BUSINESS

Central Hudson Gas & Electric needs merger with Fortis, state commission told

05/30/2013 08:41 EDT | Updated 07/30/2013 05:12 EDT
ST. JOHN'S, N.L. - Fortis Inc. (TSX:FTS) and the parent company of Central Hudson Gas & Electric Corp. are making new commitments to win final approval for a proposed US$1.5-billion deal that they say is vital to the U.S. utility.

A joint letter sent by Fortis and CH Energy Group, Inc. (NYSE:CHG) calls on the New York State Public Service Commission to give final approval to the amended deal in June at its next meeting.

CH Energy's chairman says in the letter that Central Hudson's future is "very uncertain" without Fortis, a Newfoundland-based company that offered in February 2012 to pay US$65 cash for each share of CH Energy.

Fortis already owns numerous utility businesses across Canada in five provinces and in other countries. It has a total of two million gas and electricity customers in a combination of regulated and unregulated markets.

The CH Energy deal would add 300,000 electric and 75,000 natural gas customers in eight counties of upper New York State, if the commission gives its approval.

The companies said Thursday that they were responding to recommendations issued by the commission on May 3.

"We appreciate the strong support that we have received from so many of our stakeholders, and today we proved that we have also listened to requests for additional enhancements to the joint proposal," said CH chairman Steven Lant.

"In today's consolidating utility industry, Central Hudson's future is very uncertain without Fortis as a partner," Lant added.

"No alternate transaction could likely ensure that Central Hudson would remain an independently operated company. Absent Fortis, our customers will be deprived of nearly $50 million in benefits and we will need to seek near-term delivery rate increases in order to fund our capital investments."

Including US$500 million of debt that Fortis would assume, the deal was originally valued at US$1.5 billion.

On Thursday, the companies detailed a list of benefits and enhanced commitments that they're making to cement the deal.

Among other things, they said customer delivery rates would be extended by an additional year, meaning they will be frozen for a three-year period that began July 1, 2012.

The deal also calls for Fortis to obtain financing for about $600 million in infrastructure investments over the next five years.

The companies have also committed to keep Central Hudson's name, headquarters and staff operating separately within the Fortis organization. Unionized and non-unionized workers will get a four-year "no layoff" commitment.