Columbia Gas System, Unit File for Chapter 11 : Energy: Some analysts see the bankruptcy action as a ploy to prod natural gas producers into revising old long-term contracts that call for prices well above the current market.
Columbia Gas System Inc. and its pipeline subsidiary, unable to win concessions from banks and natural gas suppliers, filed for Chapter 11 bankruptcy protection Wednesday.
The filing in U.S. Bankruptcy Court in Wilmington, Del., will enable Columbia Gas and its primary subsidiary, Columbia Gas Transmission Corp., to reorganize financially. Also, it may make it possible for the companies to break the long-term contracts that forced them to pay well above current market prices for natural gas, crippling the businesses.
Indeed, Wall Street observers reportedly saw the bankruptcy as a negotiating ploy, primarily intended to prod natural gas producers into revising the old contracts.
“The filings will not affect the services provided customers of Columbia Transmission or any of the other Columbia subsidiaries in any way,” said John Croom, chairman and chief executive of Columbia Gas System. “Neither Columbia Transmission nor the Columbia system is going out of business.”
California utilities and large natural gas buyers in the state expect no impact from Columbia’s troubles. Though Columbia Gas System owns one of the largest natural gas systems in the United States, it serves the Northeast and Midwest, not the West Coast.
Columbia, with 11,000 employees, is perhaps the largest casualty yet of the fall in natural gas prices in recent years and of the way deregulation has played out in the industry.
Federal controls that kept gas prices low in the mid-1970s held back exploration to the point that shortages of the fuel forced occasional shutdowns of schools and office buildings. Congress began to deregulate the business in 1978.
The deregulated environment and high oil prices prompted by the Iranian revolution joined to make natural gas an even more attractive fuel. Pipeline companies such as Columbia scrambled to line up gas supplies at what they believed would be permanently higher fuel prices.
In the rush, they signed long-term, high-cost contracts with producers--many even promising to pay for gas whether they took delivery or not.
But in the mid-1980s, gas prices crashed again and most pipeline companies and utilities--which had also signed similar “take or pay” contracts with the pipeline companies--began attempts to renegotiate the deals. They also sought to reorganize themselves to cope with the losses.
“Back in 1985 we started to renegotiate our contracts, and the pipelines did too,” said Rick Terrell, Southern California Gas Co. spokesman.
Columbia Gas System, however, has been unable to break its take-or-pay contracts and said it faced $1 billion in losses over the next decade if it were forced to pay suppliers at rates that are now well above current market prices.
James P. Holland, Columbia Transmission chairman, said the subsidiary will seek a court order for permission to reject the high-priced contracts. Until such a decision is made, Columbia Transmission is seeking clearance to reduce the amount of gas it is required to purchase under the problem contracts and to pay market prices for that gas.
In the last month, the company has suspended its dividend, cut salaries and missed $83.5 million in payments on short-term debt. Its stock has plunged and its bond ratings have been downgraded. Its stock fell $3 a share to finish at $14 in New York Stock Exchange trading Wednesday.
Top 10 Gas Pipelines Below are the nation’s leading gas pipeline operators, based on 1989 operating revenues. Rank: 1 Company and location: Tennessee Gas Pipeline Corp., Houston Operating revenue (in billions): $1.999 Rank: 2 Company and location: Texas Eastern Transmission Corp., Houston Operating revenue (in billions): 1.976 Rank: 3 Company and location: Columbia Gas Transmission Co., Houston Operating revenue (in billions): 1.965 Rank: 4 Company and location: Natural Gas Pipeline Co. of America, Lombard, Ill. Operating revenue (in billions): 1.715 Rank: 5 Company and location: CNG Transmission Corp., Clarksburg, W. Va. Operating revenue (in billions): 1.305 Rank: 6 Company and location: Northern Natural Gas Co., Casper, Wyo. Operating revenue (in billions): 1.278 Rank: 7 Company and location: ANR Pipeline Co., Detroit Operating revenue (in billions): 1.220 Rank: 8 Company and location: Michigan Consolidated Gas Co., Detroit Operating revenue (in billions): 1.198 Rank: 9 Company and location: Enron Intrastate Pipelines, Houston Operating revenue (in billions): 1.166 Rank: 10 Company and location: Southern Natural Gas Co., Birmingham, Ala. Operating revenue (in billions): 1.119 Source: Pipeline & Gas Journal
