Peoples inks deal to buy a Kentucky gas utility
With its third acquisition in as many years, Peoples Natural Gas, the North Shore-based gas utility, is expanding its footprint in Kentucky by acquiring Delta Natural Gas.
And it’s always looking for more, according to Peoples’ CEO Morgan O’Brien.
“We’re an infrastructure company,” said Barry Kukovich, a spokesperson for Peoples, which is owned by the San Francisco private equity firm SteelRiver Infrastructure Partners. While its current assets are limited to natural gas, Peoples would entertain buying electric and water utilities if the right opportunity presented itself, he said.
“We think there’s synergy among different utilities,” Mr. Kukovich said.
The deal with publicly-traded Delta, announced on Tuesday, has an estimated $270 million price tag for Peoples, which would give Delta shareholders $30.50 for each share they own.
Peoples dipped its toe into Kentucky with its acquisition of Equitable Gas in 2013, which came with some 1,500 customers in the Appalachian state.
That state’s friendly regulatory climate and similar energy mix made it easy to navigate, Mr. O’Brien said.
“Kentucky has a lot of the feel of Pennsylvania,” he said. “It’s a big coal state that’s evolving into a bigger natural gas state.
“We saw it as a potential place to grow our business,” he said, operating under the motto that if a business isn’t expanding, it’s dwindling.
Delta’s system spans 23 counties, 36,000 residential and commercial customers, includes 2,600 miles of natural gas pipelines and a natural gas storage field.
The deal comes garnished with three subsidiaries of the Kentucky company, which own natural gas production wells, market natural gas to large customers, and process and sell natural gas liquids.
Mr. Kukovich said Delta’s 148 employees will retain their jobs and the company will continue to function as it has, even retaining its name for the immediate future.
The deal needs to be approved by
state and federal regulators, and is expected to close by the end of the year, Mr. O’Brien said.
Since being acquired by what is now SteelRiver in 2008, Peoples has doubled the number of customers it serves — it will be 740,000 after its acquisition of Delta — and tripled its headcount, which is approaching 1,500 employees.
“We feel like we’ve got a blueprint for acquiring businesses,” Mr. O’Brien said, and future additions are likely to be in states where Peoples already operates: Pennsylvania, West Virginia and Kentucky.
SteelRiver’s other investments include an electric transmission line in California, a set of port terminals in the South, and a railroad company that operates in 13 states.
Regulators don’t always feel comfortable with investment firms, rather than other operators, taking over control of utility infrastructure, said Stacy Nemeroff, a utilities analyst with Bloomberg Intelligence.
In that respect, the Pittsburgh region is a bit of an anomaly, with both natural gas and electricity controlled by private equity backed funds. In 2007, the year before Peoples was acquired by SteelRiver’s predecessor, a consortium of private equity interests bought Duquesne Light.
“The private equity funds that go after utilities, they’re looking for stable, steady cash flows,” Ms. Nemeroff said.
These investors are likely to be pension funds seeking to avoid the uncertainty of unregulated infrastructure assets, and might gravitate to income that can be reliably collected from customers at a predictable rate blessed by state regulators.