Con Edison to Buy Gas Pipeline Stake for $975 Million

  • Joint venture with Crestwood Equity to include gas storage
  • Deal will link Northeast gas supplies with regional demand

Consolidated Edison Inc., owner of New York City’s biggest utility, will invest about $975 million in a joint venture with Crestwood Equity Partners LP that will own natural gas pipelines and storage linking the most prolific U.S. gas field to northeast markets.

Stagecoach Gas Services LLC, a 50-50 venture, will be managed by Crestwood and will own assets in Pennsylvania and New York, the companies said Thursday in a statement. The transaction is expected to be “substantially completed” this quarter. The utility owner announced the creation of Con Edison Transmission, a unit to invest in gas and power-line projects, in January.

Con Edison joins electric utilities including Southern Co. and Duke Energy Corp. that are seeking profit growth through gas pipelines as demand for electricity slows. Con Edison will sell equity and debt to finance the cash transaction. It agreed to buy a stake in a proposed pipeline in Virginia and West Virginia in January.

“These are still regulated utility-type businesses,” Bloomberg Intelligence analyst Kit Konolige said by phone Thursday. “The key is not to get too far off the reservation as far as what you’re investing in.”

Crestwood rose 51 percent to $19.35 at 9:31 a.m. in New York. The Houston-based master-limited partnership owns and operates midstream businesses in shale plays across the U.S. Con Edison fell 0.5 percent to $73.13.

The joint venture will own four gas storage sites with combined capacity of 41 billion cubic feet and three natural gas pipelines capable of shipping 2,940 million cubic feet of the heating and power-plant fuel a day, according to the statement.

Pipeline Stake

“Our investment in these facilities supports our strategy for Con Edison Transmission to invest in energy infrastructure projects that will reliably deliver low-cost energy supplies to customers, while earning competitive returns for our investors,” Joseph P. Oates, president of the unit, said in Thursday’s statement.

The deal follows Con Edison’s acquisition in January of a 12.5 percent stake in Mountain Valley Pipeline LLC, a proposed 300-mile (483-kilometer) conduit connecting West Virginia gas fields with Transco, a major interstate pipeline to New York. That project is led by EQT Midstream Partners LP, and has other utility partners.

Output from the Marcellus gas fields in West Virginia, Pennsylvania and Ohio surged about four-fold in the five years ended Dec. 31, according to the U.S. Energy Information Administration. Prices have declined as shale drillers found ways to boost production while cutting costs. While growth has slowed in recent months, low production costs promise a resurgence, Bloomberg Intelligence analyst Vincent G. Piazza wrote in research published in February.

Crestwood will pay off debt with proceeds of the transaction, the partnership said Thursday in a separate statement. Coupled with a 56 percent cut in distributions to holders of its common units, Crestwood won’t need to access capital markets to achieve is five-year growth plan. The payout to be made May 6 will be 60 cents a unit, down from $1.375 in February.

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