Acme Propane sold as Pioneer Electric Corporation continues cost cutting

Published 12:00 am Wednesday, June 29, 2005

It's official.

Pioneer Electric Cooperative is out of the propane business.

In a prepared statement Tuesday, Pioneer announced the sale of Acme Propane by Pioneer Services Corporation, an affiliate of PEC, to three local companies. PSC had been shopping Acme for several months prior to Tuesday's announcement. A sale price was not included in the release.

According to the statement the three buyers are:

n Billy J. Sexton, of Highland Home.

Sexton has worked in the propane industry and owned Highland Home Propane for many years. He is now the owner of the Montgomery, Highland Home and Hayneville locations and has the right to use the name Acme Propane Gas.

n Denson Holley, a propane distributor in Wetumpka, purchased the Tallassee, Wetumpka and Slapout locations of Acme Propane.

n Monroeville-based South Alabama Gas bought the Andalusia, Selma-Camden and Greenville locations.

Wilhite said operational control of all offices will change this week.

Malloy Chandler, executive vice-president and general manager of PEC, said the majority of Acme Propane's employees will be retained.

"Propane companies from across the country expressed interest in purchasing Acme Propane," he said. "However, we're pleased to announce that it has been sold to three local companies and from all indications, they plan to retain the majority of Acme's employees, which is good news."

He said the decision to sell Acme came after research by an outside firm.

"Acme Propane was sold after extensive analyses by Alvarez & Marsal, a nationally-recognized firm that specializes in assessing the value of companies like Acme," Chandler said. "Alvarez & Marsal provided invaluable guidance to our board of trustees during this process."

Chandler said the sale of Acme Propane allows Pioneer Electric to concentrate on its core business - electricity.

"We want to thank our many loyal Acme Propane customers," he said. "Acme Propane served more than 24,000 customers, including many large business and industrial customers. We thank every one of them for their patronage. Our focus is on positioning Pioneer Electric Cooperative for a very successful future."

He cited several reasons why PEC bought the propane business, some of which were:

N Pioneer sells the lowest amount of electricity of any co-op in Alabama and because of that, sales of electricity alone do not pay all of the cooperative's operating costs.

N The entry into the propane business came after extensive consumer research. He said more than 75 percent of PEC members use propane and more than 80 percent said they would buy it from Acme should PEC enter the propane business.

N Industry studies showed more than $3 million annually in local propane revenue went to out-of-state propane companies.

"We believed we could capture these dollars and plow them back into the community through economic development initiatives, school sponsorships and charitable causes," he said. "And we did contribute a large share of our dollars to volunteer fire departments, schools and industrial recruitment efforts."

As for the business venture failing, Chandler also cited several reasons.

"We have experienced several of the warmest winters on record since Acme Propane was purchased," he said.

"Nobody predicted the mild winters, but propane sales didn't keep up with the projections that the business model was built upon."

Also, Chandler said despite the community contributions and sponsorships, additional sales did not come about.

"Many continued to support out-of-state propane companies," he said.

"Many people, I don't believe, realize the affect this has on a local company when dollars leave the state, instead of staying here at home. However, we do greatly appreciate those who supported the business."

Looking back on the propane business Chandler said he wishes conditions had been more favorable, but utilities are driven by often uncontrollable factors.

"As leaders in business all any of us can do is make the best business decisions possible, with the data we have in hand at the moment," he said. "Just like a farmer can't predict the weather when he plants a seed, utility managers can't foresee all of the market and weather factors that drive the business."

Chandler says he appreciates the professionalism of Acme employees, particularly during the time when a sale was in the works.

Also, he said those who have pre-booked gas with Acme Propane can be assured the new owners will honor the arrangements.

"I regret that it's been an extremely stressful time for Acme employees and their families, but it speaks to their professional caliber that the majority of them stayed with us, even as a sale was pending. I appreciate each of their contributions to the company and to our community," Chandler said.

The news of the sale came as no surprise to Margaret Pierce, who is president of Rural Electric Member Action Committee.

The group formed in 2003 after members began to question why they didn't get dividend checks again.

From the very beginning Pierce said REMAC has questioned the acquisition of the propane business.

"Our reaction to this announcement is that they should never have gotten into the propane business," she said. "I've said many times that if the electric cooperative stuck to it's core objective, and that is providing electricity to rural customers, it could be a profitable business. It is when you go out on ventures such as this that you get in trouble."

Pierce said Pioneer did not release the purchase price because the amount Acme was sold for was far less than what it was purchased for by Pioneer Services.

"We know that outrageous prices were paid for these businesses when they purchased them and Acme has had millions pumped into it," Pierce said.

"They knew within two years of the purchase they weren't going to make it."

Pierce said she and the members of REMAC feel they have been vindicated by the action.

"Because of this Pioneer Electric is broke, people are losing their jobs and they say services are being curtailed," she said.

"I feel that now people are going to see REMAC's members knew what they were talking about from the very beginning.

We have been demonized by the rhetoric that was printed and spoken, but things we said two years ago would happen, are now happening."

J. Doyle Fuller, the attorney representing three REMAC members in a suit against Pioneer Electric echoed Pierce's sentiments.

"What this says to me is that when members of the REMAC organization first began to complain to us, much of the complaints were about the money spent on the propane business," he said.

"Company officials claimed this was a healthy financial venture, while the truth was the propane company was broke and that Pioneer was quickly following suit."

He said REMAC should be commended for its work.

"What the release from Wilhite didn't say was that had it not been for the REMAC organization bringing this to the forefront, Pioneer would likely be insolvent and in bankruptcy. This affirms that my client, REMAC has been right all along."

Pioneer Electric is a rural electric cooperative that serves about 14,000 members in Butler, Dallas, Lowndes and Wilcox Counties.