Finding superlatives to match the second-quarter earningsreports for energy companies across the United States in the pastfew weeks has been difficult at best. With earnings doubled,tripled, and for some even quadrupled, there was little bad news toreport. High natural gas and crude prices, coupled with highdemand, have guaranteed magnificent returns across the board.

Even with the high prices and increased energy demands, earningsreports for the second quarter showed the most growth overall inwholesale marketing and trading operations. For those companiesthat market energy, every day lately has been a great day,especially if they market in the explosive growth area of thecentral and western part of the United States, where natural gasvolumes tripled in some cases.

Andrew Levi, a utilities analyst with Credit Suisse First Bostonin New York, said the market was changing fundamentally, which wasespecially helpful to smaller companies and created the hugeearnings increases for both small and large marketers alike. Highernatural gas and power prices are becoming the “norm instead of theexception,” and that has contributed to higher earnings across theboard, he said.

For instance, Reliant Energy, which reported its second-quarterearnings last Thursday (see related story this issue), said itswholesale energy segment, which includes trading and marketingactivities in the United States and Canada, showed a dramaticincrease in operating income: $184 million this quarter, comparedwith $9 million in 1999. Revenue for the quarter rose 79% from1999’s second quarter, and gross margins increased by $219 million.

The increases, according to the Houston-based company, came fromstrong commercial and operations performance in an “increasinglydiverse multi-regional business portfolio.” A lot of theimprovement came from improved trading and marketing performance inthe Western markets.

“We added 4,500 MW to our growing power generation portfoliothis quarter,” said Reliant CEO Steve Letbetter. “We are now thethird-largest unregulated power generator in the United States withover 9,000 MW of capacity, and we have the necessary commercialskills to maximize the value of these assets.”

For maximizing the sales side of wholesale energy operations,one has to look no farther than industry leader and trendsetterEnron Corp., another Houston-based operation. Enron’s recurring 2Qearnings from wholesale energy alone increased 23% overall from ayear ago, to $437 million from $356 million in 1999. Specifically,Enron’s commodity sales and services earnings exploded — up to$442 million from $81 million for the same period of 1999.

Sped by the still-new EnronOnline, which only debuted last fall,Enron’s second quarter total physical volumes rose 39%, to 46,730Btu/d.

Individually, Enron’s U.S. physical natural gas volumes jumpednearly 97%, to 26,031 Btu/d from 13,736 Butte/d. The Canadianincrease was 47% (6,587 Btu/d from 4,475 Btue/d), and Europe was up300%. Enron used a business-to-business strategy long before thebroader market, and that early work has paid off, say analysts.

Ron Barone, an energy analyst with PaineWebber in New York, saidthat Enron’s inclusion of “asset harvesting activities” and theinfluences from Enron management’s actions resulted in thedivision’s results being “lumpy.” But, “this is an enormousearnings vehicle, which can often be called upon when and if marketconditions require,” he said.

Enron management said the Internet has made its trading workefficient, allowing it to enter new markets and become a dominantplayer quickly.

For San Diego-based Sempra, earnings were also tied to itsEnergy Trading unit, whose net income grew to $40 million in thesecond quarter, up from $3 million a year earlier. The dramaticincrease, said management, keyed on oil and natural gas trading theUnited States and Europe in volatile international commoditymarkets.

“We’re pleased with these results,” understated Sempra CEOStephen L. Baum. “Clearly, Sempra Energy Trading has demonstratedits value as a key element in our strategic direction. We also areaware that energy trading is more volatile than the traditionalutility business,” and he noted that the results will vary “fromquarter to quarter.”

Sempra’s physical trading volumes of natural gas increased 91%from a year ago, to 8.4 Bcf/d, compared with 4.4 Bcf/d. Tradingvolumes of crude oil and products increased 4% to 2.4 MMbtu/d,compared with 2.3 MMtub/d in second quarter 1999.

San Francisco-based PG&E Corp.’s strong second-quarterperformance also was led by its National Energy Group (NEG), whichhandles PG&E’s electric and natural gas trading operations. TheNEG earned $.10 per diluted share from operations this quarter, a233% increase from the same period last year.

“With its performance in the first two quarters of 2000, our NEGis on track to meet its target of delivering 30% of thecorporation’s earnings by 2002,” said CEO Robert D. Glynn Jr.

Without its higher energy trading volumes, Columbus, OH-basedAmerican Electric Power Co. (AEP) might not have had as good asecond quarter as it reported.

It said on July 26 that because of special items, which totaled$164 million, or 51 cents a share, it recorded a loss for thequarter of $9 million, or 3 cents a share, compared with net incomeof $190 million, or 59 cents a share in 1999. However, managementdid have good news, and all of it was tied to its energy tradingarea.

AEP reported that it is having solid growth in its energytrading operations: net revenue from energy trading was up awhopping 242% to $83 million. AEP was the second-largest U.S. powermarketer behind Enron in 1999 and 1998 , according to NGI rankings.(See https://intelligencepress.com/features/rankings )

When Houston’s Dynegy Inc. reported July 18 that itssecond-quarter earnings had more than tripled, management pinnedmuch of its gains on its wholesale marketing division also, whichbuys and sells gas and electricity and manages price volatility forcustomers across North America and the United Kingdom.

Dynegy CEO Chuck Watson said that the second quarter was fueledby “the continuing trend toward competitive wholesale markets” thatfostered “greater business opportunities in energy convergence.”That was an understatement: by itself, the marketing and trade unitof Dynegy had recurring net income was $71.5. million, whichrepresented 79% of Dynegy’s second-quarter consolidated net income.

Houston’s Williams, which has partnered as a stakeholder withDynegy this year in eSpeed Inc., an interactive commodity-specificmarketplace, saw its second-quarter earnings gains directly relatedto how well its wholesale trading unit did. And, like all the otherplayers, wholesale trading was very, very good to Williams thisquarter.

Williams’ Energy Services unit, which includes its wholesalemarketing business, reported second-quarter segment profit of$411.6 million, up from $105.9 million a year ago — a 300%increase. In energy trading and marketing alone, Williams reporteda $256 million increase, resulting primarily from higher electricpower services margins from increased contract originationrevenues, changes in forward power market prices and increasedpower trading volumes. The unit also benefited from a 63% hike innatural gas liquids average prices from last year and from higherprocessing and refining volumes.

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