Natural Gas Utilities Attractive Targets for Electric Takeover

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NEW YORK -- U.S. natural gas utilities, their stocks depressed by low gas prices and poor sales, are prime candidates for takeover by electric utilities, analysts say.

East Coast natural gas utilities such as Yankee Energy System, Colonial Gas and Washington Gas Light are especially attractive targets because they are located in lucrative electricity markets and lack the resources to compete against new rivals as their local monopolies are ended over the next few years, analysts say.

Deregulation has electric utilities selling off billions of dollars in power plants, giving them the resources to make acquisitions at a time when gas companies are looking like bargains.

The Standard & Poor's index of nine natural gas utilities has fallen 26 percent this year, while the S&P index of 26 electric utilities has risen 3.8 percent.

"Electric utilities are generating a lot of cash and are looking for places to invest. All of these gas stocks are cheap," said Michael Heim, an analyst with A.G. Edwards.

Gas utilities shares fell because mild winter weather cut into sales of heating fuel this year, and natural gas prices have been low because of ample supplies.

Regulators are prodding utilities to sell power plants as part of the move to bring competition to the electric industry. Power companies are selling non-nuclear plants for much more than book value, and are expected to use the proceeds to buy into businesses that can deliver products using pipes or wires.

In addition to natural gas companies, utilities have invested billions of dollars in home security, Internet and phone businesses.

The gas utility industry, particularly in the Northeast, is more fragmented than the electric utility industry, leaving plenty of room for consolidation, analysts said. Massachusetts, for example, has nine gas utilities based in the state and just four electric utilities.

"We're all pretty small, and we could be a good fit with an electric company," said Tom Dorsey, the director of investor relations with Yankee Energy System, a Meridian, Conn.-based company whose stock has fallen 12 percent this year as mild weather has cut sales of heating fuels such as natural gas.

Colonial Gas, based in Lowell, Mass., is seeking regulators' approval to create a holding company, making it easier to buy a rival or be bought. …