Entergy agrees to sell gas business to Bernhard Capital Partners for $484M – NOLA.com

Crews contracted by Entergy work on fixing damage done by the Dec. 16 explosions caused by methane gas on the 500 block of Dauphine Street in New Orleans, La. Thursday, Dec. 19, 2019.
Crews contracted by Entergy work on fixing damage done by the Dec. 16 explosions caused by methane gas on the 500 block of Dauphine Street in New Orleans, La. Thursday, Dec. 19, 2019.
Louisiana’s largest utility company is getting out of the natural gas distribution business.
Entergy Corp. has agreed to sell its gas distribution division to Bernhard Capital Partners — a Baton Rouge private equity firm that is increasingly entering the energy services business — for nearly $484 million, the two sides announced Monday.
Bernhard Capital Partners will fork over $285.5 million for Entergy New Orleans’ gas assets and $198 million for Entergy Louisiana’s, according to Securities and Exchange Commission filings. The private equity firm set up the deal through an entity called Delta States Utilities NO LLC.
The sale is expected to close in 21 months pending regulatory approval from several entities, including the Louisiana Public Service Commission, which regulates Entergy Louisiana, as well as the New Orleans City Council, which regulates Entergy New Orleans. The deal also needs approval from the Baton Rouge Metro Council, and Entergy and Bernhard will seek a waiver of the Federal Energy Regulatory Commission’s capacity release rules, which govern how much power that energy companies can send to the secondary market.
Entergy, which said the deal will help support the “customer-centric capital needs” of the firm’s core electric utility business, will use the sale proceeds to pay down debt to strengthen its credit.
The move is likely to draw scrutiny from those regulators, some of whom have raised concerns about Entergy’s monopoly on the state’s power grid and its efforts to harden that grid.
Last year, Entergy Louisiana filed a $9.6 billion grid hardening plan with the Public Service Commission following widespread damage and outages from hurricanes in 2020 and 2021. Entergy New Orleans has its own $1.3 billion plan pending before the New Orleans City Council.
In August, Entergy Louisiana submitted another PSC filing in August to raise electricity rates by 5% in a bid to increase profits and help pay for various costs, on top of the $5.50 it added to bills earlier this year for storm restoration costs, including Hurricane Ida damage.
Public Service Commissioners Davante Lewis and Craig Greene have called for more comprehensive reviews of Entergy Louisiana’s practices before approving their latest plans. Some New Orleans City Council have also aimed their ire at Entergy officials over recent grid failures.
An Entergy spokesman noted that its customers’ gas bills, unlike electricity bills, don’t currently carry storm recovery costs — the method Entergy uses to cover its expenses for damage from hurricanes and other major weather events.
Entergy’s natural gas distribution network, which in New Orleans was largely rebuilt after Hurricane Katrina, isn’t as widespread as its electricity distribution, according to SEC filings and company officials
The company only serves natural gas to two areas of the state — about 95,000 customers in the Baton Rouge area, and about 109,000 customers in the New Orleans area. About 95% of those customers are residential.
Meanwhile, Entergy Louisiana has roughly 1.1 million electricity customers in 58 parishes, and Entergy New Orleans has about 211,000 electricity users in Orleans Parish.
Natural gas distribution still provides a notable revenue stream to Entergy, though it’s small compared to the utility’s massive electricity distribution business. Entergy brought in $98 million in natural gas sales for the first half of 2023, compared to nearly $5.67 billion in electricity sales in that same time frame, according to Securities and Exchange Commission filings. Entergy’s natural gas assets were $705 million as of June, compared to $65 billion in electric assets. Entergy’s own quarterly report from June dubs the division a “small natural gas distribution business in portions of Louisiana.”
“This agreement allows us to continue our strategy of simplifying operations and focusing on our regulated electric utility business for the benefit of our customers,” Entergy Corp. CEO Drew Marsh said in a statement.
For Bernhard Capital Partners — the private equity firm founded in 2013 by Jim Bernhard, the former leader of the now-defunct Fortune 500 company Shaw Group — the deal represents another jump into the energy services sector.
The private equity firm created a Department of Energy services division last year after acquiring a pair of companies — Boston Government Services LLC of Tennessee and Sterling Engineering & Consulting Group LLC of Washington state. The former is an engineering, technology and security firm for government programs, national laboratories, national security facilities and nuclear operations, while the latter provides project management and technical consulting services focused on the Department of Energy.
Those purchases were Bernhard’s fourth and fifth acquisitions in the second half of 2022 alone, according to company announcements.
Since then, Bernhard has struck deals to acquire BHI Power Delivery, a utility transmission and distribution service provider; Optimum Energy, an HVAC optimization company; and Dominion Engineering, a nuclear power services firm, among others.
United Utility Services, a Bernhard-owned infrastructure and utility services company, announced earlier this year it would move its headquarters to New Orleans.
Jeff Jenkins, a founder and partner at Bernhard, said the Entergy gas business is “primed to provide even greater services to Louisiana communities and beyond.” He said Bernhard’s team is prepared to lead it through “strategic, transformational growth.”
“This agreement is the catalyst to significant investment and opportunity for current employees, customers, and our state,” Jenkins said in a statement. “In fact, we anticipate creating more than 100 new, high-paying jobs for Louisiana residents through this investment. We look forward to welcoming all of the business’ current employees into the family of Bernhard Capital’s portfolio companies and working together to make positive impact on the communities we serve.”
Marsh said Bernhard “shares our values around employee engagement, safety and reliability performance, quality customer service and local community investment.”
In an email to customers, Entergy said no changes are expected “right now” to customer gas service or bills, though the utility company plans to share more details “in the months ahead” about potential impacts.
“We will work with our customers, regulators and Bernhard Capital to ensure a smooth transition and minimize any inconvenience to customers,” read the message, which was signed by Entergy Louisiana President and CEO Phillip May and Entergy New Orleans President and CEO Deanna Rodriguez.
In a follow-up statement, Entergy officials said Bernhard Capital intends to keep the customer billing process “as seamless as possible.”
The sale will happen in two phases: an “initial phase” before regulatory approvals, and a “second phase” following those approvals. Those phases are key because they dictate, among other things, the total termination fee either side would owe should the agreement fall apart.
If the deal crumbles in the initial phase, Entergy could be on the hook for up to $7.5 million, and Bernhard could be liable for a “reverse termination fee” of 7% of the base purchase price, or more than $33.8 million, SEC filings show. Entergy’s liability climbs to $12.5 million should the sale collapse in the second phase, and Bernhard’s liability grows to 10% of the purchase price, or nearly $48.4 million.
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