Duke Energy To Buy Piedmont Natural Gas

Oct 26, 2015

If both companies get their way Piedmont Natural Gas will become a wholly-owned subsidiary of Duke Energy by the end of next year. The price: $6.7 billion in cash and debt. The announcement came as a bit of a surprise.

On a conference call Monday morning, Piedmont CEO Tom Skains said the acquisition was really a homecoming.

“Some of you may not know that Piedmont Natural Gas was formed in 1951 from an asset sale by Duke Energy to our founding investors,” said Skains.

Workers walking into the Duke Energy Center in Charlotte Monday morning.
Credit April Bethea / Charlotte Observer

  Joining up with the nation’s largest electric utility also gives Piedmont access to Duke’s deeper pockets.

As for Duke, CEO Lynn Good focused on the number of new customers.

“This transaction will triple the scope of our existing natural gas operations,” said Good.

Piedmont has roughly 1 million customers for which Duke wants to pay $4.9 billion in cash and assume $1.8 billion of debt. That works out to roughly $6,700 for each Piedmont customer. That sounds like a steep price, but there’s something else behind it. There’s a nationwide trend, says Kit Konolige, a senior utility industry analyst for Bloomberg Intelligence.

“There’s a decrease in the consumption of electricity per capita,” says Konolige.  “Electricity is a no growth business and it turns out that now gas is a growth business.”

With all the fracking going on, the price of natural gas is low and the supply seems plentiful. All this means growth for Duke’s bottom line and that bottom line may need a bit of a boost. Duke’s stock has been underperforming says Konolige.

“I think a lot of that may be due to their investments overseas, particularly in Brazil, where they’ve had problems with the economy, the exchange rate,” says Konolige.

The purchase of Piedmont Natural Gas, he says, may signal a shift away from foreign investments and back to more predictable and stable US markets.

So that’s what’s in it for Duke and Piedmont. But what about their customers?

“I don’t think it will mean much in the near term,” said Konolige.

Piedmont and Duke have said there will be no staff layoffs and no price increases. Regulators, Konolige says, are likely to give their approval. But, he says, those regulators will be watching to make sure the deal goes as promised.