(Fortis Inc. is buying New York state utility CH Energy Group Inc. in a cash and debt deal worth US$1.5 billion. The corporate logo for Fortis Inc. is shown. THE CANADIAN PRESS/HO)

ST. JOHN'S, N.L. - Power company Fortis Inc. is making its first move into the U.S. market with a US$1.5-billion cash and debt deal to buy New York state utility CH Energy Group Inc.

The Newfoundland-based power company said early Tuesday it has struck a friendly deal to pay US$65 a share in cash for CH Energy (NYSE:CHG), a company based in Poughkeepsie, N.Y.

The US$1.5-billion price tag includes the assumption of about US$500 million of debt.

Fortis has been exploring opportunities in the United States for several years and CFO Barry Perry said the company was pleased to have reached a deal with CH after having lost out to Montreal-based Gaz Metro LP last year in the acquisition of a Vermont power distribution company.

At the time, Fortis admitted it had been surprised by Gaz Metro's last-minute hostile offer of US$472 million or $35.25 per share, which trumped its bid of $35.10 for Central Vermont Public Service Inc.

"Really there are not a lot of other targets for us in Canada," Perry said in an interview Tuesday.

"Most of the sort of electricity structure that remains in Canada that we haven't bought to date... is owned by governments and we don't expect that they'd be privatizing them any time soon."

As a result, Fortis is "very excited" about acquiring the CH Energy Group, Perry said.

"It's basically a wires business that fits us perfectly," he said.

CH owns Central Hudson Gas and Electric Corp., a utility with 300,000 electric and 75,000 natural gas customers in eight counties of upper New York State.

Fortis (TSX:FTS) has power and gas distribution businesses in five Canadian provinces - with about two million customers - and $3.8 billion in annual revenues. The company also owns Canadian real estate and produces power and distributes it in two Caribbean countries and in central America.

Perry said that while Fortis would be open to other opportunities in the U.S. down the road "our focus right now will be to get this deal closed."

Perry said that Fortis has an ample credit facility available to close the transaction, but since closing is unlikely until the first quarter of 2013 the company may put some permanent financing in place prior to closing as well.

That would likely be a common equity, preferred equity and 10-year U.S. dollar debt, he said.

Meanwhile, he said Fortis expects the acquisition to be accretive to earnings in the first year of ownership "when you exclude the cost of transaction expenses" which, under new accounting rules you've got to write those off in the first year.

Under the terms of the agreement, Fortis will pay CH Energy Group (NYSE:CHG) shareholders US$65 per share, representing an 10.5 per cent premium over the utility company's closing share price Friday.

On the New York Stock Exchange, CH Energy shares were up $7.186 or 12.2 per cent at US$65.94 in morning trading Tuesday.

On the Toronto Stock Exchange, Fortis shares were down 19 cents at $32.66.

CEO Stan Marshall, in remarks issued in a release prior to the opening of stock markets Tuesday, described "CH Energy's regulated utility operations in New York State as "similar to our regulated utility operations in Canada."

"CH Energy Group will be able to avail itself of the operational, regulatory and financial expertise existent throughout Fortis. The addition of CH Energy Group to Fortis will be good for customers of Central Hudson because it will deliver tangible benefits and support the utility's focus on enhancing customer service."

CH Energy chairman and CEO Steven Lant said management was "extremely pleased to deliver compelling value to our shareholders and to become the first U.S.-based member of the Fortis federation of utility companies.

"We believe this transaction is good for our shareholders, customers and employees alike, reflecting both value for Central Hudsons strengths and prospects and helping to ensure its future success," Lant said in a release from CH headquarters in Poughkeepsie, about 140 kilometres north of New York City.

Marshall and Lant said that all union contracts will be honoured and Fortis has no plans to cut the size of the workforce at Central Hudson.

In addition, both companies said customers will not pay for any costs associated with the transaction.