Centrica acquires gas and electricity supply businesses in Alberta

Centrica plc has today reached agreement to acquire for a consideration (payable over two years) of C$130 per customer, or a total of approximately C$128.5 million (£52 million), the retail gas and electricity supply businesses of the ATCO Group in Alberta, Canada, with 988,000 customers.

Following the completion of this transaction, and of the purchase of 860,000 AEP customers in Texas, expected to be completed by the end of this year, Centrica will have almost 5.5 million customer relationships in North America.

In Canada, Centrica’s Direct Energy business will become the largest supplier of energy and services to homes and small businesses with almost 4 million customer relationships.

ATCO, which is the main regulated gas supplier in Alberta, supplies natural gas to approximately 80 per cent of Alberta consumers, or around 821,000 regulated customers, and electricity to around 14 per cent of the market, or 167,000 regulated customers.

Direct Energy intends to use this acquisition as a platform to expand in a deregulated Alberta market, particularly in electricity through dual fuel fixed price energy contracts. There are one million gas customers and 1.2 million electricity customers across the province, most of whom already take gas from ATCO. In addition Direct Energy plans to introduce a range of home services, including the installation, maintenance and repair of residential heating, ventilation and air conditioning systems.

The speed with which customers can be switched from regulated gas and electricity supply contracts, where energy is supplied at break even, to profitable fixed price unregulated contracts retained over the long term, is a key driver of value behind this transaction. The Alberta government is committed to choice for consumers and is expected to foster an environment which is favourable to competition.

Sir Roy Gardner, Centrica chief executive, said: “This is another strategically important milestone towards creating a business of scale and value in North America. It demonstrates the flexibility of our approach to finding ways of entering markets at an early stage of deregulation.

“We intend to use the well developed skills we have in marketing, cross selling of gas and electricity and product innovation to expand significantly in Alberta, as we have already done in the UK.”

Many states and provinces in North America remain committed to effective energy deregulation. However, as Centrica made clear at its interim results in September, the pace of deregulation generally has slackened and this has resulted in a slower rate of organic growth in customer relationship numbers. Centrica remains committed to growing a substantial North American business both organically and through acquisitions, focusing, as always, on value creation.

The ATCO transaction includes a 10 year agreement, with a five year break clause, under which ATCO’s I-Tek subsidiary will carry out billing and customer care functions for Direct Energy in Alberta (see notes to editors). ATCO is retaining its energy transportation and distribution operations.

The transaction is subject to the satisfaction of certain conditions,including the receipt of required regulatory approvals and the promulgationof legislation that reflects the market refinements announced by theMinister of Energy in August 2002.  Completion is expected by mid to late2003.  It is expected the Alberta Legislature will consider theselegislative changes in the spring of 2003.