Merchant

The energy services unit in San Diego-based Sempra Energy’s merchant energy businesses announced Monday it has a four-year deal to supply natural gas and related services to Caterpillar Inc.’s manufacturing locations in Illinois and its logistics services operations. Sempra said terms of the contract were not disclosed.

An annual review of 145 natural gas and power generators and marketers in 2001 — before the energy merchant sector collapsed — found that 41 of the largest companies reported a record $14.1 billion in earnings last year, including write-offs. Last year’s numbers, moving higher with increased sales and realization on both natural gas and electricity, were up more than one-third from 2000’s record $10.2 billion, and more than double the $5.5 billion posted in 1999, according to Energy Performance Review (EPR).

As its affiliated utility works to restore an investment-grade credit rating, Edison International’s merchant energy operator, Edison Mission Energy (EME), was moving in reverse last week, attracting a below-investment-grade credit downgrade from Standard & Poor’s (S&P) Wednesday on the heels of Tuesday’s second-quarter report of a loss for its power plant operations. Ironically, uncertainty regarding the California Public Utilities Commission’s future oversight of the Edison utility was cited as a prime reason for the downgrade.

Calpine Corp., one of two West Coast merchant power plant developers to take it on the chin last Thursday, reported depressed second quarter financial results, mirroring unprecedented low wholesale electricity prices nationally in which the average spark spread between fuel prices and power prices are at historic lows below $5. Both PG&E Corp. (see separate story) and Calpine reported net income that was reduced for the quarter compared to the period a year earlier.

Another chief executive of a major merchant energy company has called it quits. Following its successful exchange offer for all the remaining shares of NRG Energy, parent company Xcel Energy announced that David H. Peterson, chairman, president and CEO of NRG, will retire. Leonard A. Bluhm, executive vice president and CFO, also resigned.

Merchant energy shares were hammered last week by multiple factors, the most significant being a FERC inquiry into the California electricity transactions of 150 energy merchants and power generators prompted by several Enron memos disclosed by FERC on Monday (see related story). Dynegy was struck particularly hard following an announcement on Tuesday that the Securities and Exchange Commission launched a formal investigation into its Alpha Project — a complex gas supply transaction. That was followed by news that some large “wash-out” power deals with CMS Energy might also be included in the probe.

Despite the current investment climate in the merchant power plant market, Energy Security Analysis Inc. (ESAI) projects that the Northeast should still see a significant amount of new generating capacity come on-line over the next two years. It’s the post-2003 period, however, where recent tightening in project financing will have the greatest supply impact, ESAI said in a recent memo to clients.

Fitch credit ratings service Thursday lowered the rating on Reliant Resources (RRI), the merchant power subsidiary of Reliant Energy, to BBB from BBB+, reflecting Fitch’s analysis of RRI’s plan for financing and integrating the pending acquisition of Orion Power Holdings Inc.

Energy marketers and merchant power generators have watched their stocks drop precipitously as investors continue to run from companies even remotely associated with, or similar to, bankrupt Enron Corp. The walking wounded include Mirant (down about 36% by midday Friday from the prior Friday’s close), Calpine (down 37% for the week), Williams (-16%) and Dynegy (-17%), NRG (-14%), Aquila (-14%), El Paso (down 6%), and Reliant (-5%).