Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Mergers and the Public Interest: Saving the Savings for the Poorest Customers

Fortnightly Magazine - June 15 2000

the low-income market.

Keeping a Local Focus. Cost savings resulting from consolidation are among the PSCO-NSP merger's economic benefits for investors, and, in fact, are a primary goal of the merger. Consolidation refers to the process of combining functions and offices so that a larger geographic area can be served with a smaller staff in fewer offices.

CEAF/CC argued, however, that consolidation likely would harm low-income consumers. The charity groups contended that mergers result in a degradation of service offerings tailored to low-income customers in local areas because the customer base to which the merged company is accountable increases.

As any company - whether in health care, financial services, or energy - expands its geographic service territory, the customer and institutional base to which it is accountable also becomes bigger. The largeness of the customer base typically forces the company to pay more attention to financial returns than to local community needs. Responding to local needs in rural Colorado, CEAF/CC said, would become less compelling to a company serving not only Colorado, but Texas, Wyoming, New Mexico, Oklahoma, Minnesota, North Dakota, Wisconsin, South Dakota, and Michigan as well.

The health care industry is an example cited by CEAF/CC. The merger and consolidation of health care plans has proven to result in plans favoring standardization, which in turn reduces the plans' responsiveness to the particular health needs and conditions of local communities. In fact, a 1993 survey of managed care organizations shows how market size can affect groups that evaluate the utilization of health care plans. The survey found that when such groups serve national markets, they tend to place considerably less value on local norms of clinical practices and local participation in studying health plan utilization than do similar groups that serve smaller state or regional markets.

The same problem arises in the case of bank mergers. In one article for the Federal Reserve Board of Kansas City, researchers emphasized the special knowledge that local bankers bring to community development. Noting that "deregulation has raised the specter of larger banks entering rural markets," the Federal Reserve writers expressed concern that this special knowledge pool would dry up. This report and others emphasize the importance of local community bankers in local leadership and in addressing community problems.

CEAF/CC found that the same results likely would obtain for PSCO. An increase in the geographic scope of the markets served by PSCO, CEAF/CC said, would lead to a reduced focus on the needs of particular states and localities and the local norms of treating payment-troubled customers. The experience of local energy service providers serving low-income customers nationwide bears out these findings in areas such as negotiating payment plan terms, establishing creditworthiness, and responding to inability to pay.

In addition, increased consolidation has decreased utility attention on the needs of particular local populations and how those needs affect the interface between the company and its customers. These local needs include such things as the closing of a major employer (thus putting substantial numbers of customers out of work), the significant presence of substandard low-income housing, and