Peoples Gas purchased by Essential Utilities
Peoples Natural Gas Company has been purchased by Bryn Mawr-based Aqua America, which also announced it is changing its name to Essential Utilities Inc.
The Pennsylvania Public Utility Commission approved a joint application by Aqua America Inc, and its subsidiaries, Aqua Pennsylvania Inc. and Aqua Pennsylvania Wastewater Inc. to acquire ownership of Peoples Natural Gas Company LLC, Peoples Natural Gas Company LLC — Equitable Division, and Peoples Gas Company LLC.
The all-cash transaction reflects Peoples' enterprise value of $4.275 billion, which includes the assumption of about $1.3 billion of debt.
Peoples, which has 1,500 employees and will remain headquartered in Pittsburgh, was owned by SteelRiver Infrastructure Partners, a California private equity company.
Aqua America and its subsidiaries provide water and/or wastewater service to about three million customers in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia — including services to more than 430,000 customers across 32 counties in Pennsylvania.
In Butler County, Essential Utilities is keeping the T.W. Phillips building on Main Street in downtown Butler open, according to Daniel Lockwood, a spokesman for Essential Utilities.
Peoples bought the T.W. Phillips Gas and Oil Co. about 10 years ago.
Essential Utilities is planning to hire more employees in the region to carry out plans that Peoples made to replace more than 3,100 miles of bare steel and cast iron pipes, Lockwood said. He said he did not know when the hiring or replacement work would start.
Essential Utilities will create 100 new jobs in Western Pennsylvania by accelerating replacement rates of Peoples' distribution lines, according to The Associated Press. The Peoples companies provide natural gas services to about 680,000 Pennsylvania customers in all or portions of Allegheny, Armstrong, Beaver, Blair, Butler, Cambria, Clarion, Clearfield, Fayette, Greene, Indiana, Jefferson, Lawrence, Mercer, Somerset, Venango, Washington and Westmoreland counties. Peoples also has customers in West Virginia and Kentucky.
The new, multi-platform entity brings together the second-largest U.S. water utility and fifth-largest U.S. stand-alone natural gas local distribution company (based on customers), and will serve 1.74 million customer connections, which represent about five million people. In 2019, the new company will have about $10.8 billion in assets and a projected U.S. regulated rate base of more than $7.2 billion. The transaction is not expected to have any impact on rates.
Peoples will become a subsidiary of Essential Utilities.
The combined company will operate regulated utilities over a 10-state footprint and will have its largest concentration in Pennsylvania, which will account for more than 77 percent of the company's total rate base. Aqua's rate base is growing annually at about 7 percent (2019-2021) and Peoples' rate base is growing annually at 8 to 10 percent (2019-2021).
“The acquisition of Peoples is a great strategic fit and aligns directly with our growth strategy and core competencies of building and rehabilitating infrastructure, timely regulatory recovery and operational excellence,” said Aqua chairman and CEO Christopher Franklin. “Both Aqua and Peoples place customers at the center of all we do. We care deeply for employees and their safety, have expertise in pipe replacement, and prioritize stewardship of the environment.”
Aqua's purchase of Peoples, first announced in October 2018, was not without controversy, according to the AP.
The PUC's Bureau of Investigation & Enforcement and the state's Office of Small Business Advocate did not sign on to a joint settlement announced in June, and critics continued to raise objections after the settlement was endorsed by Administrative Law Judge Mary D. Long in an October recommended decision.
The critics objected that Aqua, though it operates water utilities in eight states, has no experience operating a gas utility. “This transaction should not be used to test Aqua's technical fitness in the natural gas realm,” the PUC's investigative bureau said. The bureau also worried Aqua was taking on too much debt to acquire Peoples at a price far above the book value of its assets. The purchase price is a $2 billion premium that will be carried on Aqua's books as “goodwill.”
Andrew G. Place, the only commissioner of the PUC who voted against the acquisition, said the merger did not provide public benefits. Though the deal protects Aqua's and Peoples' customers from getting charged higher rates to pay for the acquisition costs, Place said customers might be harmed indirectly by Aqua's higher borrowing costs from taking on so much debt.
Long said Aqua had demonstrated no difficulty raising additional capital to pay for the acquisition from $2.7 billion in new stock issues and $436 million in a new debt issue.
Aqua also agreed to upgrade two aging rural pipeline systems that Peoples inherited from a previous owner, a sticking point in the transaction. The 368-mile Goodwin and Tombaugh gathering systems collect gas from shallow wells and deliver it to about 1,700 customers. But the pipelines are old and leaky — the Goodwin system loses 82 percent of its gas, and the Tombaugh system can't account for 44 percent of the gas it collects.
The settlement gives Aqua seven years to fix the systems at an estimated cost of $120 million, much of which can be recovered through customer rates.
The merger settlement was endorsed by the Office of Consumer Advocate, low-income consumer advocates, labor unions representing utility workers and pipeline workers, and gas producers who would benefit from the investments in the rural system that connects their wells to consumers.
