Duke Energy's plan to increase its exposure to the midstream natural gas industry segment through the acquisition of Piedmont Natural Gas has gotten a boost from federal regulators, the two companies said Tuesday.
The Federal Trade Commission has granted early termination of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act, the companies said in a joint statement.
The expiration or termination of the waiting period is one of the conditions required for completion of the acquisition.
The proposed $4.9 billion deal, which the companies announced in October, still requires approval by Piedmont shareholders and the North Carolina Utilities Commission.
Duke Energy and Piedmont also are providing information about the acquisition to the Public Service Commission of South Carolina and the Tennessee Regulatory Authority.
The companies said they expect to close the transaction by the end of 2016.
In an interview Tuesday, Duke spokesman Dave Scanzoni said the Piedmont shareholder vote is scheduled for January 22, while the NCUC approval is contingent on Duke Energy making a filing to the commission, which will likely take place in early 2016.
"Once the filing is made, then the utility commission begins the review process," Scanzoni said.
The merger will not require the approval of the Federal Energy Regulatory Commission, and Scanzoni said the companies do not expect that state regulators will require any divestiture of assets as a condition of approving the deal.
'NO OVERLAP'
"Since this is a gas utility that we're buying and we're an electric utility, there is no really no overlap," Scanzoni said. "The only place we have gas local distribution service is in the Cincinnati, Ohio, area and northern Kentucky, two areas that Piedmont does not serve. And in Piedmont's other service territories, there is geographic overlap, but not with services or products of Duke Energy."
In October, both Charlotte-based companies announced their respective boards had unanimously approved the deal.
The Duke Energy/Piedmont deal is part of a trend of electric utility companies seeking to acquire midstream gas assets as that energy commodity becomes an increasingly important part of the fuel mix for power generation.
Duke Energy and Piedmont also are key partners in the $5 billion Atlantic Coast Pipeline that will be the first major natural gas pipeline to serve Eastern North Carolina.
Michael Worms, an analyst with BMO Capital Markets, said the merger is a good fit for Duke.
"I think it's a nice add-on to their story," he said in an interview Tuesday. "It helps diversify them away from electric and now they're getting into gas. It creates a bigger platform for them and gives them more opportunities going forward."
The combination will not be a transformative event for Duke, as the electric utility is by far the larger of the two merger partners, he added.
GAS-FIRED POWER FAVORED OVER COAL
The current trend in merger and acquisition markets reflects a similar trend seen in the 1990s when electric utility companies were buying up gas utilities, although that earlier trend was driven by different factors than the current one.
The current wave of electric/gas utility mergers is taking place for several reasons, Worms said. "To some degree it's for a geographical diversification, potentially spreading the risk through different regulatory environments," he said.
On the gas side of the equation, he cited the infusion of cash that is giving midstream gas companies, "the opportunity to build out new pipelines to replace aging pipelines."
Worms predicted that there would be more such deals on the horizon.
Shar Pourreza, an analyst with Guggenheim Partners, said the trend for electric utilities to acquire gas assets is being driven in part by environmental policies and in part by economics, both of which favor the introduction of more gas-fired generation to substitute for coal-fired plants, which are on the way out.
"You're seeing in this cycle of utility spending that companies are shutting down a big portion of their coal assets," he said. Electric utilities therefore are going to look to acquire gas infrastructure assets.
Pourreza commented that the Duke/Piedmont deal is likely to easily win regulatory approval. "There is a lot of appetite for this deal to go through," he said. "This will be a low-risk transaction."
He predicted the merger would likely close in the third quarter 2016.
