Dynegy added a fourth regional marketing alliance and gainedentry into Georgia’s deregulated gas market by partnering with AGLResources (parent of Atlanta Gas Light) and Piedmont Natural Gas ofNorth Carolina. The three equal partners – what Dynegy CEO ChuckWatson calls a “dream team” – formed SouthStar Energy Services LLCto offer unregulated energy products and services to industrial,commercial and residential customers in the Southeast. Offeringswill include gas, electricity, fuel oil and propane, along withrelated retail services. The Atlanta-based company will haveoffices in Charlotte and Nashville.

SouthStar initially will target southeastern industrial andcommercial customers and will offer residential and small businessenergy services to Georgia customers as that market opens tocompetition in November. SouthStar will expand its residential andsmall business services to the other states as markets open.Electricity marketing is anticipated, but SouthStar has no plans toown electric generation. Revenues will be shared according to thetiming of market openings and ultimate market share achieved,according to the joint venture agreement.

“Georgia will be among the first markets to open statewide tocompetition for natural gas sales. Through SouthStar Energy, wewill be well-positioned to serve the changing needs of thecustomers of Georgia and the Southeast with quality energy productsand services as our industry continues to evolve, said AGL CEO WaltHiggins.

SouthStar wants to do business in Georgia as Atlanta Gas LightServices; however, last week the Georgia Public Service Commission(PSC) said Atlanta Gas Light Co. could not name an affiliate sosimilarly to the name of the regulated utility. An AGL spokesmansaid the company has not seen the commission’s order yet and thinksthere may be some wiggle room with regard to using the name with adisclaimer or disclosure statement. “We believe there’s some rangeof results that might be included in that order.” SouthStar’sfiling with the PSC includes alternate names the company might dobusiness under. Alternatives include Georgia Natural Gas Services,Georgia Gas Services, and Georgia Gas Co. All of the names havebeen used for various businesses by AGL Resources before. SouthStarplans to operate as Piedmont Energy in the Carolinas.

Dynegy (formerly NGC Corp.) made three other regionalpartnerships to serve industrial, commercial and residentialcustomers during the last eight months of 1997. In May 1997 thecompany formed an alliance with IPL Energy subsidiaryConsumersfirst to serve the Canadian market. In June of last yearthe company formed a joint venture with NICOR to serve the Midwest.In December, an alliance with AllEnergy Marketing was formed toserve the Northeast.

“The SouthStar Energy joint venture is a significant step in ourstrategy to serve the retail markets through alliances withcompanies with strong regional presence,” said Dynegy CEO Watson.”Piedmont and AGL clearly are leaders in the Southeast region andare well positioned to compete in the marketplace as deregulationallows customers to choose their energy provider. Dynegy’s strengthas a wholesale provider of energy and risk management services willenhance the competitive advantage of this alliance as the marketopens.”

Not insignificantly, the alliance gives Dynegy entree intoGeorgia. “We did feel like we needed to align with a major utilityplayer in the Southeast,” Watson said. “We’re not a company that isgoing direct into retail marketing. We did in fact think veryseriously about going alone in Georgia. We’ve had offices inAtlanta for years. We’d be a little bit out of our element tryingto get into the retail business.”

Georgia’s plan to open the retail market is a model other stateslikely will follow, Watson said. “I think there’s a high level ofprobability it will be successful relative to California.” A strongpoint is that local utilities are forced to leave the merchantfunction. “That was important.” Watson predicted half the marketersstarting out in Georgia will drop out in the first year, and halfof those remaining will drop out in the second year.

Dynegy will be the 100% wholesale supplier of gas andelectricity to the alliance and has an equity interest. “We’ll becontributing not only the commodity for gas and power but also therisk management.” Products such as weather derivatives, which canbe moved through all the Dynegy regional alliances, could be on theplate of offerings as well. Watson said Dynegy’s capitalcontribution to the alliance is minimal.

Now that it has alliances serving the Southeast, Midwest,Northeast, and Canada, conspicuously absent from Dynegy’spartnership roster are pairings serving the western United States.Watson said those are on the way, but he wouldn’t say when.”There’s no question about it. We intend to blanket the U.S. andCanada. We continue to work on filling the gaps for all over thecountry, and we’ll announce them as soon as we get them in place.”

Piedmont will bring to the alliance its head office in Houstonopened in 1982, from which it’s been selling gas to off-systemindustrial customers. The contribution includes 300 large volumeindustrial customers in North and South Carolina and Tennessee.”We’re bringing immediate cash flow,” said Piedmont Chairman JohnH. Maxheim. The customers are currently being served by ResourceEnergy, a partnership Piedmont is exiting. Piedmont also iscontributing additional capital of about $5 million, Maxheim said.He said the other two partners also are making capitalcontributions. Neither Dynegy nor AGL would say what their capitalcontributions are. AGL wouldn’t say exactly how many industrialcustomers its bringing to the alliance, but a spokesman said it’smore than 20% of about 650 Georgia industrial customers.

For its contribution, Piedmont gains an opportunity to grow itsexisting presence and expand to other states. Piedmont Natural Gasis the second largest gas utility in the Southeast serving 620,000customers. The company also sells propane to 50,000 customers inthe same states. “[The alliance] also gets part of what [AGL has]already developed, and it gets the backroom and the expertise ofDynegy. And it offers us with the alliance in Atlanta theopportunity to move into the first deregulated state for naturalgas, Georgia, with a major player in that market,” Maxheim said.

A total of 26 marketers signed up to participate in Georgia. Tobe among the first group of marketers considered, a marketer musthave applied to the PSC by last Thursday, said PSC spokesman ShawnDavis. Applications will be ruled on in mid-October, andcompetition is set to begin Nov. 1. After today, marketerapplications will be accepted on a rolling basis. Those in thefirst batch of applications are SouthStar, PG&ampE Energy Services,Enron Energy Services, Shell Energy Services, Williams EnergyServices, PS Energy Group, Infinite Energy, NorAm EnergyManagement, Columbia Energy Services, PanCanadian Energy Services,Texas-Ohio Gas (DBA e prime), Optimum Energy Sources, SCANA EnergyMarketing, FPL Energy Services, Volunteer Energy Services, ValdostaNatural Gas Services, Energy America, Duke Energy Trading andMarketing, UtiliCorp Energy Solutions, Sonat Marketing, Georgia GasServices, InterResource Ministries, City of Fort Oglethorpe, GlobalGas &amp Light, Phelts Natural Gas Associates, and Utility ServiceGroup.

As a participant in Georgia’s unbundling, Piedmont hopes tolearn lessons it can apply to the Carolinas and Tennessee whencustomer choice becomes available in these states. “I don’t thinkanybody at this stage can say that this is a model or that therewon’t even be revisions to the present model. I think being aplayer there is going to be very important for us to assist theother states and commissions and work with them on what’s good andwhat’s bad. It’s certainly a wide-open market. They definitely haveopened it up, and that’s what makes us think it’s a good place tomove into.”

Maxheim said the company likely won’t pursue similar allianceselsewhere but will retain its focus on the Southeast. “That’s wherethe growth is. That’s where the market is. We have all theopportunities we need in about seven southeastern states.”

Joe Fisher, Houston

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