New Marketing Triumvirate Targets GA, Southeast
Dynegy added a fourth regional marketing alliance and gained
entry into Georgia's deregulated gas market by partnering with AGL
Resources (parent of Atlanta Gas Light) and Piedmont Natural Gas of
North Carolina. The three equal partners - what Dynegy CEO Chuck
Watson calls a "dream team" - formed SouthStar Energy Services LLC
to offer unregulated energy products and services to industrial,
commercial and residential customers in the Southeast. Offerings
will include gas, electricity, fuel oil and propane, along with
related retail services. The Atlanta-based company will have
offices in Charlotte and Nashville.
SouthStar initially will target southeastern industrial and
commercial customers and will offer residential and small business
energy services to Georgia customers as that market opens to
competition in November. SouthStar will expand its residential and
small business services to the other states as markets open.
Electricity marketing is anticipated, but SouthStar has no plans to
own electric generation. Revenues will be shared according to the
timing of market openings and ultimate market share achieved,
according to the joint venture agreement.
"Georgia will be among the first markets to open statewide to
competition for natural gas sales. Through SouthStar Energy, we
will be well-positioned to serve the changing needs of the
customers of Georgia and the Southeast with quality energy products
and services as our industry continues to evolve, said AGL CEO Walt
SouthStar wants to do business in Georgia as Atlanta Gas Light
Services; however, last week the Georgia Public Service Commission
(PSC) said Atlanta Gas Light Co. could not name an affiliate so
similarly to the name of the regulated utility. An AGL spokesman
said the company has not seen the commission's order yet and thinks
there may be some wiggle room with regard to using the name with a
disclaimer or disclosure statement. "We believe there's some range
of results that might be included in that order." SouthStar's
filing with the PSC includes alternate names the company might do
business under. Alternatives include Georgia Natural Gas Services,
Georgia Gas Services, and Georgia Gas Co. All of the names have
been used for various businesses by AGL Resources before. SouthStar
plans to operate as Piedmont Energy in the Carolinas.
Dynegy (formerly NGC Corp.) made three other regional
partnerships to serve industrial, commercial and residential
customers during the last eight months of 1997. In May 1997 the
company formed an alliance with IPL Energy subsidiary
Consumersfirst to serve the Canadian market. In June of last year
the company formed a joint venture with NICOR to serve the Midwest.
In December, an alliance with AllEnergy Marketing was formed to
serve the Northeast.
"The SouthStar Energy joint venture is a significant step in our
strategy to serve the retail markets through alliances with
companies with strong regional presence," said Dynegy CEO Watson.
"Piedmont and AGL clearly are leaders in the Southeast region and
are well positioned to compete in the marketplace as deregulation
allows customers to choose their energy provider. Dynegy's strength
as a wholesale provider of energy and risk management services will
enhance the competitive advantage of this alliance as the market
Not insignificantly, the alliance gives Dynegy entree into
Georgia. "We did feel like we needed to align with a major utility
player in the Southeast," Watson said. "We're not a company that is
going direct into retail marketing. We did in fact think very
seriously about going alone in Georgia. We've had offices in
Atlanta for years. We'd be a little bit out of our element trying
to get into the retail business."
Georgia's plan to open the retail market is a model other states
likely will follow, Watson said. "I think there's a high level of
probability it will be successful relative to California." A strong
point is that local utilities are forced to leave the merchant
function. "That was important." Watson predicted half the marketers
starting out in Georgia will drop out in the first year, and half
of those remaining will drop out in the second year.
Dynegy will be the 100% wholesale supplier of gas and
electricity to the alliance and has an equity interest. "We'll be
contributing not only the commodity for gas and power but also the
risk management." Products such as weather derivatives, which can
be moved through all the Dynegy regional alliances, could be on the
plate of offerings as well. Watson said Dynegy's capital
contribution to the alliance is minimal.
Now that it has alliances serving the Southeast, Midwest,
Northeast, and Canada, conspicuously absent from Dynegy's
partnership 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. and
Canada. We continue to work on filling the gaps for all over the
country, and we'll announce them as soon as we get them in place."
Piedmont will bring to the alliance its head office in Houston
opened in 1982, from which it's been selling gas to off-system
industrial customers. The contribution includes 300 large volume
industrial customers in North and South Carolina and Tennessee.
"We're bringing immediate cash flow," said Piedmont Chairman John
H. Maxheim. The customers are currently being served by Resource
Energy, a partnership Piedmont is exiting. Piedmont also is
contributing additional capital of about $5 million, Maxheim said.
He said the other two partners also are making capital
contributions. Neither Dynegy nor AGL would say what their capital
contributions are. AGL wouldn't say exactly how many industrial
customers its bringing to the alliance, but a spokesman said it's
more than 20% of about 650 Georgia industrial customers.
For its contribution, Piedmont gains an opportunity to grow its
existing presence and expand to other states. Piedmont Natural Gas
is the second largest gas utility in the Southeast serving 620,000
customers. The company also sells propane to 50,000 customers in
the same states. "[The alliance] also gets part of what [AGL has]
already developed, and it gets the backroom and the expertise of
Dynegy. And it offers us with the alliance in Atlanta the
opportunity to move into the first deregulated state for natural
gas, Georgia, with a major player in that market," Maxheim said.
A total of 26 marketers signed up to participate in Georgia. To
be among the first group of marketers considered, a marketer must
have applied to the PSC by last Thursday, said PSC spokesman Shawn
Davis. Applications will be ruled on in mid-October, and
competition is set to begin Nov. 1. After today, marketer
applications will be accepted on a rolling basis. Those in the
first batch of applications are SouthStar, PG&E Energy Services,
Enron Energy Services, Shell Energy Services, Williams Energy
Services, PS Energy Group, Infinite Energy, NorAm Energy
Management, Columbia Energy Services, PanCanadian Energy Services,
Texas-Ohio Gas (DBA e prime), Optimum Energy Sources, SCANA Energy
Marketing, FPL Energy Services, Volunteer Energy Services, Valdosta
Natural Gas Services, Energy America, Duke Energy Trading and
Marketing, UtiliCorp Energy Solutions, Sonat Marketing, Georgia Gas
Services, InterResource Ministries, City of Fort Oglethorpe, Global
Gas & Light, Phelts Natural Gas Associates, and Utility Service
As a participant in Georgia's unbundling, Piedmont hopes to
learn lessons it can apply to the Carolinas and Tennessee when
customer choice becomes available in these states. "I don't think
anybody at this stage can say that this is a model or that there
won't even be revisions to the present model. I think being a
player there is going to be very important for us to assist the
other states and commissions and work with them on what's good and
what's bad. It's certainly a wide-open market. They definitely have
opened it up, and that's what makes us think it's a good place to
Maxheim said the company likely won't pursue similar alliances
elsewhere but will retain its focus on the Southeast. "That's where
the growth is. That's where the market is. We have all the
opportunities we need in about seven southeastern states."
Joe Fisher, Houston