Energy conglomerate Atco Ltd. is looking for $1 billion to $2 billion worth of acquisitions but will stay clear of electricity-thirsty Ontario, chief executive Nancy Southern said.
Atco is sitting on more than $650 million and is seeking regulated businesses to buy, Southern said after the company’s annual meeting.
Tack on the 60-per-cent debt level typical among Canadian utility companies and Atco could go on a significant buying spree – but not in Canada’s most populous province.
“I doubt that it will be in Ontario that we’re going to find the right opportunity at this point in time,’’ said Southern. “We certainly haven’t identified any assets in Ontario – existing regulated assets – that, first of all, are for sale and, second of all, that would be complementary to our existing assets.’’ Southern said a number of municipally owned utilities in Ontario could be looking to sell assets in the future, but she suspects Atco could find similar assets in other jurisdictions.
Atco is in the final stages of completing Ontario’s newest power plant, the $450-million, 580-megawatt Brighton Beach facility in Windsor. But all of that electricity will be controlled and marketed by Coral Energy, a power marketer owned by European energy giant Royal Dutch/Shell.
Facing increasing demand for electricity yet committed to closing smog-producing coal-fired power plants in the next few years, the Ontario government is looking for billions of dollars worth of new generation in the near future – and is looking to the private sector for help.
But Southern said Atco (ACO.X-TSX) will require more market stability before it invests further in the province.
“The Ontario market requires longer-term stability. I don’t believe that we could justify going in on five-year contracts with the government. We need something much longer-term to justify new merchant electricity.’’ Other private-sector power companies, such as Calgary-based TransAlta and TransCanada Corp., also have generating facilities in Ontario, but have said they are waiting for more details in terms of rules, regulations and policies before committing to build anything new.
Southern told Atco shareholders she expects 2004 to be a difficult year for the company, primarily due to low power-pool prices in Alberta, where the company has most of its electricity generation capacity.
Earlier this month, the company reported a 16-per-cent decline in first-quarter profit to $38.2 million, due to mild winter weather and fading electricity prices.
Still, Southern said Atco’s industrial businesses look “very strong and very promising’’ as several deferred resource projects – everything from mines to oilsands development – look like they will be commissioned this year.
Atco will be “pulling back’’ on its involvement in Iraq as the political situation there deteriorates. The company has supplied about 1,000 residential structures to the American military, but has no personnel in Iraq and no immediate plans to expand its presence there.
At last week’s meeting, chairman Ron Southern defended the company’s recent $90- million sale of its energy retail operations to Direct Energy, a British-based company that has been accused of forging signatures and coercing customers in Ontario and the U.S. to sign long-term contracts.
“These people have had problems, but they’re not proponents of bad behaviour,’’ he said.
