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Bankrupt GA Marketer's Customers Go to Shell

Bankrupt GA Marketer's Customers Go to Shell

Shell Energy Services became Georgia's third largest marketer last week by winning an auction with a $19.3 million bid for the bankrupt Peachtree Natural Gas' 170,000 customers. The customer accounts may switch as soon as Dec. 1 or as late as the end of December depending on how fast the Federal Trade Commission (FTC) grants its approval of the sale, sources close to the situation said.

The sale ended a three-week dispute between the embattled Peachtree and its largest creditor, Atlanta Gas Light (AGL). "We're happy with the settlement," said Millicent Hunter, an AGL spokeswoman. "Based on the price and the way the sale is structured, it looks like we'll be made whole."

For Peachtree, the sale represented a last resort. "We were hit very hard by bills going out late and by the unexpected costs of taking on so many customers in such a short period of time," said Peachtree CEO Deborah Latham. "As everyone in this business knows, the heating season is where the most money is made. If we could have stayed afloat through this heating season, it is very possible we could have reached the 'break even' point. Unfortunately, our credit couldn't stretch that far and our expected merger with CoServ fell through. As a result we now have to do the last possible thing we wanted to do; sell our customers."

The week started off with news that Peachtree's intended merger with CoServ, a Texas-based electric cooperative, had fallen through. When Peachtree filed for bankruptcy in late October, Latham had hoped that CoServ would act as a white knight and save the marketer from its financial difficulties. Yet, despite entering into a letter of intent to buy the marketer, CoServ never got past the due diligence phase of its inquiry.

Until the transfer of customers from Peachtree to Shell occurs, Peachtree will continue serving gas by paying AGL a fee at an "as you go along" basis, Hunter said. The payment plan was originally instituted when the bankruptcy court first convened and has been renewed multiple times since then (see NGI, Nov. 8). Before filing for Chapter 11, Peachtree owed AGL $14.2 million. Since declaring bankruptcy, Peachtree has accrued another $4 million in debt to the LDC. Peachtree plans to pay this debt with proceeds from the sale and by allowing AGL to draw down an $11 million surety bond.

By gaining Peachtree's customers, Shell will acquire over 10% of the market share in the state, increasing the company's overall market share to more than 20%. While the move places Shell solidly in third-place among Georgia marketers in terms of customer base, it will still significantly trail the more than 30% market share held by both Scana and the AGL affiliated Georgia Natural Gas Services (GNGS).

"Shell saw a higher value in Peachtree's customers than we did," said Clif Payne, a spokesman for GNGS, the only other bidder in the Peachtree customer sweepstakes. "We would have been thrilled to acquire those customers at our price value, but we're not disappointed because we think the price was too high." Payne said that as of Dec. 1, GNGS will have more than 450,000 accounts, making it the state's largest marketer in terms of customer base.

Interestingly, Scana did not submit a bid for Peachtree's customers, even though it asked the court for more time earlier in the week while it contemplated making an offer. "We were present for the bidding," said Roger Schrum, a Scana spokesman. "But when the minimum bid came in, it was beyond the threshold of what we had in mind. To that end, we are happy that we did not win the customers at that price. Scana is still firmly entrenched as the No. 2 marketer in the state, and just recently we have seen our sign-ups increase dramatically." Schrum said Scana now serves 425,000 customers in the state and has added several thousand since the random assignment process ended Oct. 1.

The fact that more than 80% of Georgia's gas market is being served by only three marketers is a situation worth monitoring, said Bobby Baker, a commissioner with the Georgia Public Service Commission. "It would be nice to have a couple more viable players out there, and maybe other marketers will become more active, we'll just have to wait and see."

John Norris

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