SteelRiver to proceed with $780m gas deal

The transaction, originally a bid to acquire Dominion Resources’ gas utilities in Pennsylvania and West Virginia for $910m, will now only include the Pennsylvania assets at a cost of $780m. Late last month, West Virginia regulators refused to approve their state’s part of the transaction.

SteelRiver Infrastructure Partners will move ahead with plans to acquire a Pennsylvania gas utility from energy producer Dominion Resources, despite a recent regulatory decision that briefly put the transaction, already more than 18 months in the making, in limbo.

Dominion Peoples: still
working on deal with
SteelRiver

The $1.9 billion infrastructure fund had offered in July 2008 to acquire Dominion’s Pennsylvania and West Virginia-based gas distribution utilities for $910 million. Dominion and SteelRiver agreed regulators in both states must approve the sales in order for either utility to be sold – a condition that proved to be a complicating factor when Pennsylvania green-lighted the deal but West Virginia didn’t.

In a 22 December ruling, the West Virginia Public Services Commission said a sale of Dominion’s West Virginia gas subsidiary to SteelRiver was “contrary to the public interest” because it would result in a rate increase for the utility’s 114,000 customers. On 19 November, a Pennsylvania regulator said a sale of Dominion’s gas distribution assets in that state was in the public interest and approved the sale.

The West Virginia decision brought Dominion and SteelRiver back to the negotiating table and the two companies decided to seek financial close on just the Pennsylvania utility at a price of $780 million.

“Rather than not close on either, we decided it would be better to close on the one that was approved,” said Cliff Losh, SteelRiver’s general counsel.

Daniel Donovan, a spokesperson for Dominion, said the company has no plans to re-bid Dominion Hope, the West Virginia utility, for which SteelRiver had offered to pay $149 million in cash, according to a regulatory filing.

SteelRiver said in a statement the Pennsylvania deal is expected to close in February.

If the deal does close, Pittsburgh-based Dominion Peoples Natural Gas Company will become the second utility in that part of the state to be sold to a private infrastructure fund in recent years. In 2007, Duquesne Light Holdings, a Pittsburgh-based electric company, was sold to a Macquarie Infrastructure Partners-led consortium in a deal valued at $3.15 billion.

Pennylvania’s Public Utility Commission ruled unanimously to approve SteelRiver’s acquisition on grounds that it would result in“substantial benefits”, including ongoing investment and job creation in the state’s Western region, an already-struggling region that was battered further by the global recession. 

In West Virginia, though, the regulators took a different view. They argued that a sale of Dominion Hope would result in customers having to pay higher prices because SteelRiver requested an additional $7.2 million in annual tariffs, over and above an $8.8 million increase granted in November, “without offering corresponding benefits to its customers”.

Donovan, the Dominion spokesperson, said the company had offered $27 million to be put into a trust to mitigate the proposed rate increase.

A spokesperson for the West Virginia Public Services Commission did not return a call seeking comment before press time.