Seeking to become a “one-stop” energy shop and a larger regionalenergy company, Carolina Power and Light (CP&L) announced itsinitial entry into the gas industry with the acquisition of NorthCarolina Natural Gas (NCNG) for $354 million in stock. Theagreement is still pending state regulatory and shareholderapproval, so no closing date has been announced.

CP&L President and CEO William Cavanaugh III said thepurchase fits logically into CP&L’s plan to become a totalenergy provider. “We have plans for significant additions ofgas-fired power plants over the next 10 years to meet ourcustomers’ needs. Access to a competitively priced gas supply isintegral to our long-term strategy,” he said. “To better serve ourcustomers, we plan to create a larger regional platform from whichto expand our energy-related products and services throughout theCarolinas and beyond.”

He noted NCNG has enjoyed a strong customer growth rate over thelast few years – about three times the national industry average.”[W]e believe there is even more opportunity to increase thepenetration of gas to customers in our service area. NCNG’slow-cost structure and strong balance sheet make it a perfect fitfor CP&L, and our overlapping service areas will provideincreased growth opportunities between the two operations.”

Last April, Cavanaugh said the company’s goal to provideone-stop energy shopping. Before this agreement, the companyprovided only power and electric services to 1,153,000 customers in30,000 square miles of central and eastern North Carolina. MikeHughes, CP&L spokesman, said the NCNG acquisition is just thecompany’s first foray into gas. It is still looking to expand gasassets through more acquisitions, strategic alliances, or mergers,he said.

The NCNG transaction calls for each common share of NCNG to beconverted into CP&L stock at an exchange rate of $35 divided bythe average price of CP&L stock in the 20-day period before thetransaction’s end date. Terms prohibit the shares’ value fromexceeding $0.8594 or falling below $0.7359. Once finished, NCNG,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. “The shareholder reaction has beenvery positive,” said Calvin Wells, NCNG spokesman, “because of ouroverlapping territories and ability to offer complementaryservices, they are very happy.”

Wells said that the companies hope the regulatory issues will betaken care of in six months. NCNG will be operated as a whollyowned subsidiary of CP&L. Wells will remain CEO of thesubsidiary and will report directly to Cavanaugh and participate onthe CP&L senior management committee.

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