Coming as little more than a formality last Tuesday, NewPower Holdings Inc. and its subsidiaries TNPC Holdings and The New Power Co. (collectively NewPower) said that they have filed voluntary petitions for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Georgia. The filings came one day after NewPower liquidated its 80,000 power customers in Texas and one day before the company entered into an agreement to sell its 210,000 natural gas customers in Georgia.

NewPower said it will transition all of its Texas power customers in the TXU service area to Reliant Energy Retail Services LLC, and its customers in the Reliant service area to TXU Energy Retail Company LP. Under the Georgia deal, Southern Company will acquire NewPower’s Georgia customers, the rights to use its risk management system and the company’s Georgia natural gas inventory and accounts receivable for $60 million.

The Purchase, NY-based companies have been in financial straits since their majority stakeholder, Enron, filed for bankruptcy. In the filings, the companies said that several factors during 2001 and 2002 “adversely affected” liquidity and cash resources. Due to these facts the company has been facing the substantial risk of not being able to continue to operate as an independent entity. NewPower said it has been reviewing all of its strategic alternatives over the past few months and is currently in discussion with several parties concerning the sale of its assets.

In February, Centrica North America announced plans to buy NewPower, but the deal fell through when the bankruptcy judge in the Enron case ruled that NewPower would not be excluded from the bankruptcy case and could be exposed to future liability (see NGI, Feb. 25; April 1; May 13).

By filing for Chapter 11, NewPower said it will allow the potential purchasers to acquire its assets free of liability while allowing NewPower to continue the operation of its business during the sale approval process. Because of this, NewPower expects that the delivery of commodity and service to customers will continue without disruption.

On Friday, NewPower said it received approval on a number of first day motions by the bankruptcy court. NewPower will be allowed to conduct business as usual relative to its customers, suppliers, transmission and distribution companies, and employees and to maintain its existing cash management systems. In addition, the court approved NewPower’s Texas customer transition.

“We are pleased with the Court’s approval of our motions,” said NewPower CEO H. Eugene Lockhart. “The prompt approval of the Transition Agreements related to our Texas customers will enable the switching process to begin and provide customers with a seamless transition to their new supplier. Furthermore, these approvals permit the use of funds to pay suppliers for post-petition deliveries of commodity, which is essential for the certainty of continued service.”

Under the Texas agreements, NewPower will transition approximately 45,000 residential and small commercial customers in North Texas to Reliant, and approximately 35,000 residential and small commercial customers in the Houston area to TXU. The Texas Public Utility Commission has reviewed these agreements and has issued letter rulings stating that these agreements are consistent with commission rules and are in the public interest.

NewPower , which was an Enron subsidiary for less than two months, quickly became the leading retail energy provider in Texas after the state deregulated January 1. Since Enron filed for bankruptcy, however, NewPower has been mired in legal entanglements and credit problems (see NGI, May 6).

Rob McCoy, retail president, TXU Energy, said the transaction “offers us a significant new base of customers in Houston,” and that NewPower’s customers in Houston can expect continued service without interruption. “We are working with NewPower to ensure a seamless transition for the customers.”

In connection with the transition of the power customers, NewPower and IBM agreed to terminate their customer service outsourcing agreement, subject to the continued provision of services during a transition period.

The negotiated deal in Georgia requires Southern Co. to pay $28 million for NewPower’s customers ($131 per flowing customer for the customer contract and its customer care and billing systems), an additional amount for the rights to use New Power’s risk management system and $32 million for NewPower’s Georgia natural gas inventory and accounts receivable.

In conjunction with the acquisition, Southern Co. has formed Southern Company Gas LLC to run all Georgia gas operations. The new entity will seek certification from the Georgia Public Service Commission to become a natural gas marketer in Georgia. Southern Co. added that terms of the deal are subject to bankruptcy court and regulatory approvals. NewPower provides gas in Georgia to 210,000 residential and small commercial customers, which make up a 15% share of the market.

“The acquisition of NewPower’s Georgia customers would fit our strategic plan to offer energy-related new products and services, apart from our traditional sales of electricity,” said Allen Franklin, CEO of Southern Co. “Our emphasis will always be on the customer. Our goal would be to provide retail natural gas customers with the same high level of customer service and competitive prices that they have come to expect from all of our companies.”

“We would expect that the New Power acquisition would enhance Southern Company earnings in the first few months after the acquisition closes,” said Gale Klappa, Southern Company’s CFO.

Publicly launched in May 2000 by its strategic partners that included Enron, IBM and AOL, NewPower was aiming to become the first national energy marketer. The company filed in July 2000 with the Securities and Exchange Commission to launch its IPO (see NGI, May 22, 2000). The venture initially received a capital infusion from its sponsors of more than $120 million, and increased its market stake with a purchase in July 2000 of Columbia Energy Group’s retail gas and power mass marketing business (see NGI, July 3, 2000).

At start-up, Enron owned a 52% stake in NewPower through value-in-kind investments, such as providing energy commodity pricing, risk management and supervision of government regulatory affairs. IBM built the corporate infrastructure and web site and manned the call center. AOL gave NewPower access to its 22 million customers under a six-year agreement.

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