DQE Unloads Water Unit to Philadelphia Surburban Corp. for $205 million

DQE Inc., in another move aimed at returning it to its electric utility roots, said that it had struck an agreement to sell its AquaSource water company subsidiary to a Philadelphia concern for $205 million.

The decision to sell to Philadelphia Surburban Corp. was in keeping with DQE's strategy of concentrating on its core Duquesne Light Co. business while eliminating unprofitable ancillary ventures that it delved into during the '90s.

The Downtown-based parent of Duquesne Light said it expected the sale to be completed during the second half of next year, pending regulatory approval in the 12 states where AquaSource operates. The water company has about 130,000 customers and employs about 800 people, including 30 in Pittsburgh.

Philadelphia Suburban will acquire about 85 percent of AquaSource's 2001 total assets, DQE said. Those include the company's water and wastewater treatment facilities, contracts to operate municipally owned water and sewer systems in several states, and a portion of the company's construction business.

Most of AquaSource's customers are in Texas, Indiana, Florida, Virginia, North Carolina, New Jersey and Missouri, along with a smaller number in five other states. By contrast, Philadelphia Suburban has about 2 million customers in Pennsylvania and five other states.

DQE said it expected to use the proceeds from the sale "to enhance its flexibility in order to fund future growth." In May, it outlined a "back-to-basics" strategy, which called for the sale of the water unit and other noncore assets as well as the issuance of new stock to raise enough money for a $400 million natural gas-fired power plant it plans to build.

Riding the wave of deregulation, DQE just a few years ago was seeking to diversify its businesses and shed its image as a stodgy electric utility company. In this new world, it expanded into the cable business, acquired water systems, invested in alternative energy and began operating landfill gas collection and processing systems. Most notably, it sold its older coal-fired and nuclear power plants.

But it began to return to basics as those other ventures failed, emphasizing better service -- an approach that is getting mixed results. A new state Public Utility Commission survey found 80 percent of Duquesne Light consumers said they were satisfied or somewhat satisfied by the service they received last year, down from an 83 percent approval rating in 2000.

Allegheny Power, formerly known as West Penn Power, received an 87 percent approval rating for 2001, down from 89 percent in 2000 but above the statewide industry average of 85 percent last year, the PUC survey said.