Dominion Jumps Into Utility Merger Mania With Questar Bid

Like Jumping Jack Flash, merger bids have been a gas, gas, gas for some of the nation’s biggest utilities lately.

Dominion Resources joined the consolidation trend by announcing its $4.4 billion stock, cash and debt-financed bid for western U.S. utility Questar on Feb. 1. The deal, which could close by the end of 2016 upon shareholder and regulatory approvals, would create a combined firm providing power to 4.8 million electric & gas customers in seven states.

Dominion’s proposed buyout of Salt Lake City-based Questar is only the latest, and not even the largest, in a recent line of acquisitions by some of the biggest U.S. utilities. Last week, the North Carolina Utilities Commission gave its OK on Duke Energy’s $4.9 billion deal to buy Piedmont Natural Gas.

Duke and Piedmont first announced their merger in October and also hope to close after final approvals sometime in 2016. Both companies have histories in Charlotte, N.C. and are partners in the $5 billion, 550-mile Atlantic Coast Pipeline to move natural gas in that region.

Both deals significantly raise the natural gas profiles of Dominion and Duke at a time when many utilities are retiring coal plants to deal with federal air emissions rules such as the Clean Power Plan.

“We have spent a lot of time analyzing the Clean Power Plan and how important gas infrastructure will be to meet it,” Dominion CEO Tom Farrell said in a conference call about the merger.

Another major U.S. utility holding company, Southern Co., announced an agreement this summer to purchase Atlanta-based gas provider AGL Resources for $7.9 billion.

Other significant gas-related utility mergers:

·         In September, Emera reported it planned to buy TECO Energy for $10.4 billion. The added asset base pushes Emera up to 2.4 million electric and gas customers and into the top 20 of North American regulated utilities.

·         A few months earlier, Wyoming-based Black Hills Corp. acquired Colorado’s SourceGas Holdings for $1.89 billion, pending approvals. The deal brings in a total of close to 425,000 gas customers.

Exelon Corp. helped get the merger ball rolling nearly two years ago when it and Washington D.C.-based Pepco Holdings announced their $6.8 billion merger plan. The combination seemed inevitable with several regulatory approvals before a D.C. commission rejected it late last year.

The two companies are asking the D.C. panel to reconsider that vote.

The granddaddy of modern U.S. utility mergers may have arrived in 2012 when Duke Energy closed on its $32 billion acquisition of fellow North Carolina-based Progress Energy.  It also pushed Duke past Exelon to become the nation’s largest utility at the time with seven million customers in six states.

All in all, these muscular deals seem to beef up the U.S. utility merger statistics both in number and size of the transactions. Most recently, accounting and consulting firm PwC noted that mega mergers were on the rise in its third-quarter 2015 report on North American Power & Utilities Deals.

“We saw a significant increase in value and volume in Q3 as cost of capital remained low and as strategic investors announced deals supporting current growth objectives and future capital deployment opportunities, ” Jeremy Fago, PwC’s U.S. Power & Utilities Deals leader said in a statement at the time.

Indeed the number of 3Q utility mergers totaled 42, down one from the same period in 2014. The number of deals exceeding $50 million, however, jumped to 18 from 12 in the comparative quarters. The total value of those deals also increased to about $45.5 billion, compared with $11.1 billion in 2014’s third quarter.

 

 

 

 

 

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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