A pioneering firm in California’s ill-fated competitive retail electricity market, Costa Mesa, CA-based Commerce Energy Group Inc., finds itself mired in a sea of red ink as it compiles its fiscal 2008 results, selling off a Houston-based energy consulting firm it acquired four years ago after announcing earlier this year that it was cutting about one-third of its work force.
An inquiry by NGI following the announcement last Monday of the sale of Skipping Stone back to founder Peter Weigand drew no response from Commerce because, a spokesperson said, the company is in a financial quiet period, with the pending sale and the advent of Commerce reporting its fourth quarter results.
In June, under a new senior management team that took over in February, Commerce Energy said it was eliminating about 80 jobs, or about 31% of its work force, and exiting the energy consulting business embodied in Skipping Stone, along with closing Houston and Boston offices that were used principally by the consulting unit. Skipping Stone’s sale back to Weigand and a partner brought a “nominal amount of cash.” Commerce said the employee cuts were supposed to produce $5 million in annual operating savings.
While noting that the quarter ended June 30 was expected to involve a $1.4 million impairment charge related to Skipping Stone, Commerce CEO Gregory Craig said the restructuring was the “first major step in a broader initiative and transformation that is aimed at significantly streamlining our operations, returning the company to profitability and positioning it for growth.”
Following net income of $5.5 million for fiscal year 2007 ending Sept. 30 that year, compared to a $2.2 million loss in fiscal 2006, Commerce has reported three straight quarters of losses.
For the first three quarter in the Oct. 1-Sept. 30, 2007-2008 fiscal year, Commerce reported collective losses of $11.8 million ($1.1 million in the first quarter, $1.2 million in second quarter and $9.5 million in the third quarter).
A year ago Commerce, under now-departed CEO Steve Boss, contracted with an investment banking unit with the Royal Bank of Canada to assess the national energy retailer’s options for selling or partnering with another firm. A letter and subsequent financial filing by Commerce’s largest shareholder prompted the action.
David Zeff, of Zeff Capital Partners, in August 2007 filed with the Securities and Exchange Commission urging that the company pursue a sale. Zeff was the largest stockholder of Commerce at the time, holding about 10% of the outstanding shares, according to a Commerce spokesperson.
Commerce last year claimed to have slightly more than 200,000 electricity and natural gas retail customers in 10 states, including its core of 54,000 customers in California, which it cannot add to with current state restrictions in effect regarding direct access electricity deals. Texas is Commerce’s major market for electricity, and its Maryland and Ohio operations are ranked second and third for electric and gas service, respectively, according to the company.
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