Florida-based TECO Energy last week struck its first utility purchase outside its home state in an agreement to buy New Mexico Gas Co., the state’s principle gas provider, for $950 million, including $200 million of debt. The transaction adds 50% to TECO’s Sunbelt-focused customer base.
TECO reached the agreement with New Mexico Gas Co.’s privately held parent, Troy, MI-based Continental Energy Systems LLC and subsidiary New Mexico Intermediate Inc., which acquired the utility from PNM Resources five years ago (see NGI, Jan. 21, 2008). The deal is expected to be accretive to TECO in 2015, the first full year post-closing.
The transaction is expected to close in the first quarter of 2014, subject to state and federal approvals, said TECO CEO John Ramil.
“I see New Mexico Gas as a well-run business with as-yet untapped growth potential,” he said. TECO should 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.”
TECO, which is the parent company of Tampa Electric and a coal operator in Kentucky and Virginia, 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 would 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 base would increase 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 last week, Ramil said “the driver for this transaction is growth,” and “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 $50-75 million annually, compared with about $100 million a year for the 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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