Looking back on this 12 year, $4+ billion “slam-dunk” electric utility deal, it’s got to be the dumbest corporate assumption in Hoser biz history.
A short recap: Fortis, originally a nondescript 1924 Canadian government enterprise, out in the maritime boondocks of wet, cold Newfoundland & Labrador (read: sinecured ‘gubbmint’ jobs), gets privatized in 1987 as a shareholder held, for-profit company. And being the business geniuses they are, they proceed to go ‘a buccaneering’ out West and down South.
After a spate of smaller power company acquisitions (2000-12) in western Canada, the US New England region, and Belize (lots of Canadian expats), Fortis then casts its gaze upon Arizona (more Canadian expats). The rest since its 2013 acquisition of TEP is history; i.e. a bad history, with one episode I previously addressed in mid-2023, entitled Tree’d by a Chihuahua: TEP Loses an Election that Should Have Never Happened.
Here’s my current thinking on why the Fortis C-suite in St. Johns should strike now, and sell the company while the iron is hot:
1. Wall Street is paying big bucks for utility assets, like right next door. This won’t last forever. And powering AI data centers “has legs” as they say, for at least the next 3-4 years. Not only that, at some point being on the Mexican Border will be seen as an asset, after all the illegal alien vitriol subsides. But that could be a long wait. So for now juxtapose Albuquerque’s power company, TXNM Energy (formerly PNM Resources), who was just acquired by Blackstone Infrastructure at a nearly 25% market-cap premium. Ouch! Surely a sold TEP’s infrastructure would mesh nicely with that new, next door neighbor’s? While A.I. takes care of all the extraneous back-office duplications (something Blackstone was already counting on); a key factor in the notoriously bloated utility biz. Don’t dither, Fortis.
2. The Tucson & Arizona Hard-Left won’t let you do Jack-Squat without a serious cat-fight. The doo-doo brains that run Tucson, thanks to a craven local civic elite (who’ve empowered them by default), still think they too, can run a municipal electric company. Hey, what’s a C-store got that this deal doesn’t? Fortis should see this as a totally fundamental constraint, one that really never goes away. Forget the Left’s vengeful Attorney General, or who wins the State Corporation Commission (always a big risk); your service area will always be inside enemy territory, regardless. And increasingly, they want you dead. But just imagine, being able to walk away from Crazytown, with a big, fat, chunk-o-money for having to deal with these moronic borderland ideologues the last decade-plus. It redeems you from all the bogus economic development, tech, mining, and border trade razzle-dazzle these local hustlers fed you in the beginning. Hey, Success IS the Best Revenge. Don’t dither, Fortis.
3. Canada now wants to sell its Candu SMR design world-wide, and will subsidize early PowerCo entrants. This part is more nuanced. But coming on strong since Canada has long been the low cost nuclear fuel provider to power companies worldwide. Canadian nuclear reactor designs long carried the same cachet as the US Nuclear Regulatory Commission, the previous gold standard before the Russians and Asians stepped-up their game. The advent of SMRs, or small modular reactors (150-400 MWe), changes the playing field entirely for this market, conservatively estimated at $150-200 billion/yearly. With their storied Chalk River Labs’ design & guaranteed SMR, the Canadians can offer entire countries a soup-to-nuts package deal; the factory-built modules, onsite assembled SMRs, an experienced international utility operator & distributor (presumably Fortis), and decades of hi-quality nuclear fuel. In the early going, utility company operators are virtually guaranteed giant subsidies to make the whole thing work. So…..don’t dither, Fortis.
While I am clearly summarizing a ton of highly technical, financial, and political intricacies …it still stands to reason, given the far greater ‘Big-Pix’ opportunities unfolding here, and their deep ideological adversaries, a holding company like Fortis, knowing what it does about the negative urban conditions its subsidiary, Tucson Electric Power, is currently saddled with, would not begin to seriously look elsewhere. Twelve years is more than enough time to be stuck in this disappointing tar baby.
That is, unless they’re as blinkered & flawed as the leadership of the people they’re trying to sell electricity to.
Sellers is a Southpark, Roosevelt-Republican (TR) living in incorporated Oro Valley; his background is federal technology commercialization.
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