Calling the wholesalers’ mass exodus of retail energy marketing a “cyclical” process, Compass Energy Services Inc. President Chris Ziegler said he expects the large companies to return to the segment at some point, but not in the near future.

Richmond, VA-based Compass was created by former Dominion employees who stepped in and picked up a portion of Dominion’s commercial and industrial energy service contracts when Dominion Retail Inc. bowed out of the business in April 2002 (see NGI, May 6, 2002). The niche company markets natural gas in Virginia and West Virginia and offers end users custom solutions for their energy needs through its consulting business.

Ziegler said that the company is cognizant of the mistakes made by the larger marketers before them, which expanded “for the sake of expanding” without really looking at the markets and figuring out whether they could make money.

In order to succeed in a market, Ziegler said Compass needs to have:

“If you don’t have any one of those three, then you have a prescription for failure,” he said. “A lot of companies plowed into markets without really having any idea of how to move gas in those markets and what the rules were behind the LDCs. They got hit with penalties…and they got burned. There were some larger marketers that were behind 80 different LDCs.

“I still see this as a niche market,” Ziegler said, adding that other niche players continue to enter the market such as Ashland Energy Services, which was recently spun off of Covington, KY-based Ashland Inc. “There is still evidence of the big guys continuing to pull back and the little guys are still arising from the ashes.”

Commenting on the overall course of the marketing segment in the industry, Ziegler said he thinks energy wholesalers, which are becoming more interested in selling to the niche players, are currently not interested in getting back into retail. “I don’t think a lot of them are ready to take the step to actually get into the retail business, but they are interested in working with the niche players maybe more than last year.”

Down the road, he expects wholesalers to start to question why they don’t buy the niche player and pick up “every dime along the way” down to the end user. “I don’t see any of that happening right now, but that would be kind of a natural progression,” Ziegler said. “It’s kind of cyclical. These big companies will get back into the retail game and they will fail miserably at it because they are not really ready to roll up their sleeves and work with customers. They will find that it is very expensive and that the infrastructure that they have to put into place to do it is expensive, then they will jettison their retail operations. It will just keep going.”

Compass’ gas marketing and consulting businesses “continue to thrive and grow,” said Ziegler. “The gas marketing business is still basically centered in Virginia, although we have opened up a citygate and are selling in West Virginia right now.” Since November, Compass has been working in Mountaineer Gas’ service territory in northeastern West Virginia, serving commercial and industrial customers.

“Our businesses continue to grow within our service area of Virginia, but we are also continuing to search out other areas to move outside of Virginia,” he said. “It’s been where we can put our blueprint in place. I would say the Midwest, Mid-Atlantic and Northeast would be where we would probably expand.” However, he noted that the company has been “so busy” growing operations at home that they haven’t really been able to look “outside the fence” as of yet.

“We are constantly in search of new places to replicate our business model on the gas marketing side,” Ziegler noted, adding that the company’s consulting segment is already nationwide, serving over 200 locations in 41 states, Washington, DC, Puerto Rico and four Canadian provinces. Compass currently serves around 140 customers between its service consulting and gas marketing businesses.

Ziegler said that while both of Compass’ business segments have been profitable, the company has seen more revenue growth in its gas marketing segment than its consulting business. “We have been fortunate to be profitable from the door’s opening and we remain profitable today. We are fortunate that we had a very loyal customer base that came with us when we started the business.”

While Compass currently does not market electricity, Ziegler said the company is working on getting into Dominion Virginia Power’s new electric choice pilot program (see related story).

“What Virginia Power is offering to do is cut their wire charge in half to try to encourage marketers to come in,” said Ziegler. “What most people don’t realize is that Virginia actually is a deregulated market, there’s just nothing going on here. There aren’t any marketers that can come in and get underneath the Virginia Power pricing right now.

“What will remain to be seen is that once they do that, will the suppliers be able to get in-between and make a little profit for themselves. I don’t get the feeling that, unlike say five years ago, there are a lot of suppliers that will come in here to take a loss just to sell some electricity.” He noted that the days of going into a market to lose money and hope to turn it around over time have disappeared.

“We have a very strong gas customer base here in Virginia and we really see an opportunity. Hopefully Virginia will continue on the path of opening up so that we can sell these same customers electricity in some way, shape or form.”

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