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AES Power Direct Makes Bid for Titan Energy Assets

AES Power Direct Makes Bid for Titan Energy Assets

A bankruptcy judge in Atlanta, GA, put the proceedings against Titan Energy on hold last week after the gas marketer notified the court that AES Power Direct, a retail power provider, had made an bid to purchase its assets.

AES Power, a subsidiary of AES Corp. in Arlington, VA, confirmed last week that it made a non-binding offer to buy the troubled Titan Energy, which filed for Chapter 11 bankruptcy on July 1, but it declined to disclose the terms of the transaction. Judge W. Homer Drake of the U.S. Bankruptcy Court for the Northern District of Georgia in Atlanta postponed proceedings until Tuesday so that AES Power and Titan Energy could work out an agreement. The judge wants a final decision by then on whether AES Power will make its offer for Titan Energy binding, said AES Power President Mead Babcock. "That's the timetable we're working under."

The bid to buy the Roswell, GA, gas marketer is subject to the outcome of "due diligence," a close analysis of the company's contracts and records, Babcock noted. "I don't feel at liberty to go into the details of the transaction" until this process is completed. Anyway, the terms "will probably change somewhat between now and the time the transaction settles," he said.

AES Power, which started up a year ago, provides electricity to retail customers in New Jersey and eastern Pennsylvania. Purchasing Titan Energy would give it a foray into the retail gas business, which it intended to get into eventually when it formed the McLean, VA-based retail energy company, Babcock said.

"Our interest [in buying Titan Energy] is based on acquiring a significant amount of natural gas retail customers in two states [Ohio and Pennsylvania] that seem to be on the front-end of opening their markets to retail energy sales," he told NGI. "We'd also be buying some experience in the gas industry." Titan Energy has 91,000 retail gas customers in the two states. "They've got some customers in other states," such as California, Maryland and Virginia, but its remaining "predominant" markets are Ohio and Pennsylvania, Babcock noted. Titan Energy's 50,000 customers in Georgia were purchased earlier this month by Energy America, a joint venture between Sempra Energy and Direct Energy Marketing of Canada (See NGI, July 17).

Prior to the bankruptcy, Titan Energy claimed to have had a total of 200,000 customers coast-to-coast. Founded in 1991, it also painted itself as something of a pioneer in catering to the residential gas market during the initial phase of deregulation.

In the meantime, Judge Drake last week delayed action on the motions by two LDC subsidiaries of Columbia Energy Group to obtain some relief. Titan Energy participated in the customer-choice programs of Columbia Gas of Ohio Co. and Columbia Gas of Pennsylvania Co., serving a total of 91,000 customers. But it ceased service to its customers in the two markets on July 1, forcing the LDCs to step in and provide the gas.

The Ohio LDC wants the court to determine the status of Titan Energy's customers in Ohio - whether they belong to Titan or whether they have reverted back to Columbia Gas of Ohio in the wake of the bankruptcy, said spokesman Steve Jablonski. This issue would at least be partly resolved if AES Power proceeds to acquire Titan. "We certainly would not be opposed to the transfer of the customers to another marketer." But a lot hinges on the details of the agreement between AES Power and Titan Energy, Jablonski said.

The Ohio LDC notified Titan Energy that it was terminating the marketer from its customer-choice program on the very same day that Titan filed for bankruptcy, which Jablonski said has "kind of muddied the waters." In addition to the status of Titan's customers, the LDC has asked the court to rule on which takes precedence - the bankruptcy filing or its termination notice.

If the court should find the customers are still Titan Energy's and that the bankruptcy filing takes priority, then "under the bankruptcy code that basically freezes everything in place," and Columbia Gas of Ohio would be hard-pressed to recover the costs it has incurred as a result of serving Titan's customers since July 1. It would have to "stand in line" with the rest of the creditors, Jablonski noted.

However, if the court rules the termination notice has precedence, then Titan Energy's customers "would have reverted to our tariff," and Columbia Gas of Ohio could recover the costs from the customers that it has been serving since July 1, he said.

Jablonski estimated Columbia Gas of Ohio has been paying about $28,000 a day to supply Titan's customers since it filed for bankruptcy. "We cannot stop serving the customers. We are the supplier of last resort," he said.

Columbia Gas of Pennsylvania filed an emergency motion with the court seeking "adequate protection" for the money owed to it by Titan Energy. LDC spokesman Rob Boulware estimated that about $20,000 was owed by Titan as of July 1, and that the LDC has been incurring costs of about $9,000 per day because it has had to serve the marketer's customers.

In the event Titan fails to either resolve its debts or auction off its customers to another marketer, the Pennsylvania customers would then revert back to Columbia Gas of Pennsylvania, Boulware said. Efforts to reach Titan Energy for comment last week were unsuccessful.

Titan Energy sought Chapter 11 bankruptcy protection after its wholesale natural gas supplier, DukeSolutions, filed a lawsuit against the gas marketer in federal court in Houston, accusing it of breach of contract. DukeSolutions, a subsidiary of Duke Energy, contends Titan Energy owes it more than $10 million. It also owes Atlanta Gas Light (AGL) about $1.6 million for back distribution charges. Titan Energy paid part of its $2.8 million AGL bill with a letter of credit, but a balance still is outstanding.

Titan Energy became the second gas supplier serving the deregulated Georgia gas market to file for bankruptcy in less than a year. The first was Peachtree Natural Gas, which sold its 170,000 customers to Shell Energy for $19.3 million. Shell Energy also was a serious contender for Titan Energy's Georgia customers, but its offer of $43/customer was eclipsed by Energy America by $1 more per head.

Susan Parker

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