Standard

Standard & Poor’s (S&P) Rating Services placed the credit rating of Southern Union Co. on CreditWatch with “negative implications” Monday after the distribution company announced that it and AIG HighStar Capital LP had reached a definitive deal to buy CMS Energy’s Panhandle natural gas pipelines and liquefied natural gas (LNG) facilities for an estimated $1.83 billion.

The panache of a “AA+” rating of the corporate parent by Standard & Poor’s Ratings Service apparently has failed to win over doubters, after UBS Warburg Energy switched off its online energy trading system (formerly EnronOnline) and announced it will terminate nearly all of its 380 Houston-based employees. Those not fired will be offered jobs in a UBS office in Stamford, CT, the company said Wednesday.

The panache of a “AA+” rating of the corporate parent by Standard & Poor’s Ratings Service apparently has failed to win over doubters, after UBS Warburg Energy switched off its online energy trading system (formerly EnronOnline) and announced it will terminate nearly all of its 380 Houston-based employees. Those not fired will be offered jobs in a UBS office in Stamford, CT, the company said Wednesday.

Coming on the heels of Chesapeake Energy Corp.’s Oneok asset acquisition announcement Wednesday, Standard & Poor’s Ratings Services (S&P) and Fitch Ratings commented on what the transaction’s impact might be on the Oklahoma City-based E&P company.

Standard & Poor’s issued a warning Thursday that more credit rating declines and possible defaults “loom on the horizon” even though the industry already has experienced its sharpest credit slide in decades.

The credit “assessment,” or opinion of Standard & Poor’s that surfaced Wednesday in the third day of Pacific Gas and Electric Co.’s Chapter 11 bankruptcy confirmation hearings has strengthened the utility’s argument that the competing reorganization plan from state regulators and the official unsecured creditors’ committee will not work in getting the utility back to investment-grade credit ratings. The utility sees it as proof the alternative plan can’t be confirmed by the federal bankruptcy judge.

In response to Oneok’s Wednesday announcement that it had entered an agreement to acquire Southern Union Co.’s Texas gas distribution business, Standard & Poor’s Rating Services said Thursday that its ratings and outlook for Oneok (A/Stable/A-1) will not be affected. In making the purchase of the business that supplies approximately 535,000 customers in Texas with natural gas, Oneok CEO David Kyle said the company started as a gas distributor and the business continues to be an important segment of Oneok’s strategy (see Daily GPI, Oct. 17). S&P commented that management has begun to strengthen Oneok’s financial profile, and the acquisition will be financed in accordance with that plan. “The regulated gas distribution business’ relatively low-cost, steady earnings will boost that segment’s share of operating income to 35% to 40% of operating income derived from natural gas production, transport and storage, gathering and processing, and distribution,” S&P said. The ratings agency noted that these businesses have accounted for about 70 to 80% of consolidated operating income with marketing and trading accounting for the remaining portion. However, S&P pointed out that marketing and trading’s contribution fluctuates with commodity price volatility. For example, S&P said marketing and trading accounted for 53% of consolidated operating income in the first half of 2002 compared with 29% in first-half 2001. Enbridge Energy Partners LP closed its acquisition of the Midcoast, Northeast Texas and South Texas systems from Enbridge Inc. The purchase price of $820 million is subject to adjustments for working capital and other items. The Midcoast system includes 4,000 miles of natural gas gathering and transmission pipelines, with an aggregate throughput capacity of 4 Bcf/d, and natural gas treating and processing assets located in the Midcontinent and Gulf Coast regions. Included in the Midcoast system are four interstate pipeline systems, 35 intrastate and wholesale customer gas pipeline systems, 35 gathering and processing/treating systems, 98 gas liquids, crude oil and carbon dioxide trucks and trailers and 48 rail cars. The Northeast Texas system includes 1,200 miles of gas gathering lines with a throughput capacity of 400 MMcf/d, along with five treating plants and four processing plants. The South Texas system consists of 175 miles of gas gathering lines with a capacity of 100 MMcf/d and one treating plant. The South Texas gathering system interconnects with 500 miles of gas transmission lines, which the partnership has the right to acquire, subject to among other things, payment by the partnership of the $41 million purchase price and regulatory approvals. Concurrently with the closing, the partnership sold nine million limited partner interests to Enbridge Energy Management LLC for $333 million ($39/share). The partnership intends to use the proceeds from the sale to pay off debt assumed in connection with the acquisitions.

Standard & Poor’s Ratings Services said Tuesday that for now its downgrade of PG&E Corp’s merchant energy unit, the National Energy Group (NEG), will not impact the rating of Selkirk Cogen Funding Corp., of which NEG is a part owner, even if the PG&E unit is forced to seek bankruptcy. No announcements were scheduled on NEG’s efforts to improve its balance sheet.

Several Pacific Northwest lawmakers are urging FERC to stop pursuing its proposed standard market design (SMD) for U.S. wholesale electricity markets, saying that Congress hasn’t given the federal agency the green light to pursue such an undertaking and arguing that the proposal does not take into account the distinct nature of the Northwest’s energy grid.