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South Jersey Industries plans system upgrades in $1.7B buy of NJ, Md. utilities

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South Jersey Industries plans system upgrades in $1.7B buy of NJ, Md. utilities

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South Jersey Industries Inc. sees its planned acquisition of a pair of Southern Co.'s gas utilities as a source of growth through infrastructure upgrades, executives said on an Oct. 16 conference call.

"The growth here is really on the modernization of infrastructure and traditional utility CapEx," South Jersey Industries President and CEO Michael Renna said during the call. "There's a tremendous amount of opportunity for us to modernize and support their modernization efforts."

South Jersey Industries, or SJI, announced Oct. 16 that Southern Co. Gas subsidiary Pivotal Utility Holdings Inc. plans to sell its utilities Elizabethtown Gas Co. Inc. and Elkton Gas Co. to SJI for $1.7 billion.

The acquisition would increase SJI's near-term utility capital investment plans to $1.5 billion from 2018 through 2021, company executives said. Elizabethtown, with a service territory in northern New Jersey, has about $800 million in potential aging infrastructure upgrade investments through 2026, along with about $450 million in other investment opportunities over the same period, according to SJI.

These investments would grow the companies' rate bases, in turn giving SJI utilities' more earnings potential.

SJI executives appeared confident that deal approvals will go smoothly in the company's home state. "I think this will be very well received in New Jersey," Renna said. "We have what we consider to be a very productive and strong relationship with the regulators. I think this will follow the normal course of business. We're projecting a mid-2018, maybe early third-quarter, close or settlement."

Elkton Gas will be SJI's first foray into regulated business in Maryland, albeit a small one. SJI executives said Elkton's proximity, in the northeast corner of Maryland, to SJI subsidiary South Jersey Gas Co., along with what SJI said was a strong management culture at Elkton Gas and Elizabethtown Gas, gave SJI confidence that Elkton Gas is a good fit.

"It's all part of a well-run opportunity," Renna said during the call. "We really viewed [Elkton Gas and Elizabethtown Gas] as one entity in that manner. We don't have reservations about crossing state lines."

The deal is not predicated on making gains through synergy, but company officials will keep their eyes open for ways of making the businesses intertwine most efficiently, Renna said. SJI officials said they plan to continue to run South Jersey Gas, Elizabethtown Gas and Elkton Gas as separate brands and do not have plans to bring the added utilities under the South Jersey Gas name.

SJI officials said the effective price of the deal would be $1.4 billion after adjusting for tax basis impacts. "The effective price represents a multiple on expected 2018 earnings of 23.4x and a 1.7x multiple of our projection of rate base at transaction close, which we believe compares favorably with other recent transactions of this type in our market space," Renna said during the call.