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Cinergy Exits OH Retail, Slashes Corporate Staff

Cinergy Exits OH Retail, Slashes Corporate Staff

Cinergy Corp., the owner of Cincinnati Gas & Electric (CG&E), experienced a corporate makeover recently as it sold its nonregulated retail gas marketing unit, Cinergy Resources, to an integrated energy services cooperative called The Energy Cooperative (TEC) for an undisclosed sum and set plans in motion to cut its corporate center staff by more than 50%.

The sale of the retail marketing unit will remove Cinergy form retail operations in its own utility's pilot program. Cinergy said it will not disclose the number of customers Cinergy Resources serves. The actual date of the sale was Feb. 1, but the announcement was delayed because of a "transition period" while the two companies worked out customer service issues.

"The decision we made [last week] was to exit the retail gas market and focus on wholesale marketing operations," said Steve Brash, a Cinergy spokesman. "Quite simply, we believe we can allocate our resources in more effective areas than retail markets. When power deregulation hits [CG&E's service territory], we have already made the decision to not enter the retail power markets as well."

The decision of Cinergy to pull out of the retail market arena is the second such decision by a major U.S. energy company in the past two weeks. In late February, DTE Energy announced it was closing up shop on its retail marketing efforts (see NGI, Feb. 28).

All of the 23 employees of Cinergy Resources will be given different jobs at Cinergy, Brash said. The name of the marketing company will change to The Energy Cooperative as a result of the transaction.

For TEC, the purchase gives the company an entrance into CG&E's deregulating market place. Cinergy Resources had participated in CG&E's customer choice pilot program, so it has name recognition in the market. Overall, CG&E has 360,000 gas customers, all of whom are free to select a supplier of their choice.

TEC is a not-for-profit business owned by its members. Any profits generated by the business are allocated to its members, based on patronage. As a result of this purchase, Cinergy Resources' customers are automatically entitled to the benefits of ownership and membership in the cooperative, TEC said.

Cinergy is no stranger to exploring the options for one of its subsidiaries. After a summer in which the power unit defaulted on some contracts due to excess demand and record heat, Cinergy's top brass announced it was going to look into selling that portion of the business. Brash said that the management decided to stay in the business after a meeting last November (see NGI, Nov. 8).

The company did more than just halt its retail marketing strategy last week, however. In an unrelated move, Cinergy announced that its corporate center, which is located in two different buildings (one in Cincinnati and the other in Plainfield, IN) will scale back its employment positions by 580. The restructuring is expected to be completed in June and is estimated to reduce costs by about $25 million annually.

Under the reorganization, approximately 340 of the current corporate center positions will be moved to one of Cinergy's business units. About 240 positions will be eliminated; however, more than 75 of those positions are currently vacant and about 40 positions are covered under bargaining unit agreements, the company said. Corporate center activities include accounting, legal, public relations, human resources and regulatory affairs operations.

"Now that our business units have profit-and-loss responsibility, it is important for them to have the people who support them as a part of their team, rather than in another organization," said James Rogers, Cinergy CEO.

The goal of the reorganization is to create a small core that provides corporate strategy and governance and a shared services group that is centralized to provide economies of scale for functions supporting all business units. Certain functions will be decentralized into the company's four business units --- energy commodities, energy delivery, international and Cinergy Investments.

The reductions are expected to result in about 45 employees being displaced. Company placement services will be available to assist employees in finding another job inside the company or with another organization.

John Norris

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