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Flying Through Turbulence

Volatile markets are causing delays, but most deals are moving forward.

Fortnightly Magazine - April 2008

to focus its efforts on service in Delaware and Maryland. It sold off non-strategic assets in Virginia to A&N Electric Cooperative and Old Dominion Electric Cooperative. The co-ops paid $44 million primarily for distribution assets.

PNM Resources is rationalizing its holdings and implementing a plan to comply with state regulatory requirements. The company is in the process of acquiring electric transmission and distribution assets in Texas from Continental Energy Systems for $202 million. It also is selling various natural gas assets to Continental for $620 million. In addition, PNM Resources’ regulated utility unit in New Mexico has agreed to sell to Shell various power, transmission and natural gas agreements for approximately $6 million. It also plans to sell its interests in the 72-MW Lordsburg and 190-MW Luna merchant facilities in order to focus on its regulated business.

Likewise, Puget Energy Inc. actively has acquired generation and raised capital to meet its growing load. It began years ago by purchasing both gas-fired and wind generation in various stages of development. Facing large and continuing capital requirements, Puget agreed to a buy out by a consortium of well-funded partners. Units of Macquarie, Canada Pension Plan Investment Board, and British Columbia Investment Management Corp. will pay a total of $7.4 billion, including the assumption of $3.2 billion of debt. It’s a long process and Puget expects to complete most aspects of the merger later this year.

Although Puget is moving forward, it has been affected by difficult financial markets. Barclays Capital and Dresdner Kleinwort launched syndication of a $3.6 billion credit facility to support the acquisition in mid January. By mid February, the lenders had enhanced the yield on some aspects of that credit facility to make the investment more attractive to potential syndicate members.

Puget Energy’s experience largely exemplifies the overall trend. Although troubled financial markets have stopped and slowed a few transactions, asset sales and issues of debt and equity still are proceeding on reasonable terms. Difficulties in other markets are causing an amble rather than a rush to higher quality in the power business.