Dive Brief:
- NextEra Energy has agreed to acquire Gulf Power, gas utility Florida City Gas and its interests in the Oleander and Stanton natural gas plants from Southern Co. for $6.475 billion.
- NextEra will finance the acquisition by issuing $5.1 billion in new debt and assuming $1.4 billion of Gulf Power's debt. The company says the deal will raise its 2020 and 2021 earnings per share expectations by $0.15 and $0.20, respectively.
- The acquisition comes after NextEra failed to win regulatory approval for two high-profile utility purchases: its rejected bid to buy Hawaiian Electric in 2015, and its attempt to purchase Texas-based Oncor in 2017. The deal with Southern must also be approved by state and federal regulators.
Dive Insight:
Regulated utilities like Gulf Power and Florida City are prime acquisition targets for holding companies like NextEra, which also has an extensive portfolio of renewable energy assets and gas generators.
Those non-utility assets can be risky — subject to swings in power markets and the whims of state legislators — but regulated utilities provide a more predictable return that can mean stability for shareholders. Exelon, for instance, is now able to finance its entire shareholder dividend with payments from regulated utilities after it purchased Pepco in 2015.
NextEra has long indicated it wants to move toward more regulated utility assets, but has been unable to close a major deal in recent years.
In 2015, Hawaii regulators rejected its bid to acquire the state's major utility, saying NextEra's vision did not align with policymakers' plans for 100% renewable energy, which the state must reach by 2040.
NextEra then turned its attention to Oncor, a highly sought-after Texas utility with more than 10 million customers. But regulators rejected that bid too, after NextEra's CEO refused to agree to their demands, like ring fencing provisions to protect ratepayers from risks in the holding company's generation fleet.
NextEra may have a better chance in Florida, where it will be playing on home turf. The holding company is headquartered in Juno Beach, on the state's east coast, and NextEra already owns Florida Power & Light, the state's largest utility.
If approved by state and federal regulators, NextEra would gain 450,000 electricity customers from Gulf Power and about 110,000 gas customers from Florida City. The deal also includes full ownership of Plant Oleander, a 791 MW simple cycle plant that sells power to a local muni and co-op, and a 65% stake in the Stanton Energy Center, a 660 MW combined cycle gas plant owned with the Orlando Utilities Commission and Florida Municipal Power Agency.
The deal would help Southern fill a $7 billion equity need identified by executives on the company's first quarter earnings call. It would also refocus Southern's electric utility offerings across three states — Mississippi, Alabama and Georgia — where it still has subsidiaries.
NextEra expects the Florida City deal to close in the third quarter of 2018, while the Gulf Power and natural gas deals will likely take until the first quarter of 2019.
