Alignment of the business and the information technology (IT) functions within a company is critical to the effectiveness of any strategic initiative. Three years ago, our research identified a...
Where Have All the Mergers Gone?
EPACT and the repeal of PUHCA have not affected the pace of utility acquisitions.
Why do we still have several hundred shareholder-owned electric utilities in the United States, not to mention several thousand municipal and cooperative ones?
In the early to mid-2000s, one of the topics that set the electric utility industry abuzz was the prospect for consolidation through mergers and acquisitions (M&A). The idea, particularly in states with “customer choice,” was that utilities of larger size would have a cost advantage in providing services to customers. Among the load-serving entities, the idea was that larger ones would have lower costs per customer for such functions as customer service, billing, transmission and distribution O&M, and possibly financing. New information technologies would make it more economic to serve larger numbers of customers from the same network. New techniques such as business process outsourcing (BPO) would make consolidation attractive, since it would lock in savings. In short, they would achieve “economies of scale.” Further, in the generation segment, larger entities (both utilities and IPPs) could achieve “critical mass” whereby they could grow their portfolios to optimize between merchant and PPA-style projects, participate effectively in competitive markets, and have greater purchasing power with regard to fuel and other commodities, as well as more financial strength.
Thus, in all segments of the electric utility business, particularly shareholder-owned ones, the idea was that “bigger was generally better.” One subsidiary of a major accounting firm stated resolutely in a 2006 article that “due to industry consolidation, it is very possible that within 10 years there will be only a handful of utilities that are served by a handful of asset managers and service providers.” Hmmm.
Of course, even with such consolidation, it was recognized that electric utilities would continue to be closely regulated by the states with regard to retail rates and facility siting, and by FERC with regard to transmission access and tariffs. Within the regulatory framework, however, there was widespread belief that the force of scale, of technology, and of logic favored removing impediments to utility M&A to achieve both shareholder and customer benefits.