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Direct Energy unit to acquire competitor from Hess for $1.03B

On the Grid

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By John D. Oravecz
Tuesday, July 30, 2013, 2:00 p.m.
 

Competitive energy supplier Direct Energy Business LLC continued its expansion on Tuesday with a deal to buy a competing business-focused energy marketing unit from Hess Corp. for $1.03 billion.

Since entering the Pittsburgh market in 2008, Downtown-based Direct Energy has doubled employment to 400 by selling electricity and natural gas to residential and business customers in 12 states.

Its acquisition of Hess' operation in Woodbridge, N.J., will add six states and 23,000 business customers. That will make Direct Energy, a subsidiary of Centrica plc of London, one of the largest business-to-business energy suppliers in the eastern United States, with annual revenue of $10 billion.

“This transaction will transform our B2B operations, giving us leading positions in business gas and power supply and creating a unique dual-fuel business,” said Badar Khan, CEO of Houston-based parent Direct Energy LLC. Its goal is to double profitability in North America over three to five years.

Direct Energy is strong in electricity supply and Hess is strong in natural gas, and bringing them together combines their strengths, Kahn said.

The Direct Energy Business unit, with about 400 employees at Liberty Center, serves commercial and industrial customers and is one of four units operated by Direct Energy. It operates residential and supply and trading units in Houston and a utility services unit based in Florida, employing 6,000 nationwide.

Direct Energy entered Pittsburgh by acquiring Strategic Energy LLC. Its customers have included Heinz Field, Duquesne University, PNC Park and the David L. Lawrence Convention Center.

The impact on Pittsburgh is yet to be determined, Kahn said. Hess' unit employs about 360 in Woodbridge, and executives haven't made decisions on integrating the units, he said.

The sale is expected to close in the fourth quarter, if regulators approve.

“We are as committed to Pittsburgh as we always have been,” Kahn said. “We do expect to operate the business from Pittsburgh, where we have a lot of talented people, and New Jersey, as well as Houston. We don't expect that to change.”

Direct Energy Business operates in 12 states with annual revenue of $4 billion. Hess' unit operates in 18 states with $6 billion in annual revenue.

In 2012, Direct Energy Business supplied about twice as much electricity to customers as Hess, 51 terawatt hours versus 28 TWh. Hess supplied about four times as much natural gas as Direct Energy, 378 billion cubic feet versus 77 bcf.

Competitive energy suppliers such as Direct Energy purchase natural gas and electricity under contract from producers and wholesale markets and link supply through transport and storage capacity to customers through local distribution companies.

New York-based Hess plans to focus on exploration and production activities and withdraw from downstream operations. This transaction brings its year-to-date asset sales to $4.5 billion.

John D. Oravecz is a Trib Total Media staff writer. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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