After months of bitter haggling, NiSource has persisted in its effort to acquire Columbia Energy Group after the boards of directors of both companies approved a definitive merger agreement on Feb. 28 in which NiSource will acquire all of the outstanding shares of Columbia for $6 billion. NiSource will also assume $2.5 billion in Columbia long-term debt.
NiSource, based in Merrillville, IN, will boost in Columbia long-term debt. million, stretching from the Gulf of Mexico through the Midwest to the Northeast. It will be the largest gas company east of the Rockies, based on customers, and will have the second-largest volume of gas sales with 911 MMcf/d as well as the most gas storage with 700 Bcf of capacity.
Analysts had expected Columbia to be sold before the end of the first quarter, but not to NiSource. which five months earlier made a $74 per share cash bid which Columbia rejected as inadequate. Columbia subsequently accepted a $72.60 per share cash and stock bid after other potential bidders failed to materialize. Rising interest rates and declining stock prices in the utility sector dampened the bidders enthusiasm.
In a teleconference with energy writers, it became apparent that Columbia Chairman. President and CEO Oliver "Rick" Richard will not join the new company. Garry L. Neale, chairman, president and CEO of NiSource, acknowledged that Richard was helpful in ironing out the final details details of the merger, but would not comment on Richard's future. Richard had waged a furious fight against the acquisition and did not participate in the teleconference.
Europe's PowerGen To Buy LG&E
PowerGen has become the latest UK utility firm to enter the deregulated US market, buying LG&E for $3.2 billion. Last November, Scottish Power acquired PacifiCorp for about $12 billion in stock and debt. National Grid is buying two New England companies, New England Electric System and Eastern Utilities Associates.
Northeast Utilities Completes Yankee Energy Acquisition
Northeast Utilities, New England's largest electric utility system completed its takeover of Yankee Energy System, parent of Yankee Gas Services Company, Connecticut's largest natural gas distribution company, on March 1, nine months after the companies announced their plans to combine. NU agreed to pay $478 million for all of Yankee's common stock.
Charles E. Gooley, president and CEO of Yankee Gas, said the company now has resources to strategically grow its business in ways that it could not attempt previously. "For Yankee Gas, it means new opportunities to expand our natural gas distribution system while at the same time opening new doors of growth potential for our unregulated subsidiaries."
The companies have identified at least $10 million in savings for the combined entity over the next five years. Among the recommendations approved by a Transition Steering Committee are centralizing many support services for Yankee Energy at NU, some facility changes over time and conversion of Yankee's information technology infrastructure to NU' IT system. On the regulated side, Yankee Gas will expand the hours of its customer service center. On the unregulated side, Yankee Energy Services Co. will be integrated with NU's unregulated subsidiary, Select Energy.
Dramatic Increase In Natural Gas Usage Could Emerge From New Technologies
New technologies could help boost demand for natural gas in the U.S. by 60 percent in the next 20 years, according to Fueling The Future: Natural Gas & New Technologies for a Cleaner 21st Century, a study prepared for the American Gas Foundation. The study claims new natural gas technologies may increase consumption from 22 quads in 1998 to 35 quads by 2020, if domestic policies encourage greater natural gas usage. On-site generation of electricity using natural gas fuel cells and microturbines is among the many promising technologies that hold significant potential for the industry, the study found.
Many industry experts surmise that the growth in natural gas will come mainly from increased use in electric generation. The study's authors, however, believe that the growth will come from advanced technology. In addition to the promise of distributed generation, they forecast growth in the industrial market as a result of radical improvements in high-efficiency industrial gas equipment, which they say will attract many plant operators to natural gas. The study says natural gas cooling and dehumidification systems will drive demand in the commercial market, including hospitals and restaurants. The use of natural gas fleet vehicles, especially transit buses, will continue to expand in urban areas with air quality concerns, the study said.
Maritimes & Northeast Volumes On The Rise
The Maritimes & Northeast Pipeline has increased volumes flowing from offshore Nova Scotia to Massachusetts to 300 MMcf/d. M&N expects the flow to increase to about 450 MMcf/d by fall. It will increase to 530 MMcf/d when lateral pipelines connecting customers in Halifax, Nova Scotia and St. John, New Brunswick are completed. The north Atlantic fields are located east of Nova Scotia and are said to contain reserves of more than 3.5 Tcf of natural gas and 100 million barrels of gas liquids. The volumes flow to a plant on Canada's Nova Scotia coast Sable Pipeline where it connects to Maritimes & Northeast and runs to Dracut, Massachusetts via New Brunswick and New England.
CMS Considers Alternative To Tracking Stock
CMS Energy now says it is considering more asset sales as an alternative to a $600 million IPO of tracking stock in its Consumers Energy electric and gas utility in Michigan. The possible switch in tactics was drawn up because of a sharp drop in the CMS share price after the tracking stock plan was announced. CMS is considering raising a further $600 million through sales of non-core asset sales, over and above $600 million to $750 million it has already targeted through such sales. The tracking stock IPO had seemed a reasonable option when CMS Energy shares were trading at $30 in late January, but looks far less attractive at $18 per share. Recently the shares have slipped to below $18.
Oglesby Resigns Unexpectedly From Reliant Energy
Charles M. Oglesby has resigned from his position as chief executive officer of Reliant Energy's Wholesale Group to pursue other interests. Oglesby and Joe Bob Perkins, who will continue as president and chief operating officer of the Wholesale Group, have helped Reliant Energy become one of the nation's leading wholesale energy merchants by integrating the company's domestic generation assets with its energy trading and origination activities.
Oglesby also was responsible for closing the acquisition of the Dutch power generation company, NV UNA, and for the establishment of the company's European trading business, Reliant Energy Trading and Marketing BV, headquartered in Amsterdam. Robert W. Harvey, Reliant Energy vice chairman, will assume direct responsibility for the company's European operations.
