Aqua America's Florida Water Purchase Could Represent Twilight of Water Investments by Electric Utilities
Aqua America's Florida Water Purchase Could Represent Twilight of Water Investments by Electric Utilities
July 1, 2004
The sale yesterday of 63 Florida Water Services water and wastewater systems by Florida Water Services Corporation, a subsidiary of ALLETE, Inc. (NYSE:ALE), to Aqua America, Inc.'s (NYSE:WTR) Florida subsidiary, Aqua Utilities Florida, Inc., represents what appears to be the twilight of electric utilities' investment in the water industry as electric companies' begin to invest in other ventures and reinvest in their core business according to Aqua America Chairman and CEO Nicholas DeBenedictis.
During the mid-to-late 1980s and 1990s, some electric utilities entered the water utility industry believing that the similarities between the two regulated industries would allow them to realize synergies that would result in additional profits for their companies. This created a demand that often saw electric utilities--and some water utilities--paying premiums for water properties. Among those electrics that made major investments in the water industry during that period were Enron, NiSource, DQE, and ALLETE, Inc. "By the fall of 2000, electric utilities began to exit the water sector proving that perhaps figuratively--as well as physically--water and electricity don't mix," said DeBenedictis.
In October 2000, Enron had offered to reacquire its water spin-off--Azurix, which it had just formed in 1998. In 2001, ALLETE, which entered the water business in the mid-1980s--began negotiating the sale of its Florida and North Carolina properties. By 2003, DQE--which formed AquaSource in 1997--had sold the majority of its AquaSource water and wastewater contract operations.
Other electric companies that have substantially exited the water business include Sierra Pacific Power Company, Duke Energy, Alliant Energy, and NiSource.
In contrast to the experience of the electric utilities' attempt at growing in the water industry, Aqua America--which began its growth-through-acquisition strategy in 1992--has increased its customer base by more than 300 percent from roughly 248,000 customers in 1992 to more than 800,000 following yesterday's acquisition of ALLETE's Florida Water properties. Aqua America's market cap has grown from $200 million to nearly $2 billion. The company has also increased its dividend 13 times over the past 12 years. The company's total return to shareholders (including dividend reinvestment) was 581 percent over the 10-year period ending December 31, 2003.
When asked why the strategy of Aqua America has differed so significantly from that of the electric utilities' that were in the water industry, DeBenedictis cited several reasons. "This is our sole business and we have been successfully investing in water properties for more than 100 years. While completing more than 100 acquisitions and growth ventures in the past decade, Aqua America has been disciplined and paid fair value for the assets on which we are now earning. Our 100 years of experience has allowed to us to grow as an industry leader and operate successfully in a regulatory climate that includes more than 50,000 water companies, mostly small in size, which is very different than the demographics of the electric industry which is dominated by a couple hundred large companies. Finally, we have the infrastructure and experience in place to bring small companies up to required standards and through our large economy of scale, implement competitive rates."
Aqua America has completed three water purchases from electric utilities in less than a year. On July 31, 2003, it purchased AquaSource's investor-owned water and wastewater from DQE. On June 1, 2004, the company announced that it had completed the acquisition of Heater Utilities, Inc., based in Cary, North Carolina, from ALLETE Water Services, Inc., a subsidiary of ALLETE, Inc. (NYSE:ALE) and on June 30, 2004 it purchased 63 water and wastewater systems in Florida from Florida Water Services, Inc.
Aqua America is the largest U.S.-based publicly-traded water utility serving approximately 2.5 million residents in Pennsylvania, Ohio, Illinois, Texas, New Jersey, Indiana, Virginia, Florida, North Carolina, Maine, Missouri, New York, South Carolina and Kentucky. Aqua America is a publicly traded company listed on both the New York and Philadelphia Stock Exchanges under the ticker symbol WTR. The company has been committed to the preservation and improvement of the environment throughout its history, which spans more than 100 years.
This release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 that address, among other things, investment by electric utilities in water utilities, Aqua America's growth strategy, the effect of acquisitions, and the expected timing of acquisitions. There are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements including: regulatory approvals for the transaction; the risk that the acquired company's business will not be successfully integrated; the costs related to the transaction; the inability to obtain or meet conditions imposed for governmental approvals for the transaction; the risk that anticipated benefits will not be obtained or will not be obtained within the time anticipated; and other key factors that we have indicated could adversely affect our business and financial performance contained in our past and future filings and reports, including those filed with the Securities and Exchange Commission. Aqua America is under no obligation (and each expressly disclaims any such obligation) to update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
CONTACT:
Aqua America, Inc.
Donna Alston, 610-645-1095
dpalston@aquaamerica.com
SOURCE: Aqua America, Inc.