Here's an example of the current restructuring of the overall energy markets ... apparently we are experiencing the bottom of the cycle similar to just before the turn of this Century investors are just starting to get back into the energy markets, major market players are picking, and choosing their pathways. ...
Southern Co. to Pay $60 Million for Natural Gas Marketer's Georgia Operations
Source: The Atlanta Journal and Constitution
Publication date: 2002-06-13
Jun. 13--In a dramatic move that could bolster its position as the state's top energy supplier, Southern Co., the Atlanta-based parent of Georgia Power Co., said Wednesday it planned to buy Georgia's fourth-largest natural gas marketer.
Southern Co. agreed to pay $60 million for New Power Co.'s operations in Georgia, including its 210,000 natural gas customers.
The deal would give the electricity player 15 percent of Georgia's deregulated natural gas market and the potential for a much larger role as a gas-and-electric powerhouse.
The deal was announced a day after New Power filed for Chapter 11 bankruptcy protection, prompted by its ties to failed energy giant Enron Corp., and it is subject to approval by U.S. Bankruptcy Court and the Georgia Public Service Commission.
Southern Co.'s surprise move could position the energy giant for a larger role if the state's troubled deregulated natural gas market collapses, as some have predicted, and policy-makers re-regulate the system. Southern Co., which once described itself as the "900-pound gorilla" of the regulated electric utility industry, then could be poised to assume a similar role in the natural gas industry.
But Southern Co. chief executive Allen Franklin denied any such plan. "That's not our thinking," he said. "That is not the intent."
U.S. Bankruptcy Court Judge W. Homer Drake is expected to order that the sale be made contingent on a public auction. But the price Southern Co. has agreed to pay is fairly high -- $131 for each of New Power's customers, which includes customer service and billing systems, plus $32 million for its gas and outstanding payments from customers -- and could discourage higher bidders, observers said.
Shell Energy paid just $19.3 million in a 1999 auction for 172,000 customers, plus gas supplies, for the assets of Peachtree Natural Gas, the first of four Georgia marketers to declare bankruptcy since deregulation debuted in 1998.
Franklin said Southern Co. is prepared for an auction but will only "pay what it's worth."
"We are spending a lot of money," Franklin conceded, but his chief financial officer, Gale Klappa, said the acquisition will add to the company's earnings "in the first few months" after the deal closes.
Besides, Franklin said, Southern Co. is ready to make its first move into the retail natural gas business.
"Gas is different from electricity, but many of the factors are the same," he said. "We can bring a high level of customer service to the business." He noted that Southern Co. currently buys more natural gas on the wholesale market to fuel its power plants than will be required for New Power's customers.
Southern Co. plans to form a "standalone" gas company to be called Southern Company Gas. It will operate independently of Southern's largest subsidiary, Georgia Power.
New Power's fixed-price contracts with consumers that lock in gas prices for a year or more will be honored, Franklin said.
Southern Co. has kept negotiations with New Power under wraps for several weeks.
Southern Company Gas was quietly registered with the Georgia secretary of state last week. The company filed an application with the PSC on Wednesday for certification as a gas marketer. Approval could take two months.
The announcement of Southern Co.'s move surprised many industry players.
"Hopefully they will offer consumers some competitive rates that could jump-start competition for residential service," said PSC member Robert Baker.
"With new competition, Georgia Natural Gas is confident that Georgia consumers will continue to benefit with meaningful choices in the marketplace," said Mike Braswell, chief operating officer of the state's No. 1 gas marketer.
When state legislators were looking for ways to repair the state's crippled natural gas deregulation system this year, the General Assembly considered trying to lure Georgia Power into the gas business as a regulated supplier.
Paula G. Rosput, chief executive of AGL Resources, the parent of Atlanta Gas Light Co., loudly objected.
"Over my dead body will they be in this business," Rosput told AGL shareholders.
While the effort to bring Georgia Power into the gas business went nowhere, lawmakers also rebuffed overtures from Atlanta Gas Light Co. to return as a regulated supplier.
Rosput was unavailable for comment Wednesday, but company spokesman Russ Williams issued a conciliatory statement. "From our standpoint, the most important thing is that customers ultimately enjoy a more stable natural gas market through a solidified pool of marketers," he said.
Southern Co. and Georgia Power had contemplated entering Georgia's natural gas market at the outset of deregulation in 1998 but got cold feet. That decision seemed to be vindicated when deregulation faltered over problems with customer service, winter price spikes, nonpaying customers and marketer bankruptcies.
Southern Co., which has 26,000 employees in five Southeastern states, will devote "in the tens, not hundreds" of employees to the new gas venture, Franklin said. Southern Co. will initially use New Power's billing and customer service systems.
Gael Doar, spokeswoman for New Power, said the gas marketer, which is based in Westchester County, N.Y., expects to file the sale agreement with the bankruptcy court as soon as possible.
Drake held the first hearing in his Newnan courtroom Wednesday and gave New Power approval to make payroll and pay other expenses.
Although the entry of Southern Co. into the natural gas market may be a bitter pill for Atlanta Gas Light, the company also has a strong financial interest in concluding the New Power bankruptcy proceeding.
Atlanta Gas Light attorney Gary Marsh told Drake that New Power pays the utility $188,000 a day to distribute its gas to Georgia customers. If the marketer is unable to meet its obligations, AGL could be owed $1 million a day, Marsh said.
"That would rack up very rapidly," he said. "Making sure we get paid is of paramount importance."
New Power officials said they have enough cash to operate through Aug. 1. The bankruptcy was necessary to protect a purchaser from liabilities associated with Enron, which still owns 44 percent of what was once envisoned as a national energy marketing firm, said Marc Manly, New Power managing director.
"We are here today because of our association with Enron," Manly said in an interview as he surveyed the Bankruptcy Court. "We just couldn't get past the taint."
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