Florida-based TECO Energy, a natural gas and electric utility holding company, said Tuesday it has entered into a definitive stock purchase agreement with its privately held parent company to purchase New Mexico Gas Co., that state’s principal gas utility. The aggregate value of the deal is $950 million, including the assumption of $200 million of the New Mexico utility’s debt.
TECO reached the agreement with New Mexico’s privately held parent, Troy, MI-based Continental Energy Systems LLC and its subsidiary, New Mexico Intermediate Inc., which had acquired New Mexico Gas from PNM Resources five years ago (see Daily GPI, Jan. 16, 2008). The deal is expected to be accretive to TECO in 2015, the first full year post-closing.
TECO CEO John Ramil said the transaction is expected to close in the first quarter of 2014, subject to state and federal approvals. It is TECO’s first utility venture out of state. “I see New Mexico Gas as a well-run business with as-yet untapped growth potential,” said Ramil, adding that he expects TECO to bring some “significant marketing expertise and a commitment to economic development” at the Albuquerque-based utility.
“We are adding 50% to our customer base in a single transaction, and we expect it to provide opportunities for future growth in an attractive Sunbelt location,” Ramil said.
The parent of Tampa Electric and operator of coal businesses in Kentucky and Virginia, TECO began acquiring gas utilities in 1997 with the purchase of Peoples Gas in Florida, followed by acquisitions of Florida Gas and Griffis Gas.
When the New Mexico acquisition is complete, TECO will have 850,000 gas utility customers in the two states and a total of 1.5 million gas and electric utility customers overall. The additional gas utility will increase TECO’s net income from regulated operations and add more diversity to its operating footprint, Ramil said.
On a conference call with financial analysts to explain the deal Monday, Ramil said “the driver for this transaction is growth,” and after the New Mexico acquisition, “down the road,” there may be other acquisition opportunities in the Sunbelt.
Responding to a question on projected load growth in New Mexico and how it compares to Florida, Ramil said there are some similarities, but projected capital expenditures at the new utility would be in the $50 million to $75 million range annually, compared with about $100 million annually for its Florida gas operations.
In terms of the regulatory climate in New Mexico, Ramil said TECO “looked at that pretty hard in our due diligence work” and concluded there was a reasonably “constructive regulatory relationship” between New Mexico Gas and state regulators.
“Their approach is very compatible with the way we work here in Florida with our regulators,” he said. “As we studied the last [New Mexico Gas] rate case, we think it was a fair result and a settlement result.”
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