“I like retail. I like retail a lot,” Columbia Energy GroupChairman Oliver “Rick” Richard said last week in explaining how hebelieves Columbia is at the forefront of retail gas unbundling.While this side of the business remains largely “unexplored,” withthe ultimate winners still to be decided, “we’re first movers inretail unbundling and [the] consumer products market in the energybusiness.”

“There’s a different pitch to retail, and if you don’t know thatpitch, then you don’t know the customers.” For Richard, the retailend of the gas business is “Main Street America, and not so muchthe capitals of the states. It’s buying groceries, it’s working inrefineries, it’s folding newspapers, it’s selling insurance. It’snot doing big things, and [making] big announcements. It’s onecustomer at a time,” and realizing that “every single one of [themis] different from the neighbor next door.”

While claiming leadership in the retail arena, Columbia is notdoing too badly in the wholesale market, Richard told a Washingtonenergy audience. Although still a novice in the electricity market,the company accomplished something that a number of seasonedveteran traders failed to do when power prices in the Midwest shotup 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] bybeing a little conservative and using basic trading structures andtrading rules, we were okay.” Moreover, “we’ve been verythoughtful…about how do you trade in this business,” paying closeattention to the legal, accounting, midstream and backroom aspectsof trading, Richard said at a briefing sponsored by the WashingtonInternational Energy Group. He said he was surprised that some ofthe more veteran traders weren’t equally as thoughtful.

“This is the value of not being a first mover [in the tradingbusiness]. Columbia [had] not been a first mover in gas marketing.We started late in the 1990s. We’ve learned a lot from the examplesof other very successful wholesale companies [on] the gas side. Andwe watched the electricity markets beginning to form verycarefully…before we allow[ed] our traders to go out and trade,”he noted, adding that the company entered the electricity marketless than a year ago.

Although a number of power marketers have decided to exit theelectricity market and others are rethinking their futures in thebusiness in the aftermath of the June price fiasco, Columbia Energyplans to stay put. “We will continue to be in that market,” Richardtold reporters.

He believes the June price spikes were and still are a sign ofgrowing pains in the electricity market. Although Columbia survivedintact, “the fact that some people [did] not is an illustration ofa market opening up…”

“I think the electric industry trading…is learning a lot whatthe gas industry learned in the last 15 years,” especially aboutthe importance of creditworthy sources with access to physicalpower, Richard said. He recalled a time when marketers “were justin it [the gas market] for what they could get while the PGA was alot higher than the market was…They made a little money, and theygot out when the squeeze came back down and the market cleared alittle bit more efficiently. So that’ll probably occur in theelectricity business as well.”

As to the retail market, Richard noted that The Toledo Bladenewspaper in Ohio, where Columbia of Ohio has a major unbundlingpilot underway, has begun to publish the gas prices being offeredby marketers to residentials. On its face this may not appearsignificant, but what the industry is seeing is the “sloppy,awkward creation of a trading market for the smallest customers inAmerica,” he said. “The next step, of course, is how do you do iton a real-time basis so people can choose wisely.”

In building retail market share, “we’re concentrating on theeastern half of the United States because we believe we’re focusedthere. With our acquisition of the Penn Union Trading Co., it’sexpanded us at least that far,” Richard noted. “And as we continueto go into these pilots and grow customer share, we would intend togo nation[al] as well.” He predicted eventually there will benational leaders on the retail gas side similar to those seen onthe wholesale side.

Separately, Richard said he opposed efforts, both regulatory andlegislative, that would limit the use of utilities’ corporate brandnames under restructuring. “We see [this] as a threat by those whodon’t have a brand. The ones that never have built one up orinvested in the assets over 100 years all of a sudden want to denyyou the ability to use your brand. There are some strongcompetitors out there that don’t need to use that argument ifthey’re as good as they say they are…So I think that’s franklykind of [a] bogus argument.”

Richard was non-committal when asked about Columbia’s reactionto FERC’s notice of proposed rulemaking (NOPR) addressing pipelinetransportation in the short-term market. “Without getting toospecific, we can say we’re encouraged by what we see” in the NOPR,said INGAA President Jerald Halvorsen, who also was at thebriefing. Richard is slated to become chairman of the InterstateNatural Gas Association of America (INGAA) within a week.

Halvorsen noted that the INGAA Foundation has begun a study ofthe obstacles the gas industry will face in achieving a 32 Tcfmarket 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 ofthe ground, can we get it to the customers on time…” Earlynuclear plant shutdowns and enactment of the Kyoto accord to reducegreenhouse gas emissions could boost the demand figure by another7.5 Tcf, and pose a greater challenge for pipelines, he said.

Halvorsen sees other possible roadblocks to building newpipeline projects. “…[W]e are alarmed by the better organizedlandowner groups. I think on one of the pipelines they had putcoupons in supermarkets, and the FERC got 5,000 vote cards orsomething.” Another “issue for us is the federal-state [permitting]dilemma…That may be one of the biggest problems we’ve got ingetting to a 30 Tcf economy,” he noted.

Susan Parker

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