BP Amoco Buys Larger Stake In Destin Pipeline
BP Amoco is exercising its right of first refusal to purchase Southern Natural Gas Company's one-third interest in the Destin Pipeline. The purchase increases BP Amoco's interest in the pipeline to two-thirds, with Tejas Destin L.L.C. holding the remaining interest. Destin is a 255-mile offshore and onshore gathering and distribution system that serves natural gas producers in the eastern Gulf of Mexico, connects to the Pascagoula Gas Processing plant, and delivers gas to markets through five interstate lines.
Formed as Destin Pipeline, L.L.C., the original owners were affiliates of BP Amoco, Sonat Inc. and Shell Oil Company. Construction of the $460 million pipeline and Pascagoula Gas Plant project began in December 1997, with initial start up in September 1998. In late 1998, a 45-mile extension added a 24-inch diameter pipeline connecting Destin's 36-inch mainline hub platform at Main Pass Block 260 to Chevron's facility at Viosca Knoll Block 900. The pipeline has a 121-mile offshore segment and a 134-mile onshore segment. The 36-inch offshore mainline extends 76 miles from Main Pass Block 260 to the Pascagoula Gas Plant. BP Amoco operates the plant and holds 60 percent interest, with Enterprise Products Partners L.P. of Houston holding the remaining 40 percent.
Utilities Sign Deal On Electricity Usage
Minnesota Power, Inc., Lakehead Pipe Line Partners, L.P. and Enbridge Pipelines, Inc. have signed an agreement under which the pipeline companies could reduce electricity use during periods of high electric prices or demand, releasing energy to be marketed to other power buyers. The agreement runs from Jan. 1, 2000 through Dec. 31, 2001.
The pipeline companies can trim usage through pumping flexibility on their integrated pipeline systems that transport crude oil and natural gas liquids from Edmonton, Alberta to Superior, WI. MPEX, Minnesota Power's wholesale marketing division, will work with several utilities serving the pipeline and exclusively market the released energy.
"We're combining the energy usage flexibility of Lakehead and Enbridge with Minnesota Power's marketing capabilities to creatively meet the needs of the wholesale electric marketplace," said Bob Edwards, president of MP electric operations. "Consumers will benefit if we can improve the availability of electricity during peak demand periods."
"Minnesota Power has significant operating experience with power trading in today's volatile power markets and that will bring us the most benefit as we reduce electricity use while meeting our customer requirements," added Larry DeBriyn, vice president, Lakehead Pipe Line.
Energy CEOs Cite Corporate Reputation As Vital To Goals, Though Compensation Lags
Managing companies' corporate reputation is critical to achieving strategic business objectives in the energy industry, according to chief executive officers polled in a recent Hill and Knowlton/Chief Executive magazine survey. The vast majority of energy CEOs--94 percent--said reputation is a "very important" strategic tool and the remaining 6 percent consider it "somewhat important."
These results are in line with respondents from other industries in the annual Corporate Reputation Watch survey. Almost 600 CEOs and other senior managers, including 18 from energy firms, participated.
The survey also found that energy executives place much more importance than other CEOs on a potential successor's ability to enhance and protect the corporate reputation. In energy, 72 percent of CEOs give it a "great deal of weight" in evaluating candidates, and another 22 percent say it has "equal weight with other factors." This contrasts to 43 percent and 49 percent, respectively, in the overall survey group.
Despite the importance of corporate reputation, only 17 percent of energy executives report that corporate reputation is a criterion in their compensation program, ranking energy at the very bottom of all industries in this measure. On average, 33 percent of corporation boards use it as a component in calculating compensation, with consumer services firms topping the list at 57 percent.
On the other hand, the use of formal systems to measure corporate reputation has almost doubled over last year to 37 percent overall. Among energy companies, 33 percent report having a formal measurement system in place.
More fleets Switching To Natural Gas
More companies and municipalities are beginning to seriously consider alternative fuel vehicles in response to increased regulatory pressure, rising environmental concerns and to take advantage of new state and federal incentives. Many taxicab companies are switching part of their fleets to natural gas power. One California taxi company has taken delivery of 76 new natural gas powered Ford Crown Victoria Sedans and is the first to switch 100 percent of its fleet to natural gas.
Natural gas reduces vehicle emissions by 90 percent compared to gasoline vehicles. Replacing gasoline-powered taxis with 76 natural gas-powered cabs will reduce air pollution by more than 53 tons a year. There are also economic benefits. Natural gas-powered taxicabs in New York, Atlanta, Washington, Los Angeles and other cities are benefiting from lower fuel costs. Last November, the DOE identified a $0.48 cost savings in California between a gallon of gasoline and an equivalent gallon of natural gas. There is also savings on maintenance costs, because natural gas burns cleaner than gasoline, by more than $1,000 per year.
Enron Considers East Coast Barge Power
Enron is studying plans to generate electricity on barges off the coasts of New York, Connecticut and Massachusetts during periods of high demand this summer. The plan is to produce up to 670 MW from generators on barges offshore New York and New England. Power averaged $25 per MWh in New York and New England from September through May, but rose to over $100 several times last summer. Enron has produced power from barges off the coast of the Philippines.
ExxonMobil Says Petroleum Has Bright Future
ExxonMobil says space age technology will prolong oil's reign for many years to come and leave renewables like solar power on the sidelines as niche players. It forecast buoyant demand for oil and an ever more environmentally friendly slate of fuels. ExxonMobil says oil consumption in the free world is 67 million barrels per day this year and forecast it would grow by 50 percent by 2020. Natural gas consumption is expected to grow even faster.