Company close to buying NM Gas Co.; TECO Energy waits for PRC
If a Florida utility company is successful in its efforts to purchase New Mexico Gas Co. later this year, most customers won’t see much of a change. In fact, they might see a short-term drop in their monthly bills.
TECO Energy Inc., is seeking to buy NMGC for $950 million from Continental Energy Systems, which bought it from PNM in 2007.
Continental Energy System put NMGC up for auction last year and TECO won the competitive auction for the natural gas utility company. Parties involved in the acquisition are hoping to close the transaction this summer.
The company recently reached a settlement with the New Mexico Public Regulations Commission in order to move forward with the acquisition.
Fritz Hirst, TECO Energy director of federal affairs, said the settlement terms will benefit New Mexico customers. The acquisition still needs to be approved by the PRC.
As part of the agreement, NMGC customer rates will be frozen until the end of 2017. The freeze will be set based on the rate in place on the date of closing. NMGC has no pending case in front of the PRC to change rates in the meantime.
In addition to the rate freeze, customers will receive a credit on their bills. After the transaction closes, Hirst said customers across New Mexico will be credited a total of $2 million in the first year.
“They will see that credit averaged out over the year on their monthly bills, not as one lump sum,” Hirst said.
That bill reduction will increase to $4 million a year until the company’s next rate case in 2017.
The funds for those customer credits will actually come from the savings the company will realize after the purchase of NMGC. When PNM sold off it’s natural gas provider, a whole new set of support staff had to be created by New Mexico Gas, Hirst said.
Now, with the acquisition of NMGC by TECO, the two companies will find themselves with duplicate staff in some instances.
“What we’re hoping is to see some synergy between the two companies. The savings from those reductions in force are what will equal the customer savings, and we are passing on our savings to the customers,” Hirst said.
He said he believes most of the reductions will come from attrition, where an employee leaves a position to take another job or retire and it simply isn’t refilled.
TECO will cap job losses at 99 people during three years, some of which will be in the Florida operations.
The purchase price for NMGC includes $200 million in debt, most of which comes from the companies debt on capital purchases such as buildings and fleet vehicles, said Michael Montoya, operations manager for NMGC for the Belen and Los Lunas area.
“We actually have very little bad debt,” Montoya said. The PRC actually forbids any company it regulates from passing on debt or debt payments to its customers.
After a two-week hearing with the interveners to reach the settlement terms, the final decision of whether to let the acquisition happen rests with the five-person PRC, Hirst said.
“The hearing officer will make a recommendation to the commission. There could be changes to the settlement at that level,” he said.
The director said TECO was interested in expanding and New Mexico had a lot of growth opportunities.
“We want to invest, build the business,” Hirst said. That could mean expanding service into communities where it makes sense, he said, as well as increasing the use of natural gas powered vehicles.
Montoya said New Mexico Gas Co. is currently making a concerted effort to expand its service. The company recently sent out information to potential customers in Valencia County about switching from propane to natural gas, and they did the same thing in Albuquerque and Rio Rancho.
If the acquisition is successful, TECO will add NMGC’s 500,000 plus customers to its existing one million gas and electric customers in Florida. New Mexico Gas will keep its name and the headquarters will stay in Albuquerque after the acquisition, Hirst said.
“The customers won’t see a lot of changes,” he said. “What they will see is more community engagement and outreach.”
Hirst added that TECO will support new economic development opportunities designed to attract new businesses to New Mexico through maintaining good service and reasonable customer rates.
As part of the settlement with the PRC, TECO has agreed to own NMGC for at least 10 years, Hirst said.
“We’re making a commitment to the state and the customers. New Mexico Gas is a very well run company. This is a long-term investment for us,” he said.
Gerges Scott, vice president of Agenda, a public affairs firm specializing in corporate communications that is assisting TECO in its public outreach efforts during the acquisition, pointed out that TECO is a utility company buying another utility company.
“The current owners are a private equity firm,” Scott said. “They (TECO) know the business.”
TECO Energy Inc. is an energy-related holding company and has been in operation for 115 years. Its principal subsidiary, Tampa Electric Company, is a regulated utility in Florida with both electric and gas divisions, Tampa Electric and Peoples Gas System. Its other major subsidiary, TECO Coal, owns and operates coal production facilities in Kentucky and Virginia.
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