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The Merger Paradox

More consolidation could trim costs, but some CEOs fear a backlash from regulators.

Fortnightly Magazine - March 2006

in speeches that he will go no further than the letter of what Congress intended—which, as previously stated, is in effect the status quo.

Kelliher’s FERC no longer conditions merger approval on RTO membership. In fact, some companies like LG&E Energy are asking to get out. Many are concerned that his position represents a step backward, although he was adamant that was not the case, explaining the industry would not return to its pre-1990s structure.

However, in February, in a speech at CERA Week 2006, he said he was agnostic as to the business structures in the Southeast (vertically integrated) or Northeast (electric competition) as long as the customer is served just and reasonably. In addition, he said he was agnostic as to how the megawatts were generated.

At a dinner the evening before Kelliher’s speech at the CERA conference, a debate broke out at our table between a Russian energy fund manager and a British energy consultant. The focus of debate was whether China valued political order over economic prosperity, and whether it would impose one at the cost of the other. The Brit was sure that China valued political order; the fund manager took the opposite position. Of course, we could have been debating the stance of regulators in respect to the North American utility industry.

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