Seeking to become a “one-stop” energy shop and a larger regionalenergy company, Carolina Power and Light (CP&ampL) announced itsinitial entry into the gas industry with the acquisition of NorthCarolina Natural Gas (NCNG) through a stock-for-stock transactionworth $354 million. The agreement is still pending state regulatoryand shareholder approval, so no closing date has been announced.The acquisition reflects the strategy CP&ampL announced last Aprilto become “an organization with the potential to be a one-stopshopping service for our customers.”

CP&ampL CEO William Cavanaugh III said the purchase is a logicalfit. “We have plans for significant additions of gas-fired powerplants over the next 10 years to meet our customers’ needs. Accessto a competitively priced gas supply is integral to our long-termstrategy,” he said. “To better serve our customers, we plan tocreate a larger regional platform from which to expand ourenergy-related products and services throughout the Carolinas andbeyond.”

Calvin Wells, NCNG CEO, shared Cavanaugh’s bullish sentiments.”NCNG will benefit by being part of a larger organization in aconsolidating industry.”

“The ironic thing about our first move into the industry,” saidMike Hughes, a CP&ampL spokesman, “is that in 1952, we bought allthe energy assets of a company called Tidewater, except their gasassets. After that, those gas assets spun off and turned intoNCNG.” Hughes added that CP&ampL is still looking to expand gasassets through more acquisitions, strategic alliances, or mergers.

Cavanaugh noted NCNG has enjoyed a strong customer growth rateover the last few years — about three times the national industryaverage. “[W]e believe there is even more opportunity to increasethe penetration of gas to customers in our service area. ouroverlapping service areas will provide increased growthopportunities between the two operations.”

Before this agreement, CP&ampL provided power and electricservices to 1,153,000 customers in 30,000 square miles of centraland eastern North Carolina. Now gas enters the picture. On the LeeSteam Electric Plant in Wayne County, Carolina Power expects fourgas-fired combustion-turbine generators to be on line by mid-2000.These generators will be powered by NCNG and will provide 686additional megawatts of power to customers. Other gas-fired plantsunder construction include two peaking plants near Ashville NC,which will add an extra 160 MW each to a coal-fired base loadplant. Since these plants are in the western part of the state,NCNG will not provide their gas, and CP&ampL has not announced whowill.

Last week’s agreement calls for each common share of NCNG to beconverted into CP&ampL stock at an exchange rate of $35 divided bythe average price of CP&ampL stock in the 20-day period before thetransaction’s end date. Terms prohibit the shares’ value fromexceeding $0.8594 or falling below $0.7359. CP&ampL will pay NCNGshareholders $354 million to complete the deal. The gas company,which serves 173,000 customers in 42 out of 100 counties in NorthCarolina, will be operated as a wholly owned subsidiary of theRaleigh-based power company.

Both sides hope the regulatory issues will be taken care of insix months. Wells will remain CEO of the subsidiary, reportdirectly to Cavanaugh, and participate on the CP&ampL seniormanagement committee.

John Norris

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