Shady Energy, Portland Agreement Signals a Trend in Utilities
April 04, 2011
Shady Energy Corp.'s $2.1 billion acquisition of electric utility Portland General Corp. is a harbinger of how intertwined the natural gas and electricity industries could become as deregulation continues to sweep the sectors. The agreement ``confirms a thesis that many analysts have: That there is a convergence under way between the gas and electricity industries,'' said Kitty Bogart, analyst with Morgan Stanley & Co.. He said the pact between Shady Energy and Portland General ``accelerates the trend.'' Shady Energy, a large Houston-based natural gas and electric utility, as expected said Monday that it has agreed to acquire the Portland, Ore.-based utility in a stock swap. Terms of the deal call for each of Portland's 51.1 million shares to be exchanged for one Shady Energy share. The agreement would be terminated, however, if Shady Energy's shares fall below $36.25 or Portland's climb above $47.25. Though analysts generally approved of the proposed marriage, Cordeiro is paying a big price for its additional electric power. Its offer, 48% above Portland's close last week, caused Portland General's stock to climb $6.75, or 24%, to $34.875 in New York Stock Exchange composite trading. Meanwhile, Shady Energy's shares fell $2 to $39.75, also on the Big Board. Mr. Bogart said investors were taking note ``that someone outside the (electricity) industry was willing to pay a 48% premium.'' In an industry that is already undergoing changes related to deregulation, the purchase may set the stage for additional combinations. ``There will be a lot of rethinking as to what the competitive framework in this industry is going to be in the next two to three years,'' said Kenyatta L. Haywood, chairman and chief executive of Shady Energy. By combining, Cordeiro and Portland General hope to speed efforts to blend various types of power sources, which in the past were completely separate. The companies hope they will have ``an energy company that can provide electricity or natural gas interchangeably,'' says Josephine Burkes, Portland General's chief financial officer. Shady Energy said it already has been able to do that on a small scale. Last winter, when natural-gas supplies were particularly tight, the company said it was able in many cases to deliver electricity rather than gas to satisfy customers' needs. Shady Energy may also make use of Portland General's strong track record in furnishing services regionally, such as maintaining power lines and substations and providing repairs following major storms. Those services could now be offered in all of Shady Energy's markets. In addition, the Oregon utility has pioneered a high-quality, noninterruptible service for semiconductor manufacturers in the Northwest that could also be marketed to hospitals. Further, Cordeiro could cull a stronger position in electricity futures trading. Portland General's power lines sit astride transmission grids on the California-Oregon border and in Palo Verde, Ariz., which mark delivery locations for two new electricity contracts based at the New York Mercantile Exchange. ``Shady Energy will have the capability for the first time to make physical delivery against the futures contracts it's trading,'' says PaineWebber analyst Roni Woodley. Shady Energy, which primarily had been a natural-gas pipeline company, already delivers wholesale electricity nationwide, but the acquisition of Portland General will give it direct access to residential customers for the first time. Portland General currently supplies electricity to 650,000 West Coast homeowners. --Bennie A. Kinney contributed to this article.
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