sales book, which included three groups of contracts,was withdrawn from the proposed auction process and sold as oneunit. “We were in ongoing negotiations with [El Paso] and reachedagreement with them before the completion of the auction,” saidThompson. “We have notified the bidders in the auction of thischange and have confirmed to them there will not be further changesin the bidding process for the remaining groups of electricitycontracts.”

The company sold 2.6 Bcf/d of gas last year, but would notcomment on the volume of gas included in the contracts sold to ElPaso. In 1997, LG&E also sold more than 53 million MWh ofpower. It is the biggest energy marketer by volume that has decidedto exit the wholesale marketing business.

The last straw apparently was the impact of a long-term unhedgedtransaction with Oglethorpe Power. The sales agreement was based onspeculation that the wholesale price of power was headed down.LG&E also underestimated Oglethorpe’s load growth, whichexacerbated the problem. The company was increasingly pressured toserve the growing demand with power purchased in a highly volatilemarketplace. The Oglethorpe deal alone was responsible for $171million in losses.

But LG&E insists it isn’t exiting the energy marketingbusiness entirely. The company will maintain its asset-basedmarketing business, which will sell and purchase the gas and powerfor its generation facilities. It plans to retain systems andpersonnel required to optimize its physical assets. However,exiting the speculative side of the market will mean 80 LG&Eemployees will be out of jobs.

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