NGI The Weekly Gas Market Report

Wholesale power prices helped propel Southern Co.’s earnings up 5% in the second quarter, and company officials said the Southeast’s largest utility remains on target to meet its financial and operational goals for the year. Earnings were $270 million, or 40 cents a share, at the top of the analysts’ predictions for the quarter, up from $256 million, or 39 cents a share for the same period of 2000. Operations earnings from the quarter excluded Mirant, the company that completed its spin off to Southern’s shareholders April 2 (see NGI, Feb. 26).

Secretary of Energy Spencer Abraham took the not-so-original position of blaming pollsters and the media last Wednesday for unfairly criticizing the administration’s energy plan. He said they’re simply using the wrong measuring stick by singling out issues that are obviously disliked the most, such as drilling in the Arctic National Wildlife Refuge (ANWR), while many of the other important issues are never even mentioned, let alone subjected to public opinion polls.

The California Public Utilities Commission held a workshop last Friday to begin sorting out the wide variation in interpretations of what the state bulk electricity buying agency, the Department of Water Resources (DWR), needs in reimbursement from utility retail electric rates.

What appeared to be a routine stay request by a neighborhood group in Pennsylvania of orders approving a Tennessee Pipeline expansion evoked an unusual debate among FERC commissioners last week over their responsibility to address pipeline safety issues.

Energy Secretary Spencer Abraham has come under attack from the energy sector for stating last week that the United States is “well on our way toward a dangerous dependency” on natural gas.

FERC last week voted out a final rule that imposes a monthly (price and volume) reporting requirement on natural gas transporters and sellers to California until September 2002 in an attempt to bring gas prices there in line with other major markets around the country.

As part of another glowing quarterly earnings announcement last Thursday, San Jose, CA-based Calpine Corp. said it will be making future merchant power plant investments in California, while outlining an aggressive hedging strategy for the company that is centered on an internal trading operation that has grown to more than 200 people in the past two years.

Higher commodity prices and greater production lifted several of the majors as they released second quarter earnings last week. Exxon Mobil Corp. and Chevron Corp., the number one and two energy companies in the world, posted uneven profits, with Exxon up a modest 5% in both natural gas and refining operations earnings, while Chevron’s jumped 21%. Meanwhile, the rest of the leader board, including Conoco Inc., USX-Marathon, Texaco and Phillips Petroleum, all posted sky-high earnings for the quarter, but are heeding analysts’ warnings that going forward, it will be difficult to continue soaring if oil and natural gas prices remain depressed.

With gas prices tumbling fast and fundamentals decidedly bearish, producers have scrambled to lock in the highest wholesale rates available. Among others, Fort Worth-based independent XTO Energy Inc. said last week it has hedged 90% of its production through March 2002 at $4.30/MMBtu and has hedged 200 MMcf/d at $3.72 for the last three quarters of 2002. XTO is one among many independents who have touted their foresight in locking long-term rates when prices were considerably higher.