Alliant Energy Corp. (LNT - Free Report) inked agreements to shed its Minnesota electric and natural gas distribution operations for a total consideration of $128.0 million. The sale agreements are subject to customary closing conditions. The company expects the state and federal approval process to take place within the next 6 to 12 months.
The electric distribution portion will be divested to Southern Minnesota Energy Cooperative (“SMEC”), a conglomerate of 12 neighboring electric cooperatives while the gas distribution operation will be sold to Minnesota Energy Resources Corp., a business arm of Integrys Energy Group Inc. . Besides the divestment, the deal involves a 10-year power purchase contract between SMEC and Alliant Energy's Iowa electric utility.
SMEC and Minnesota Energy Resources are active utility service providers to customers neighboring Alliant Energy’s operations in the state. Both the parties have a wider customer base than Alliant Energy in the region with SMEC currently serving 135,000 electric customers and Minnesota Energy 214,000 gas customers.
In comparison, Alliant Energy has an electric customer base of 43,000 and 10,600 natural gas customers spread over 15,000 square miles in southern Minnesota. Despite the asset sale, the company will carry on with its commitments to deliver diversified energy services to Minnesota electric customers via the power purchase deal. Future generation plans and needs for the company’s Iowa utility however will remain intact.
Alliant Energy’s Minnesota operation held a small share in the company’s total customer basket – less than 4% – which explains the divestiture. Utility operators seem to have laid more stress on facility modernization lately. This is expected to act as a key factor in keeping the growth momentum for the utilities.
The company has been diligently working towards expanding and strengthening its plants through advanced eco-friendly technological features. Chief among the near-term endeavors include the ongoing construction and installation of bag houses and scrubber equipment at Alliant’s Ottumwa and MidAmerican units in Iowa as well as at the Columbia facilities. Additional high-tech installations are also required in the Columbia units in the future.
The proceeds from the transaction backed by strong cash flow growth of 24.8% recorded in the first half of 2013 compared to the first half of 2012 will aid the company’s upgrade initiatives. This will improve Alliant Energy’s service quality and reliability, thereby leading to customer retention.
At the moment, the company holds a Zacks Rank #2 (Buy). Apart from Alliant Energy, other utility players well placed in the market include Zacks Ranked #2 UNS Energy Corp. and PNM Resources Inc. (PNM - Free Report) .