Investor-owned gas utilities have returned to the M&A market in small, strategic deals while private buyers continue to drive billion-dollar-plus acquisitions.
Unitil Corp. and NorthWestern Energy Group Inc. both transacted with Hope Utilities Inc. in July, picking up assets in their respective backyards. But private equity firm Bernhardt Capital Partners made the third quarter's largest gas utility acquisition to date: the $1.25 billion purchase of Emera Inc. subsidiary New Mexico Gas Co. Inc. (NMGC).
The deals continued a trend of moderating gas utility valuations following a period of pricey dealmaking in 2021–2022. During that stretch, deep-pocketed infrastructure and pension funds sidelined strategic buyers, despite interest among some investor-owned utility operators in expanding their regulated gas businesses.
The Unitil and NorthWestern deals are much smaller than recent strategic acquisitions by Enbridge Inc. and Chesapeake Utilities Corp., but they continued a trend of publicly traded companies returning to the dealmaking table.
On the sell side, the deals suggested that the infrastructure funds that boxed out utility operators in the M&A market may be willing to part with noncore assets. In the case of Emera, the NMGC divestment showed that multi-utilities still see gas utility sales as a pathway for balance sheet repair and funding electric system growth.
Unitil, NorthWestern deals
For Unitil, the $70.9 million Bangor Natural Gas Co. deal added 8,500 customers to its Northern Utilities Inc. subsidiary's 72,000-meter gas distribution business in Maine and New Hampshire. On an Aug. 6 earnings conference call, Unitil Chairman and CEO Thomas Meissner highlighted Bangor Gas' 5% annual average customer growth over the last five years.
That growth was underpinned by a strategy shared by Unitil: Converting New England's large pool of propane and fuel oil customers to cleaner-burning, lower-cost gas. "We view Bangor as a natural complement to our existing operations," Meissner told analysts.
Meissner also noted that Bangor Gas has an agreement to connect its distribution system to a renewable natural gas (RNG) production facility under development at the Juniper Ridge landfill north of Bangor, Maine. In May, Meissner told the financial community that Unitil has pursued RNG interconnection projects but had not found viable opportunities in Maine.
At NorthWestern, the $39 million purchase of Energy West Montana Inc. and Cut Bank Gas Co. created a pathway to bolt on 33,000 customers — or 15% of its current Montana ratepayer base — in three areas adjacent to its service territories.
"We have coveted these assets for 20 years," NorthWestern President and CEO Brian Bird said during a July 31 earnings call. "We have always wished we could own these Montana resources and believe they belong in our portfolio at the end of the day."
New focus for utilities
Hope Utilities, a portfolio company within insurer Ullico Inc.'s infrastructure fund, owned Bangor Gas, Energy West Montana and Cut Bank Gas as part of a portfolio of six gas utilities across several states. The Ullico infrastructure fund bought the companies from BlackRock Real Assets' Global Energy & Power Infrastructure Fund in December 2020.
The sale will focus Hope Utilities on its Appalachian and Midwest gas utilities, particularly its growing West Virginia business.
Hope Utilities, previously known as Hearthstone Utilities Inc., purchased Dominion Energy Inc.'s West Virginia utility, Hope Gas Co., in August 2022. Since then, Hope Gas has entered six deals to purchase West Virginia utilities, including former Essential Utilities Inc. subsidiary Peoples Gas WV LLC. Hope Utilities CEO Morgan O'Brien led Peoples Gas for more than a decade, exiting in 2020 after Essential purchased the company.
Similarly, Emera's sale of NMGC will focus the company's US operations on its Florida multi-utility business, a development that analysts viewed as positive. In 2023, Chesapeake Utilities purchased Florida City Gas, citing the state's constructive regulatory environment.
The sale, expected to generate net proceeds of $750 million, will also further Emera's efforts to improve its balance sheet and credit metrics and fund its $8.8 billion three-year capital plan, President and CEO Scott Balfour said during an Aug. 9 conference call. Most of that capital plan is earmarked for Tampa Electric Co., which Emera bought along with Florida and New Mexico gas utilities in 2016.
Growth opportunities
The NMGC deal also saw private equity firm Bernhardt Capital Partners diversify its geographic footprint as it seeks to build a gas utility under the banner of Delta Utilities. Bernhardt previously entered deals to buy Louisiana and Mississippi gas utilities from Entergy Corp. and CenterPoint Energy Inc.
The latter deal — CenterPoint's second major gas utility sale within three years — prompted a hunt for the next subsector deals.
Asked about the consolidation on an Aug. 1 earnings call, National Fuel Gas Co. President and CEO David Bauer said he continues to be interested in growing the business through M&A, particularly the regulated gas business.
Southern Co. CFO Daniel Tucker on Aug. 1 said the company has no plans to divest assets in response to opportunities to invest in electric infrastructure to meet anticipated load growth. Southern Co. Gas operates gas utilities in Georgia, Illinois, Tennessee and Virginia.
