April 25th, 2012
Customer benefits from Fortis’ acquisition of Central Hudson
A rate freeze and a community benefit fund for Central Hudson Gas & Electric Corporation (“Central Hudson”) are among the highlights of a joint petition filed with the New York State Public Service Commission recently to launch the regulatory review for the approval of the acquisition of CH Energy Group, Inc. (“CH Energy Group”) by Fortis Inc. (“Fortis”), the largest investor-owned distribution utility in Canada.
“The joint petition includes the potential for at least $20 million in overall benefits for customers and the communities we serve,” said Steven V. Lant, Chairman of the Board, President and Chief Executive Officer of CH Energy Group, Inc., parent company of Central Hudson. “For example, if approved the merger transaction would provide a rate freeze until July 2014 and could moderate future rate filings. Fortis has pledged to provide a community benefit fund of $5 million devoted to broader community interests, such as economic development, energy efficiency and low- income programs, and an additional $5 million to absorb costs that would normally be recovered in rates from customers.”
Lant indicated that in addition to the $10 million in community and customer benefits described above, the transaction will position Central Hudson to avoid certain operating costs it now incurs, totaling an estimated $10 million over the first five years after closing of the merger transaction. These savings will be guaranteed as customer benefits by Fortis, under the joint petition, bringing total customer benefits to $20 million over five years.
CH Energy Group and Fortis announced on February 21, 2012, that they had entered into a definitive merger agreement under which Fortis would acquire CH Energy Group for an aggregate purchase price of approximately $1.5 billion, including the assumption of approximately $500 million of debt.
The petition, jointly filed by CH Energy Group, Inc., Central Hudson, FortisUS Inc. and Fortis Inc., outlines the benefits of the proposed transaction and other information to assist state regulators in making a determination regarding the merger.
“Under the merger agreement, Central Hudson would continue to retain substantial autonomy under local management serving residents and businesses of the Mid-Hudson Valley,” said Stan Marshall, President and Chief Executive Officer, Fortis Inc. “Fortis has committed to retaining all of Central Hudson’s employees and continuing their long tradition of supporting community agencies and providing leadership in local economic development efforts.” Marshall indicated that the board composition of Central Hudson would transition to a majority of members from New York State.
Lant noted that the merger would also bring the experience and knowledge of Fortis utility companies to Central Hudson so that best practices can be learned and shared among all subsidiary operations. He said that as a larger company, Fortis has access to capital that could enhance Central Hudson’s ability to make investments in the electric and gas system to improve customer service and system reliability.
The petition is one of several regulatory filings made in connection with the merger. Additional filings will be made in coming months including with the Federal Energy Regulatory Commission, Securities and Exchange Commission, the U.S. Department of Justice and the Federal Trade Commission.
In addition to regulatory approvals, CH Energy Group shareholders will be asked to approve the transaction by a vote to be held mid-2012.