NorthWestern Energy to merge with Black Hills Corp

NorthWestern Energy announced Tuesday it plans to merge with Black Hills Corp “to create a premier regional regulated electric and natural gas utility company” in a process expected to take 12 to 15 months and result in an enterprise valued at $15.4 billion.

The director of the Montana Public Service Commission said regulators will scrutinize the deal, and an energy watchdog group said the merger could be an improvement for clean energy compared to the “current stagnant utility.”

NorthWestern Energy is a monopoly utility that operates in Montana, South Dakota and Nebraska and serves 787,000 customers. It counts 413,400 electric and 214,500 natural gas customers in Montana.

Black Hills is based in South Dakota and serves 1.35 million natural gas and electric utility customers in eight states, the news release said. It operates in Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming.

The announcement from NorthWestern Energy said the boards of directors of both companies unanimously approved the deal. It said a discussion about terms of a merger started in March.

It said the merger requires additional approvals from regulators in at least the three states in which both companies operate, Montana, Nebraska and South Dakota, and possibly in Arkansas.

The combined company would serve approximately 2.1 million customers across eight contiguous states, the news release said — Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming.

Montana Public Service Commission Executive Director Alana Lake said she anticipates the PSC will receive a formal proposal from NorthWestern Energy seeking approval of the merger.

“The public will have an opportunity to participate once a formal docket is opened,” Lake said in an email.

She said the PSC has evaluated such deals in the past and treated them as contested cases where interested parties such as the Montana Consumer Counsel intervene and evaluate financial and operational terms.

A Montana Consumer Counsel utility analyst said he anticipates the Consumer Counsel will intervene in the docket.

Lake said the full implications to customers will become clearer as details emerge through the regulatory process.

“However, the Commission will closely scrutinize the public interest standard, the no-harm to consumers standard, and the net-benefit to consumers standard,” Lake said.

In 2007, the Public Service Commission denied the sale of NorthWestern Energy to an Australian company, Babcock and Brown Infrastructure, citing risk of harm to NorthWestern’s financial integrity and Montana customers. BBI subsequently filed for bankruptcy.

In a statement, Republican Gov. Greg Gianforte praised the announcement from NorthWestern and said he looks forward to learning more from NorthWestern and Black Hills.

He said consumers need access to affordable, reliable energy with rising demand on the power grid, and his administration will continue to work with the public and private sectors to promote an “‘all-of-the-above’ energy strategy.”

“I’m hopeful that today’s proposed merger of Northwestern Energy and Black Hills Energy will help increase the supply of affordable and reliable power for consumers, while creating more good-paying jobs,” Gianforte said in a statement.

Anne Hedges, with the Montana Environmental Information Center, said she still needs to learn more about Black Hills, but MEIC, a conservation and energy watchdog, looks forward to any leadership that considers the impacts of decisions on customers.

“Our two-bit utility is failing to keep pace with the modernization of the energy system that is better for customers and the environment,” Hedges said in an email.

She said the announcement shows some signs the merger will offer an improvement for clean energy in touting emissions reductions and investments in renewables as part of its plan.

If the deal is completed, Black Hills CEO Linn Evans will retire, and NorthWestern Energy CEO Brian Bird will lead the new company under a new combined board, the news release said.

“Our merger with Black Hills will create a premier regional regulated utility company with a larger, more resilient platform consistent with mid-cap peers,” Bird said in a statement. “Together, we will be better positioned to meet rising demand, accelerate investment in energy and grid infrastructure, and support customers and communities through a rapidly evolving energy landscape.

“NorthWestern and Black Hills are best-in-class operators, and we are confident that our closely aligned cultures and skilled workforces will enable us to successfully bring the companies together. We will remain a trusted energy partner to our customers and look forward to building a brighter future for the people, businesses, and communities we are privileged to serve.”

The news release said the combined company would support an increase in earnings per share of 5% to 7%. It said the merger would create “strong and predictable earnings and cash flows” and offer more efficient access to capital and “an enhanced ability to invest in critical infrastructure.”

The news release said if completed, Black Hills shareholders will own approximately 56% of the new utility, and NorthWestern shareholders will own 44% of the combined company.

“We are excited to bring our two highly complementary companies together to create significant long-term value for customers, employees, shareholders, and the communities we serve,” said Black Hills President and CEO Evans in a statement. “Our future success will be driven equally by the people, assets, and capabilities of both organizations.

“The combined company will have greater scale and financial strength to consistently deliver for customers across our service territories and invest at the pace and scale that today’s energy transformation demands. Our vision is to be the energy partner of choice for our customers, communities, and investors, and this merger will accelerate our ability to achieve this goal.”

The combined company’s 11-member board of directors will include six directors designated by Black Hills, and five directors designated by NorthWestern, including Bird and Linda Sullivan, chairperson of the NorthWestern board, the news release said.

It said Steven Mills, chairperson of the Black Hills board, will be chairperson of the combined company’s board of directors.

The combined company will have a new name and ticker symbol, to be determined prior to the close of the transaction, the news release said. The operating companies are expected to maintain their current names at transaction closing.

The news release said the Federal Energy Regulatory Commission also must approve the deal.