Electric utility interest in gas takeovers to continue, analysts say

Dive Brief:

The stable returns of the gas utility sector continue to attract attention from power companies, with more acquisitions possibly on the horizon as utilities seek to lock in access to lower-cost fuel, Bloomberg reports.
BMO Capital Markets analyst Michael Worms told Bloomberg that gas companies Atmos Energy Corp. and NiSource Inc. could be the next on the auction block, and Exelon and NextEra Energy could be shopping.
This week, Dominion Resources said it had reached a deal deal to buy natural gas distributor Questar for $4.4 billion in an all-cash deal, creating a combined entity with 2.5 million electric and 2.3 million gas customers in seven states.

Dive Insight:

Utilities getting into the gas business has been a theme in recent months, and is poised to continue as stable gas returns, access to cheap fuel, and the anticipation of stagnant electric demand fuel interest in the new partnerships.

Last year, Duke announced it would acquire Piedmont Natural Gas in a deal that looks similar to this week's Dominion-Questar arrangement. Florida Power & Light was allowed to invest directly into Oklahoma gas reserves, and utilities in the Northeast have shown interest in gas deals as well, as the region remains dependent on gas but without sufficient pipelines.

Dominion said its deal would enhance the geographic diversity of the company's natural gas operations and deliver additional benefits as more utilities turn to natural gas for power generation.

“There’s more coming after this one,” BMO's Worms told Bloomberg. “Gas utilities, many of them, are in the process of replacing aging pipes. That’s incremental capex. Buyers are diversifying their electric business by diversifying into another regulated business.”

This round of utility interest in gas takeovers began in 2013, Bloomberg reports, with Teco Energy Inc. agreeing to buy New Mexico Gas Co. for $950 million in cash. Five deals with an enterprise value of $28 billion have been announced since then, according to the outlet.

According to Worms, nuclear powerhouse Exelon and wind developer NextEra Energy are potentially looking for gas investments. And Atmos Energy Corp. and NiSource Inc. are potential sellers.

Dallas-based Atmos serves approximately 3 million customers in more than 1,400 communities from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. NiSource, through Columbia Gas and NIPSCO, serves almost 4 million gas and electric customers across seven states: Indiana, Kentucky, Maryland, Massachusetts, Ohio, Pennsylvania, Virginia.