Almost a half million Arkansans will have a new natural gas provider by the end of the year, pending regulatory approval of Summit Utilities Inc.'s announcement Thursday that it will pay $2.1 billion to take over CenterPoint Energy Inc.'s operation in Arkansas and Oklahoma.
The sale expands Summit's move into Arkansas, which began in 2017 with the purchase of Fort Smith-based Arkansas Oklahoma Gas Corp. The purchase of CenterPoint's operations includes 470 employees, 425,000 customers and 14,000 miles of pipeline in Arkansas.
Today, Summit has about 100,000 customers and 5,400 miles of pipeline across its five-state system.
The deal, projected to close by the end of the year, is subject to federal and state regulatory approval.
With the purchase, the Colorado-based utility will strengthen opportunities to expand its operations in Arkansas and the region, according to Kurt Adams, Summit's president and chief executive officer.
"Arkansas is the largest part of our operations today, and we have plans to expand and hire more employees in Fort Smith and in Little Rock," Adams said Thursday afternoon. "Arkansas is today, and will continue to be, the most important place for us to live and work."
CenterPoint Energy officials have indicated that selling the Arkansas and Oklahoma distribution assets would bolster the company's financial position.
Since moving into Fort Smith, Summit has invested multimillions of dollars in its Arkansas infrastructure and expanded the workforce, which today consists of about 120 employees, Adams said, noting that the company plans to add another 180 employees -- mostly in the Little Rock area -- in coming years.
Privately held Summit emphasizes community values and has found a welcoming home in Arkansas, Adams said.
"We are a community-based energy company, and the community values we found in Fort Smith fit us perfectly," Adams said. "Fort Smith is a community where everyone is expected to lend a hand and everyone is expected to work together.
"That is our kind of place, and we're doing very well there. We have moved a lot of our functions to Fort Smith and have staffed up the office," Adams added. "We've been delighted working with the local community. For us, more than anything, it's a cultural fit. We work really well in states like Arkansas and Oklahoma."
The Oklahoma operations purchased from CenterPoint consist of 110 employees, 100,000 customers and 3,000 miles of natural gas pipeline.
The $2.1 billion deal includes $425 million in unrecovered costs related to the February snowstorms that led to higher gas prices for CenterPoint and other utilities across the region as demand spiked.
"Summit Utilities is a seasoned operator of utility assets in the region and the ideal company to acquire these assets," CenterPoint President and Chief Executive Officer Dave Lesar said in a news release. "We are excited that Summit has existing businesses in Arkansas and Oklahoma, which will facilitate the transition process for our employees and customers."
CenterPoint Energy declined to make company executives available for further comment.
In December, CenterPoint executives provided some perspective on the deal when they announced during an investor presentation the intent to sell the Arkansas and Oklahoma operations. Thursday's announcement disclosed the buyer and sale price for the first time.
CenterPoint executives told investors and analysts in December that they planned to sell the distribution assets in Arkansas and Oklahoma as part of a long-term strategy to grow the company's rate base by 10%. Part of the long-term plan included capital spending of $16 billion through 2025, including investing $3.4 billion this year to upgrade the company's systems and fuel growth.
The $2.1 billion sale represents "a landmark valuation" of 38 times CenterPoint's earnings and is 2.5 times its 2020 rate base, the company said in its news release.
"We believe the price paid for these assets demonstrates that the market is significantly undervaluing the remainder of our natural gas businesses," Lesar said in the news release.
Jason Wells, CenterPoint's chief financial officer, said in December that "the sale of our Arkansas and Oklahoma gas (distribution assets) would fund the balance of the growth."
The sale, Wells said, would strengthen the company's balance sheet and boost its financial standing.
"This was obviously a tough decision to sell Arkansas and Oklahoma," Wells said in the December investor presentation. "But it was the right decision from a capital allocation standpoint. We have the opportunity to sell these businesses at a multiple of book value while recycling that capital to invest in this unprecedented organic growth at book value."
At the time, Wells noted that the announced intention to sell led Moody's to remove the negative credit rating it had on CenterPoint.
"This is all a very efficient strategy for funding our industry-leading growth plan while continuing to strengthen our balance sheet," Wells said at the December conference.
Going forward, Summit plans to increase investments in Arkansas and Oklahoma to improve infrastructure and deliver a safe and reliable gas supply to customers. "We will invest capital to upgrade the systems," Adams added.
Renewable energy is "a serious core function for us," Adams said, noting that the utility moves millions of cubic feet of renewable natural gas every year and in Maine has invested in dairy digesters, a technology that uses livestock manure to produce methane gas for use by consumers. The effort helps reduce greenhouse gas emissions.
In addition, Summit is investing in technology that coverts hydrogen gas for use on the natural gas grid. That effort will be part of the company's future plans for Arkansas, Adams said.
The company is owned by Infrastructure Investments Fund, which is part of J.P. Morgan and invests the retirement money of about 40 million families in infrastructure businesses, such as gas, electric and water utilities, and renewable energy and transportation companies.
Little Rock attorney Kathy Alexander, a former general counsel with CenterPoint Energy when it was affiliated with Arkla Gas Co., is a member of Summit's board of directors.