$2 billion SourceGas acquisition still ‘on track,’ Arkansas docket opens tomorrow

The CEO of a fast-growing South Dakota utility said his company is “on track” to take over SourceGas’ operations across 19 counties in north Arkansas by the first half of 2016 following an upcoming review by the state Public Service Commission and regulators in three other states.

Black Hills Corp. agreed in July to acquire SourceGas Holdings LLC from an invested group managed by Alinda Capital Partners and GE Energy Financial Services for nearly $2 billion in cash and debt. Golden, Colo.-based SourceGas operates four regulated natural gas utilities serving approximately 425,000 customers in Arkansas, Colorado, Nebraska and Wyoming and a 512-mile regulated intrastate natural gas transmission pipeline in Colorado.

In the company’s third quarter earnings report last week, Black Hills Chairman and CEO David Emery said the Rapid City, S.D.-based regional utility has filed the necessary paperwork with state regulators to begin operating in Arkansas by early next year.

“We are on track to close the SourceGas acquisition in the first half of next year. We filed joint applications for approvals in Arkansas, Colorado, Nebraska and Wyoming, and three of the states have established procedural schedules and hearing dates,” Emery said. “An experienced leadership team has been guiding our integration and activities are well underway. We are excited about the complementary fit, future growth opportunities, and customer and shareholder benefits we expect from the transaction.”

ARKANSAS APPROVAL PROCESS
Black Hills’ acquisition of privately held SourceGas operations in Arkansas, if approved by PSC commissioners, means the former Arkansas Western Gas utility will be under its third owner in less than eight years. SourceGas investors purchased the former Fayetteville-based utility from Southwestern Energy Corp. in 2008 for a sum of $225 million and working capital.

In August, Black Hills and Source Gas officials filed a joint application request with the PSC to establish a new docket to get approval for the South Dakota utility to begin operating in Arkansas. In its application, Black Hills also requested an interim protective order to keep a large swath of market, financial, tax, working papers, operational plans and executive compensation information out of public purview for “competitive and financial” reasons.

The three-person commission – PSC Chairman Ted Thomas and commissioners Elana Wills and Lamar Davis – approved the interim protective order on Aug. 17 with the caveat that the sealed information in the application of the publicly traded utility operator could be amended or revisited at a later date. On Oct. 1, the three-person Commission established the docket for the Black Hills application, which begins on Tuesday (Nov. 10) with testimony from PSC staff and intervenors. A public hearing on Black Hills and SourceGas joint application will begin on Jan. 7, 2016, at the PSC’s headquarters in downtown Little Rock.

AFTER THE DEAL IS COMPLETE
Following the expected approval of SourceGas acquisition by regulatory officials in Arkansas and three other states in early 2016, Emery said fast-growing South Dakota regional utility operator hopes to close the $2 billion deal in the first half of the year.

“This is an exciting time for Black Hills as we work toward closing the SourceGas acquisition,” said the Black Hills CEO. “We remain focused on opportunities to better serve our customers and communities with safe and reliable service, and are well positioned to drive profitable growth and deliver long-term value to our shareholders.”

Although Black Hills has kept most of its acquisition plans under wraps, SourceGas customers in Arkansas will still see the benefits from an Oct. 30 rate filing by the Colorado utility with the PSC that will lower its natural gas costs by 40% this winter. That means a residential customer using 100 cubic feet of gas will see their monthly bill fall by nearly 23% compared to a year ago.

SourceGas’ utilities in Arkansas, Colorado, Wyoming and Nebraska serve more than 420,000. The natural gas utility operator has more than 150,000 customers across the northern part of the state. Black Hills now serves 792,000 natural gas and electric utility customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. The company also generates wholesale electricity and produces natural gas, oil and coal.