Duke Energy-Piedmont Natural Gas merger offers stability, diversity, execs say

Duke Energy’s acquisition of Piedmont Natural Gas will create a company that’s more diverse in its operations and more regulated than the current Duke, increasing stable cash flows, company executives said Tuesday.

The executives testified before the N.C. Utilities Commission on the second day of a hearing on their $4.9 billion merger. The commission’s approval is the last significant hurdle toward closing the deal by the end of the year.

Natural gas is cheap, cleaner than the coal it is replacing to produce electricity and the U.S. is believed to have as much as a century’s supply of it, thanks to drilling of shale formations in the Northeast and Southwest. For now, most of North Carolina’s gas comes from the Gulf of Mexico.

Electric utilities including Duke and Atlanta-based Southern Co. are buying gas companies to diversify their revenue streams as demand for electricity stagnates, analysts say.

Duke hopes the Piedmont addition will offer new opportunities to invest in natural gas pipelines and storage facilities. Together they already own a 50 percent share of the proposed $5 billion Atlantic Coast Pipeline, among other investments.

Duke sold a fleet of commercial power plants in the Midwest for $2.8 billion last year and is seeking buyers for its hydroelectric plants in Central and South America, both in response to uneven earnings by those businesses.

The Piedmont acquisition would mark a return to the gas business for Duke, which spun off that part of its portfolio as Spectra Energy in 2007, following Duke’s merger with Cinergy to form Duke Energy.

Duke will finance the Piedmont deal with $4.35 billion in debt and $750 million in equity from a stock sale earlier this year. Some of the proceeds from the Midwest and international businesses will be used to pay down company debt, but some analysts believe Duke is taking on too much debt to buy Piedmont.

Moody’s downgraded Duke’s stock one notch in January, in part because of high debt levels that the Piedmont deal would increase. In March, Moody’s said the investment risks Duke, Southern and Virginia’s Dominion Resources are taking to buy gas utilities offset any financial benefits.

Duke downplays the Moody’s downgrade, saying it was expected before the Piedmont acquisition and is on par with other ratings.

“We believe the downgrade was not that significant,” chief financial officer Steve Young said Tuesday. “Broadly speaking, we’re in solid shape.”

A Duke consultant, economist James Reitzes, testified Tuesday that the acquisition won’t hurt competitors of Duke and Piedmont, including smaller power generators.

The acquisition is expected to save the companies $9.4 million a year by eliminating duplicated tasks, Piedmont chief commercial officer Frank Yoho told the commission. The merger will have “significant benefits and little to no costs for our customers,” he said.

Piedmont has agreed to cut $10 million from N.C. customer bills this year. The companies also guaranteed that an additional $35 million in fuel savings will be passed to customers.

This story was originally published July 19, 2016 at 1:52 PM with the headline "Duke Energy-Piedmont Natural Gas merger offers stability, diversity, execs say."