Columbia Profiting in Both Retail and Wholesale Markets
"I like retail. I like retail a lot," Columbia Energy Group
Chairman Oliver "Rick" Richard said last week in explaining how he
believes Columbia is at the forefront of retail gas unbundling.
While this side of the business remains largely "unexplored," with
the ultimate winners still to be decided, "we're first movers in
retail unbundling and [the] consumer products market in the energy
"There's a different pitch to retail, and if you don't know that
pitch, then you don't know the customers." For Richard, the retail
end of the gas business is "Main Street America, and not so much
the capitals of the states. It's buying groceries, it's working in
refineries, it's folding newspapers, it's selling insurance. It's
not doing big things, and [making] big announcements. It's one
customer at a time," and realizing that "every single one of [them
is] different from the neighbor next door."
While claiming leadership in the retail arena, Columbia is not
doing too badly in the wholesale market, Richard told a Washington
energy audience. Although still a novice in the electricity market,
the company accomplished something that a number of seasoned
veteran traders failed to do when power prices in the Midwest shot
up last June - it made a profit. The Columbia CEO declined,
however, to reveal the amount of the profit.
He chalked up this feat to his company's "conservative" and
"thoughtful" approach to electricity trading. "We found [that] by
being a little conservative and using basic trading structures and
trading rules, we were okay." Moreover, "we've been very
thoughtful...about how do you trade in this business," paying close
attention to the legal, accounting, midstream and backroom aspects
of trading, Richard said at a briefing sponsored by the Washington
International Energy Group. He said he was surprised that some of
the more veteran traders weren't equally as thoughtful.
"This is the value of not being a first mover [in the trading
business]. Columbia [had] not been a first mover in gas marketing.
We started late in the 1990s. We've learned a lot from the examples
of other very successful wholesale companies [on] the gas side. And
we watched the electricity markets beginning to form very
carefully...before we allow[ed] our traders to go out and trade,"
he noted, adding that the company entered the electricity market
less than a year ago.
Although a number of power marketers have decided to exit the
electricity market and others are rethinking their futures in the
business in the aftermath of the June price fiasco, Columbia Energy
plans to stay put. "We will continue to be in that market," Richard
He believes the June price spikes were and still are a sign of
growing pains in the electricity market. Although Columbia survived
intact, "the fact that some people [did] not is an illustration of
a market opening up..."
"I think the electric industry trading...is learning a lot what
the gas industry learned in the last 15 years," especially about
the importance of creditworthy sources with access to physical
power, Richard said. He recalled a time when marketers "were just
in it [the gas market] for what they could get while the PGA was a
lot higher than the market was...They made a little money, and they
got out when the squeeze came back down and the market cleared a
little bit more efficiently. So that'll probably occur in the
electricity business as well."
As to the retail market, Richard noted that The Toledo Blade
newspaper in Ohio, where Columbia of Ohio has a major unbundling
pilot underway, has begun to publish the gas prices being offered
by marketers to residentials. On its face this may not appear
significant, but what the industry is seeing is the "sloppy,
awkward creation of a trading market for the smallest customers in
America," he said. "The next step, of course, is how do you do it
on a real-time basis so people can choose wisely."
In building retail market share, "we're concentrating on the
eastern half of the United States because we believe we're focused
there. With our acquisition of the Penn Union Trading Co., it's
expanded us at least that far," Richard noted. "And as we continue
to go into these pilots and grow customer share, we would intend to
go nation[al] as well." He predicted eventually there will be
national leaders on the retail gas side similar to those seen on
the wholesale side.
Separately, Richard said he opposed efforts, both regulatory and
legislative, that would limit the use of utilities' corporate brand
names under restructuring. "We see [this] as a threat by those who
don't have a brand. The ones that never have built one up or
invested in the assets over 100 years all of a sudden want to deny
you the ability to use your brand. There are some strong
competitors out there that don't need to use that argument if
they're as good as they say they are...So I think that's frankly
kind of [a] bogus argument."
Richard was non-committal when asked about Columbia's reaction
to FERC's notice of proposed rulemaking (NOPR) addressing pipeline
transportation in the short-term market. "Without getting too
specific, we can say we're encouraged by what we see" in the NOPR,
said INGAA President Jerald Halvorsen, who also was at the
briefing. Richard is slated to become chairman of the Interstate
Natural Gas Association of America (INGAA) within a week.
Halvorsen noted that the INGAA Foundation has begun a study of
the obstacles the gas industry will face in achieving a 32 Tcf
market by 2010. "...[T]he challenge for the gas industry, I think,
is going to be can we build the pipeline, can we get the gas out of
the ground, can we get it to the customers on time..." Early
nuclear plant shutdowns and enactment of the Kyoto accord to reduce
greenhouse gas emissions could boost the demand figure by another
7.5 Tcf, and pose a greater challenge for pipelines, he said.
Halvorsen sees other possible roadblocks to building new
pipeline projects. "...[W]e are alarmed by the better organized
landowner groups. I think on one of the pipelines they had put
coupons in supermarkets, and the FERC got 5,000 vote cards or
something." Another "issue for us is the federal-state [permitting]
dilemma...That may be one of the biggest problems we've got in
getting to a 30 Tcf economy," he noted.