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Fortis Ventures Into US Utility Market With CH Energy Group Buy For $1 Billion

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(Photo: Stock.xchng)
(Photo: Stock.xchng)

BUSINESS

  • Deal marks first steps for Fortis into regulated US gas and electricity market
  • Fortis to gain control of distribution in 8 New York counties
  • Fortis expected to buy more US utilities

Canada’s largest investor-owned distribution utility Fortis Inc plans to purchase New York-based energy distributor CH Energy Group for around $1 billion.

In the all-cash deal, Fortis will offer shareholders $65 a share; it will also take on $500 million in debt from CH Energy.

The purchase represents the Canadian company’s first steps into the regulated US gas and electricity distribution market. Fortis serves 2 million gas and electricity customers in Canada, but expansion opportunities in its home country are few. The US market, on the other hand, is fragmented and offers plenty of opportunity.

In recent years, there have been a number of deals among utility providers as companies prepare for stricter environmental regulations and look for ways to cut costs.

Analysts expect Fortis to purchase more US utilities in the future. The company said in 2011 it was willing to spend up to $6 billion to purchase American assets.

Fortis Takes On Transmission, Distribution For Central Hudson Customers

With assets totaling $1.7 billion, CH Energy is the parent group of Central Hudson Gas & Electric Corp., which services 75,000 natural gas and 300,000 electricity companies in eight counties in New York’s mid-Hudson River Valley.

Fortis will assume transmission and distribution for Central Hudson’s customers.

In 2011, CH Energy reported sales up from the previous year, and attributed the increase to cost management, incentives earned for strong performance and divestment from four renewable energy projects.

The sale is expected to be completed in early 2013. It must be approved by the Federal Energy Regulatory Commission, the New York State Public Service Commission and shareholders before final validation is made. No job cuts are planned.

After the acquisition is complete, CH Energy will remain a stand-alone company.

Key Statistics - Natural Gas in the US (source: MarketLine)

  • In 2010, the gas utilities industry in the US had revenue totaling $177 billion. This represents, for the time period 2006-2010, a compound annual rate of change (CARC) of -3.9%.
  • Over 2010-2015, the gas utilities industry in the US is predicted to accelerate with a CAGR of 1.5%. By the end of 2015, it is anticipated the industry will be valued at nearly $191 billion.
  • In 2010, the natural gas production industry in the US had revenue totaling over $111 billion. It is predicted US natural gas production will accelerate during the five-year period 2010-2015, with a CAGR of 2.6%. By the end of 2015, the industry is expected to be valued at more than $126 billion.

By Melina Druga for
Melina Druga is an American writer and editor. She is the author of Enterprising Women: Practical Advice for First Time Entrepreneurs.

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