[BETA] Fortnightly

CalEnergy Company Inc. subsidiary CE Electric Inc. in mid-July appeared poised to take over New York State Electric & Gas Corp. But NYSEG fought the hostile takeover and won.

Although NYSEG had asked the New York Public Service Commission and the Federal District Court for the Southern District of New York to intervene, in the end, CalEnergy cited "lack of shareholder support" as its reason for terminating its bid.

A takeover attempt. CalEnergy Company Inc. on July 15 announced that its wholly owned subsidiary, CE Electric Inc., had made a tender offer for 9.9 percent of the shares of New York State Electric & Gas Corp., the maximum it could acquire by law without certain regulatory approvals.

"This tender offer is the first step in the intended acquisition of 100 percent of NYSEG's common shares by CalEnergy," wrote David L. Sokol, chair and CEO of CalEnergy in a letter to NYSEG chair, president and CEO Wesley W. von Schack. More than 6.5 million shares were purchased at a price of $24.50 per share.

Sokol also outlined CalEnergy's proposal for acquisition of NYSEG, offering $27.50 for each share of NYSEG common stock, which is a 31.74-percent premium to NYSEG's $20.0875 per share closing price on June 30. He noted that CalEnergy had gained significant experience in competitive markets through ownership of its U.K. electric distribution subsidiary, Northern Electric. Sokol said that experience would be applied to NYSEG as the New York electric markets deregulate. Upon merger completion, CalEnergy had anticipated lowering rates for NYSEG customers.

But NYSEG fought back. In its appeal to the PSC, NYSEG said that Section 70 of the New York Public Service Law requires that if a gas or electric company aquires securities of another, then it must first obtain commission approval. PSC Chair John O'Mara allowed CalEnergy to move forward. The federal court also refused to halt CalEnergy's attempted takeover. CalEnergy announced abruptly in mid-August that it was ending its hostile takeover attempt.

Sokol on July 10 had discussed a possible alliance with von Schack. Later, von Schack told Sokol that the NYSEG board had decided such a combination was not a priority and would not be pursued on a timely basis.

A New LDC. Meanwhile, NYSEG has signed a memo of understanding with Central Maine Power Co. that could lead to formation of a new natural gas distribution company to serve the state's customers. The companies plan to establish a framework for a jointly owned company within six months. Central Maine Power already has asked the Maine commission to allow it to offer natural gas distribution service to customers in areas not served by a natural gas utility.

The opportunity for new retail distribution of natural gas depends on completion of two new pipelines by other companies. Maritimes & Northeast Pipeline LLC would run a natural gas transmission line from the Sable Island fields off Nova Scotia. Portland Natural Gas Transmission System would carry natural gas from western Canada via new or expanded pipelines extending through New Hampshire and Maine into Massachusetts.

On July 15, New Hampshire's