UIL to buy Southern Connecticut Gas

In a $1.3 billion deal that would roughly double its size, United Illuminating Co.”™s corporate parent is acquiring a trio of natural gas suppliers in Connecticut and Massachusetts.

Iberdrola USA Inc. is selling New Haven-based UIL the Southern Connecticut Gas Co., Connecticut Natural Gas Corp. and the Berkshire Gas Co., which hold net debt of $411 million. The companies expect to complete the deal early next year, provided they secure approval from the Connecticut Department of Public Utility Control and the Massachusetts Department of Public Utilities, as well as federal regulators.

The agreement prompted the resignation of UIL director Marc Breslawsky, the former CEO of Imagistics International, a printer and copier technology company spun out of Stamford-based Pitney Bowes Inc. that was subsequently acquired by Oc̩ International. Breslawski cited concerns over shareholder dilution and debt UIL would take on in the deal; UIL said the companyӪs remaining directors were unanimous of the view that the expected benefits of the acquisition outweighed the risks.

UIL”™s board includes Arnold Chase of Chase Enterprises; John Lahey, president of Quinnipiac University; and Donald Shassian, chief financial officer of Stamford-based Frontier Communications Corp., which is doubling in size itself via the $5 billion acquisition of Verizon Communications Inc. operations in several states.

In the UIL deal, the distributors serve more than 333,000 natural gas customers in Connecticut and 36,000 in Massachusetts. Spain-based Iberdrola acquired the companies in its 2008 purchase of Energy East.

The deal would increase UIL”™s market presence in Fairfield County, where it is the dominant electricity provider in the Bridgeport area. United Illuminating is one of two major utilities in Connecticut supplying nearly 20 percent of the state”™s power, alongside the far larger Connecticut Light & Power division of Northeast Utilities, which also owns Yankee Gas.

It is only the latest transaction in the market for heating oil and gas, following Stamford-based Star Gas L.P.”™s planned acquisition of Champion Energy Corp., which would pair Star Gas”™ Petro residential delivery service with that of Champion”™s Hoffman Fuel subsidiary.

In a conference call with investment analysts, UIL CEO Jim Torgerson said the deal gives UIL a second “peak” revenue season during winter when heating costs are highest, in addition to summer when electricity use is highest. That could help it save money in both operations by using assets like technicians and service vehicles throughout the year.

Approximately 130,000 Southern Connecticut Gas customers are located in the service territory already served by United Illuminating, serviced by a work force numbering 325 people and 133,000 miles of pipeline. In the 12-month period ending March 31, Southern Connecticut Gas had $323 million in revenue, down 3 percent from fiscal 2009, and net income totaling $20 million. “If you line up their service area with ours, they are just about on top of each other,” said Jim Torgerson, CEO of UIL, in a conference call with investors.

Connecticut Natural Gas focuses on the Hartford area, but also has a customer base in Greenwich and New Canaan. It is roughly the same size as Southern Connecticut Gas, though less profitable in the most recent year with just $5 million in profits.

Berkshire Gas has 125 employees and sells only in western Massachusetts where it recorded a $5 million profit for the 12-month period ending in March.