Activity has accelerated rapidly in recent weeks in the converging natural gas and electric industries, as companies jockey for position within regional U.S. and non-U.S. markets.
Among key developments:
- Energy Group plc-a new independent publicly traded company-plans to acquire one of the largest U.S. power marketers, Citizens-Lehman LLC, Boston, for $14.5 million, giving the company unusual reach in converging energy markets in both the U.S. and U.K.
- PacifiCorp.-the highest-volume U.S. investor-owned wholesaler of electricity west of the Mississippi River-agreed to acquire natural gas marketer TPC Corp., Houston, for $288 million. TPC has interests in gas gathering systems along the Gulf Coast and in the Gulf of Mexico. It also is involved in salt dome natural gas storage projects at the Moss Bluff, Tex., and Egad, La., market hubs, and markets natural gas to utilities in the U.S. Midwest and Northeast.
- PanEnergy Corp. reorganized the marketing functions of its Texas Eastern Transmission Corp. and Algonquin Gas Transmission Corp. units and the pipeline project development activity of PanEnergy Development Corp. to increase its overall marketing presence in New England.
- NorAm Energy Corp., a large gas distribution and pipeline company based in Houston, is protesting the Federal Energy Regulatory Commission's jurisdiction over its planned $3.8 billion merger with Houston Industries Corp. (HI), Houston, the parent of Houston Lighting & Power.
- Enron Corp., Houston, cleared a significant hurdle in winning FERC's blessing of its proposed $4 billion merger with Oregon electric utility Portland General Corp. (OGJ, Mar. 3, 1997, Newsletter) but can't seem to break the impasse with state regulators. Formal settlement talks with the Oregon Public Utility Commission ended Mar. 12 without agreement.
- Meanwhile, PG&E wasted little time consolidating its gas presence in San Antonio, moving its previously purchased Teco Pipeline Co. headquarters from Corpus Christi to San Antonio. The San Francisco gas/electric utility acquired the Texas gas pipeline last year, one of three key gas asset acquisitions in the state in recent months (OGJ, Feb. 10, 1997, p. 24).
New U.K./U.S. entity
Energy Group, the new parent company of St. Louis-based Peabody Holding Co., joined the ranks of companies restructuring and making aggressive acquisitions to become "one-stop shop" integrated energy providers (OGJ, Feb. 3, 1997, p. 19).
Energy Group's connection to Peabody makes it a key player in the push to serve deregulating markets in both the U.K. and U.S.
Peabody, the world's largest coal producer, also owns the U.K.-based Eastern Group plc, one of the U.K.'s largest integrated electricity and gas groups.
The combination of coal, gas, and power holdings gives Energy Group solid positioning for "BTU-based" energy swaps involving all three fuels. To date, most firms merging under the BTU convergence drive have primarily gas and electric holdings, yet coal is still the dominant fuel used by electric utilities.
The acquisition of Citizens-Leh-man, currently ranked among the top five in deregulated power marketing volumes, is a key acquisition for the newly formed integrated energy giant.
"We have hit the ground running," said Derek Bonham, executive chairman of Energy Group. He said the company will combine Citizen's power marketing and electric transmission expertise with Eastern's successful trading experience in the U.K., as well as Peabody's vast coal contracts and its established relationships with the U.S. electric industry.
Citizens Lehman Power LLC is a unit of Citizens Power & Light, the first company in the U.S. to obtain a certificate from FERC to sell power at market-based rates.
PanEnergy move
As a result of PanEnergy's move, marketing for all Northeast U.S. customers, mainly in eastern Pennsylvania, New Jersey, New York, and New England-including the Maritimes & Northeast pipeline-will be consolidated in an East Coast region managed in Boston.
Algonquin marketing previously focused only on New England, and marketing for other Northeast cities was done from Texas Eastern's Houston headquarters.
Marketing for the western region, extending from the Texas/Mexico border to central Pennsylvania and upstate New York, will remain in Houston.
At the same time, the company has consolidated business functions such as scheduling, pipeline nominations, billing, regulatory affairs, and new facilities planning in Houston.
"Increasing our marketing capabilities in our largest market will allow us to be more responsive to our customers," said Fred Fowler, PanEnergy's Northeast pipeline group vice-president.
"Senior-level marketing representatives will be based in Boston to quickly respond to our East Coast region customers. In addition, the marketing department will be organized along customer lines, with marketing specialists dealing with specific businesses, such as local gas distributors, electric utilities, and marketers and producers.
"The consolidation also will enable one marketing representative to present a full spectrum of PanEnergy services to our customers."
Regulatory hurdles
In a jurisdictional filing that may prove another litmus test for similar mergers, NorAm filed Mar. 7 with FERC, saying it does not believe the commission has purview over its planned union with HI.
NorAm said the union doesn't fall under the authority of the Federal Power Act, which requires FERC's blessing of interstate electric utility pairings. This is because HI operates entirely within Texas and is not a public utility as defined by FPA, NorAm said.
Such jurisdictional calls are a critical feature of FERC's new merger policy, issued in December (OGJ, Jan. 6, 1997, p. 26).
The Enron-Portland deal was the first major gas-electric pairing to pass FERC's muster last month, but Enron is not faring so well with the Oregon Public Utility Commission (OPUC). The state regulators want Enron to promise Oregon consumers $141 million in rate reductions; Enron doesn't want to commit to more than $61 million in rate cuts.
These will be "make or break" deals affecting the future profitability of proposed gas-electric mergers, analysts say.
Enron would be well-positioned to serve the giant California market, where deregulation of electricity for all consumers will begin Jan. 1, 1998.
State regulators can-and already have-considerably altered the risks and rewards of selling deregulated power there. Under California's program, consumers will have to pay a "transition fee" even for deregulated power for the first 5 years, until utilities recover "stranded costs" in excess generating plant capacity.
Oregon is one of the next proving grounds for how far state regulators will go in allowing the market to be genuinely competitive. New Hampshire and New York, now at key stages of rules on pass-through of stranded costs, are two others.
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
