Enmax Corp., the city of Calgary’s municipal power utility, is buying Emera Inc.’s transmission and distribution operations in Maine for $1.3-billion, its first foray outside Canada.
The debt-funded deal allows Enmax to increase the size of its regulated rate base by 50 per cent and that should put its finances on more solid footing by reducing the influence of volatile commodity markets, it said.
It will assume about $500-million in debt with the acquisition, bringing the total price tag to $1.8-billion. The company is adamant that the deal will have no impact on electricity rates in the Alberta city of 1.4 million people.
“The debt that we are taking on happens at the corporate level and will be serviced through other parts of the business. There’s absolutely no impact on ratepayers,” Helen Wesley, Enmax’s chief financial officer, said in an interview.
The company began looking for ways to stabilize its revenue about a year and a half ago as the generation business in Alberta became less predictable and power prices gyrated, and it set a strategy to both improve its existing business and boost the regulated rate base.
“As a company owned by the city of Calgary, which depends on us for a steady and stable growing dividend, we actually need to change our risk profile,” she said.
For its part, Halifax-based Emera said the transaction, which followed an auction, will boost recent asset-sales proceeds to $2.1-billion, which will go to reducing debt and funding capital spending in its other regulated operations.
Enmax’s acquisition comes after the end of an $80-billion spending spree among Canadian companies for U.S. energy infrastructure operations. Some of the buyers included Enbridge Inc., Fortis Inc., AltaGas Ltd. and even Emera. Results of the acquisition rush have been mixed, as some of the acquisitors have struggled to convince investors that taking on large amounts of debt to buy the assets will guarantee long-term benefits.
Emera paid $8-billion for Florida’s TECO Energy in 2016, though its stock price has held up reasonably well since. Word of the sale to Enmax prompted a nearly 1.2-per-cent gain in Emera shares on the Toronto Stock Exchange on Monday.
The acquisition includes the operations of Emera Maine, the state’s second-largest electric utility with approximately 400 employees. It is headquartered in Bangor and serves 159,000 customers in the northern part of the state.
The deal follows Emera’s sale of New England gas-fired generation plants to The Carlyle Group for US$590-million. Emera has set a three-year capital spending budget of $6.5-billion throughout its remaining operations.
On the surface, the deal has some similarities to Toronto-based Hydro One Ltd.'s failed $4.4-billion takeover of Washington State-based Avista Corp. In that case, state regulators rejected the tie-up last year, fearing that the Ontario government under newly elected Premier Doug Ford would have undue influence over the company’s decisions – this, after Mr. Ford fired Hydro One’s chief executive and board. The Ontario government owns 47 per cent of Hydro One.
Ms. Wesley said Enmax’s role as a municipally owned utility – which has no influence over provincial power rates – is a major difference that should minimize regulatory risk over the transaction closing.
Enmax requires the approval of the Maine Public Utilities Commission, the U.S. Federal Energy Regulatory Commission and antitrust regulators, and the deal is expected to close late this year.
RBC Dominion Securities was Emera’s financial adviser and Skadden, Arps, Slate, Meagher & Flom LLP and Verrill Dana LLP were legal advisers. CIBC World Markets advised Enmax on the financial side and its legal advisers were Bracewell LLP, Blake, Cassels & Graydon LLP and Bernstein Shur Sawyer & Nelson.