Aquila Forms Gas Marketing Alliance with Empire
Instead of spending much time and money building a larger direct marketing operation, Aquila Energy has formed a gas marketing partnership with Empire District Electric Co., a Midcontinent region electric utility, to target industrial customers in Empire's electric service territory. Aquila said the deal is the first of multiple partnerships and alliances it plans to form in four key regions of the country where the market is competitive and it has a significant presence.
"You know the claim to fame over the last 15 years is everybody has tried to do [industrial aggregation] with a direct sales force," said Mike Young, vice president and general manager of industrial marketing at Aquila. "We've looked at that and said 'how much can you effectively touch?' The cost is fairly prohibitive. You get a fairly good return for your money. But you can't go out and hire thousands and thousands of sales people and be cost effective.
"What we've looked at is to expand our direct sales force and name recognition in regions by working with partners or agents," said Young. "Empire stood out as a company that had good name recognition in the energy industry. It fit with our regional core competencies and, third, they had a good relationship with their customer base. We thought rather than attacking their region that we would work in tandem with them."
According to the agreement, Empire will follow Aquila's marketing process, procedures, contracting and credit criteria, and in exchange, Aquila will contribute its back-office facilities and train Empire's staff in gas marketing. Both will share the margins.
"Our anticipation is that there's about 500 customers and 15 Bcf of opportunity," said Young. "We would expect over time that they should get a fairly substantial percentage of the [gas] market [in their territory] probably 20-30%."
Empire will market natural gas as a sales representative of Aquila. Initially, it will concentrate its marketing efforts in a geographic area that roughly overlays its existing electricity markets in portions of southwest Missouri, northwest Arkansas, northeast Oklahoma and southeast Kansas. Empire serves a 10,000-square-mile area with a population of about 400,000.
"There's really three reasons we're getting into this program," said Empire's Bill Eichman, manager of wholesale and industrial sales. "There seems to be a desire on the part of many of our customers to buy gas and power from a single supplier. The program also will give us some hands on training in commodity marketing for our industrial sales staff, which will benefit us significantly as the electricity market becomes deregulated. And obviously it will bring in additional revenue for Empire at little additional expense."
Young said if this partnership is successful Aquila plans to replicate the process in the Chicago area, the Northeast from its recently opened Pittsburgh office and in the Mid-Atlantic from its recently opened Chesapeake, VA, office.
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