Midwestern local distribution companies (LDCs) are looking at far fewer suppliers and treading cautiously in the new wholesale market without the large marketers they had relied on in the past.

Several that took part in a discussion panel at the LDC Forum in Chicago last Wednesday, sponsored by the Interchange Energy Group, said they are still looking for services and structured transactions, including management of transportation and risk, that the large marketers provided in the past. Without the mega marketers, the utilities other large customers are making much smaller deals, deals limited by the size and or credit status of the suppliers.

Ted Lenart, assistant vice president of supply operations for Nicor gas, noted the change in his company’s supply portfolio this year. “The number of suppliers is less,” he said. “Many of the big ones are not there this year. We had come to rely on them for significant volumes. Now we’re dealing with new entities, and in many cases we’re scrambling to get contracts in place for the winter.”

Because Nicor is a fairly large LDC, “we do tend to optimize our portfolio on a daily basis, depending on the weather and loads in the area. We are in the market buying and selling large quantities of gas,” Lenart added. That was an easy thing to do in the past, but “we’re seeing this summer it’s much more difficult to move large packages; we have to divide them up into much smaller packages.”

Since Nicor tends to be a big trader at pooling points on the pipelines, Lenart is worried about the lack of liquidity and whether they will be able to shed excess gas or add supply on a day-ahead basis. The LDC is putting as many contracts in place as it can with suppliers “who are not our traditional suppliers.” The longest contracts Nicor currently has are five-month winter contracts. “The few suppliers we have talked to about [longer-term contracts] are not interested,” Lenart said.

Doug Walker, director of energy supply services for NiSource, said his company was seeing fewer active large suppliers at the Chicago Citygate. Its LDC, NIPSCO (Northern Indiana Public Service Co.), could be making more purchases at Joliet to be delivered to Chicago. The company is still running a request for proposals for this winter and is in the final stages of making up a standard formula contract. Walker said he was looking “cautiously” at the approaching winter season, noting that the “good news is the physical supply is there.” He is more concerned about the following winter.

Where once NIPSCO had 25-30 suppliers responding to its RFP, currently there are between nine and 12. It is taking much longer to work out the terms and conditions of contracts, particularly after the contracts disappear into the companies’ legal and credit departments, Walker said. He echoed the sentiments of others at the forum who had emphasized they were working much more closely on a daily basis with their credit group. While many said they were active on the IntercontinentalExchange electronic trading platform, they noted that they are doing much less business electronically since the disappearance of EnronOnline.

A spokesman for one of the remaining large marketers also said his group was doing much less electronic trading. “The telephone has been rediscovered,” he said. He agreed with others that the big push now was for increased customer service and relationships. He revised the “back to basics” theme, to “back to the future” with a restructured energy market incorporating more of the basics.

Dave Howard, gas acquisition director for Consumers Energy, said that because his company was doing both gas and electric deals, it had to balance its counterparties across both sectors. If it is doing a deal with a company on the electric side, it may not be able to contract with the same company for gas. “Our risk management group has to be aware of the deals we do, so we don’t overextend credit on either side,” Howard said. He said his credit department has issued a “no trade list” which outlaws trades with certain parties. He pointed out it is getting increasingly harder to do longer-term deals since the at-risk dollars add up. “If you do a two- or three-year deal for 20 or 40 MMcf/d, that’s a lot of dollars and a lot of risk.”

The utilities all said they are looking for more structured deals, which used to be provided by the major marketers. Lenart said a supplier’s ability to trade financials also was important, along with a structured deal that would add value to the LDC’s supply. “A producer may be able to provide the commodity, but can he bring options to the table above and beyond just providing the commodity?” Lenart asked.

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