Running out of time to shore up its finances ahead of a bank facility expiration Dec. 22, Commerce Energy Wednesday announced an agreement to sell off most of its remaining customer base. Commerce has through Nov. 26 to carve out a deal with Universal Energy Group Ltd (UEG), according to Commerce CEO Gregory Craig.

Commerce also reported that for the fiscal year, which ended Sept. 30, it had a net loss of $31.8 million, or minus $1.04/share, including $23 million of bad debt it had to write off, $20 million of which was in the Electric Reliability Council of Texas (ERCOT) where it earlier sold its customer base to Ambit Energy LP. This compared to a profit in fiscal 2007 of $5.5 million, or 18 cents/share. The losses this most recent fiscal year came in the face of a 24% increase in Commerce’s overall revenues, which hit $459.8 million.

Under the proposed sales terms, UEG would end up owning 66-2/3% of the Costa Mesa, CA-based natural gas and electricity service provider by providing $16 million in cash and purchasing 49% of Commerce common stock. UEG would purchase Commerce’s retail gas customers in Ohio and its electricity customers in Pennsylvania, New Jersey, Maryland and Michigan. These customers represent 60,000 of Commerce’s current 100,000 customers.

The company began as Commonwealth Energy in the late 1990s. The present Commerce Energy would be left with residential customer operations restricted to California and Florida, along with a commercial/industrial group of customers in various states.

Even without the global credit and banking crisis, Commerce was facing an uphill battle to turn around its fortunes, which an entirely new senior management team, led by Craig, has been attempting to do since February. The effort has included the asset sales and a substantial work force reduction of about 80 jobs, or about 31% of its workforce. More recently, the parent company, Commerce Energy Group, sold Houston-based energy consulting firm Skipping Stone, which it acquired four years ago, back to its founder.

During a conference call Thursday, former CEO and major shareholder Ian Carter was dubious about the UEG deal. Craig reminded Carter that the company is up against the bank facility deadline next month with Wachovia Bank.

Carter, who has his own investment company, Carter and Co., said his analysis would conclude that based on the recent sale of the Commerce’s Texas ERCOT customers, the company should get at least $25 million in cash — not the $16 million mentioned — in its proposed UEG deal.

“Even in this bad a time, I don’t think this is a particularly good deal,” Carter told Craig. “It leaves you with 40,000 customers, and moving forward you would have primarily the California portfolio and a few other customers. I think you would probably have more value in selling off the customer base, if you did it on the same basis as the Texas sale.

“Looking at the Texas deal, it would seem your back door would have been to consider a liquidation scenario, and it also would have given [Commerce] some leverage with UEG. This deal with Universal looks like you have no leverage at all; it is just ‘take it or leave it.’ Even though the current market is so bad, there are still potential buyers out there, so how many had been contacted to buy parts, or all, of the portfolio?”

Craig addressed some of Carter’s questions but said he could not give a lot of details on the letter agreement, citing Securities and Exchange Commission prohibitions while the deal is pending.

Only one other question arose on the conference call and it dealt with the amount of bad debt Commerce has had to write off. In response, Craig said that the earlier Texas customer sale essentially got the bad debt off of the Commerce books since $20 million of the total $23 million in bad debt for fiscal 2008 was among the Texas customer base.

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