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Summit Draws Near With CenterPoint DealLock Icon

6 min read

Summit Utilities CEO Kurt Adams sat in shirtsleeves in a chilled west Little Rock conference room on a scorching day last week, describing how his growing and well-capitalized gas company is sinking deep and quite literal roots in Arkansas.

After buying Arkansas Oklahoma Gas from the Witt Stephens family in 2017, the Denver-based company is acquiring $2.15 billion worth of CenterPoint Energy’s assets, including a vast underground natural gas infrastructure in Arkansas and Oklahoma.

Summit is acquiring “the pipeline delivery system that serves customers and businesses here in Arkansas, Texarkana and Oklahoma,” Adams said. “So think of it as the trucks, the pipes and the equipment that make all of that work. We’re hiring 600 current CenterPoint employees that will come over and join us.”

In his 50s but looking far younger with dimples and no tie, Adams said his company would also be hiring 150 or so other employees on top of the CenterPoint crews, after the deal closes.

That’s expected before the end of the year, pending Arkansas Public Service Commission approval.

“Arkansas is and will continue to be the most important place for us,” Adams said.

Summit, which now has about 400 employees and 100,000 natural gas customers in Colorado, Maine, Missouri, Oklahoma and Arkansas, will inherit some 525,000 CenterPoint customers.

At the end of last year, that broke down to 381,961 residential customers and 47,931 industrial customers in Arkansas.

‘Bringing This Gas Utility Home’

The deal involves 17,000 miles of gas main pipeline in Arkansas, Oklahoma and the Texas side of Texarkana, and included the recovery of approximately $425 million in cash for winter storm-related incremental natural gas costs incurred in February’s winter storm and freeze.

CenterPoint of Houston, which announced plans to sell the gas assets in December, will use the deal’s proceeds to help finance a $16 billion capital investment plan, CEO Dave Lesar said at the time. The company said the deal confirmed the high value of gas systems in today’s market.

Summit, started by two Colorado entrepreneurs but revamped with new capital, equity and management leadership in 2014 and 2015, already had about half of its customer base in Arkansas. “It will obviously only increase in importance for us: We think this transaction is very much bringing this gas utility home,” Adams said.

The commitment to Arkansas includes sustainability initiatives like major capital plans to cut natural gas leakage by replacing aging pipes, and buying 100% of the gas created by decomposition at the Fort Smith landfill.

That has added up to nearly 630,000 million British thermal units of renewable natural gas flowing through AOG’s systems. Summit, which gained 60,000 customers in the deal for Fort Smith-based AOG, is also deeply researching adding “green” hydrogen to its natural gas mix, and it cut companywide carbon dioxide emissions significantly in 2019 by employing fleet vehicles using compressed natural gas as fuel.

Sustainability Equals Economy

“We believe that sustainable use of energy and cost-effective use of energy are the same thing,” Adams said. “If we are thoughtful about how we use energy, we’re going to use less and everybody benefits. There’s less waste, and customers save money.

“When Bill Gates gave an interview a couple of months ago and was asked what the most exciting green technology was, he said green hydrogen,” Adams continued. “There are already systems in Europe and pilot systems in the U.S. delivering hydrogen over natural gas systems. Within the next five years, that’s probably the biggest change you’ll see as technologies develop. We’re just scratching the surface on better ways to use our energy systems. We’re in the top of the first inning. But the curve is very, very steep.”

The natural gas business intrigued Adams because he sees the U.S. gas system as “the largest energy storage system” in the world. “We can store and move clean energy and massive quantities to fuel the economy. One way is simply to deliver more clean energy. We’ve delivered 600,000 MMBTUs of landfill gas in Arkansas already. The technologies are developing to get gas from dairy digesters and chicken farms that we can also use in our systems.”

Even using the current gas network more efficiently can make a big difference in carbon negation, he said.

“Just using the system that we have now more wisely is a very large part of the sustainability picture, making sure our systems don’t leak, making sure that when we do have a pipe open that we’re capturing the gas, and making sure that we are delivering gas as efficiently as we can through pipes that don’t leak.” Adams said Summit is prepared to invest significant capital to improve the system.

While acknowledging a major push for electrification envisioned in most environmental rescue brainstorming, Adams predicts a long future for natural gas.

It is likely to be a cornerstone fuel in electricity generation even in “deep decarbonization scenarios” because of its importance as a fuel in power generation, he said.

Grooving With Arkansas

Over nearly five years as AOG’s parent company, Summit found a good fit for its business model and its community-building culture, Adams said. “A big part of our leadership team is from Arkansas, and we believe we understand the community and that the community understands us.”

Several top AOG executives stayed on after the Summit deal, including President Kim Linam, who eventually retired last year, as well as Chief Operations Officer Bob Neiss, Senior Vice President of Customer Development Fred Kirkwood and Vice President of Information Technology Jeremy Schreckhise.

Summit Utilities Inc. is owned by the Infrastructure Investments Fund, which has a commitment to sustainability and deploys the retirement assets of 50 million families in gas, electric and water utility investments.

The $2.1 billion price tag for the CenterPoint assets was 38 times CenterPoint’s earnings and more than twice its 2020 rate base, the Houston company said when it struck the deal. “We believe the price paid for these assets demonstrates that the market is significantly undervaluing the remainder of our natural gas businesses,” said Lesar, the CenterPoint CEO, in announcing the sale.

Summit announced the CenterPoint deal in April and has been coordinating with CenterPoint’s Arkansas operations. Tuesday’s interview was at 1400 Centerview Drive, where CenterPoint has taken over the first floor of the former TransAmerica site.

Unlike AOG, which kept its regional name, the former CenterPoint operations will take on the Summit Utilities name, said Elizabeth Reinholt, Summit’s vice president for sustainability and corporate affairs.

But Adams praised CenterPoint and its legacy, dating back to the days of Arkansas Louisiana Gas Co., a predecessor. “You don’t have to spend much time walking around this office or the other facilities to see that the CenterPoint team cares deeply about Arkansas,” he said. “They are committed to doing their jobs safely and efficiently, and their commitment to the community is obvious.”

While Summit is a company built to grow, it doesn’t have to, Adams said, adding that no other acquisitions are on the horizon.

“We’re focused like a laser beam on bringing the CenterPoint team into Summit, and serving the customers here the very best that we can.”

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