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M&A Uptick

Do regulatory and economic trends favor industry mergers?

Fortnightly Magazine - October 2010

that has for some time recognized the need for a merger to be successful. And the Blackstone Group’s acquisition of Dynegy is expected to allow Blackstone, having far greater financial resources, profitably to sell off Dynegy’s gas-fired plants in California in ways that Dynegy, handcuffed by its debt instruments, could not.These recent transactions, each with an individualized motive, don’t necessarily suggest an accelerating wave of consolidation. They do suggest, however, that in this relatively fragmented industry, opportunities for beneficial consolidations will continue to occur, and that the potential benefits of such consolidations will tend to be strategic and reflect the broadening scope of power markets and electricity policy.



1. FirstEnergy/Allegheny, RRI/Mirant, and E.On/PPL.

2. Peter Maloney, “ CEOs Share Views on Consolidation, Cost of Building Plants, EPA and Climate Change ,” Platts Electric Utility Week , Mar. 22, 2010, at 1. Exelon has attempted to consummate three major acquisitions in the last several years.

3. FirstEnergy Corp., Sec. and Exch. Comm’n Form S-4A, June 25, 2010, at 63.

4. I/M/O the Merger of FirstEnergy Corp. and Allegheny Energy Inc. , Direct Testimony of Anthony J. Alexander, at 10, 11, Md. Pub. Serv. Comm’n, Case No. 9233 (May 27, 2010).

5. Prior to the EPAct of 2005 instituting a 360-day time limit, this process often was even longer.

6. These new screening criteria are intended to update the guidelines to reflect the current practice of the antitrust enforcement agencies. Thus, in most industries the changes simply reflect current practice and may not have a significant impact. But in the electric power industry, FERC currently applies the screening criteria in the existing (and soon to be superseded) guidelines.

7. United States v. KeySpan Corp. , Final Judgment, Civ. Act. No. 10-cv-1415 (S.D.N.Y. Jun. 17, 2010). The arrangement challenged by the Justice Department Antitrust Division was more complex than lends itself to full discussion here. According to the Justice Department’s complaint, KeySpan was aware that a financial services company (now known from a related FERC proceeding to be Morgan Stanley) had entered into a related agreement with one of KeySpan’s competitors, the owner of the Astoria generating unit, so that the combined effect of these derivative transactions was to give KeySpan the revenues associated with higher prices on Astoria’s unit as well as its own, thus insulating KeySpan from competition and ensuring it could profit by raising prices. United States v. KeySpan Corp. , Competitive Impact Statement at 1-2, Civ. Act. No. 10-cv-1415 (S.D.N.Y. Feb. 23, 2010) (Final Judgment and CIS are both available here).

8. Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities , Notice of Proposed Rulemaking, 131 FERC ¶ 61,251 (2010).

9. See e.g. , Paul Carlsen, “ Constellation Aiming to Buy Gas Plants with $1Billion of Cash from EDF Deal ,” Platts Electric Utility Week , Mar. 1, 2010, at 32; Mark Chediak, “ Utility Mergers May Increase, DTE CEO Anthony Earley Says, Bloomberg Businessweek , Feb. 23, 2010.

10. Rosy Lum, “ PPL Paid a ‘Premium’ to Lessen Commodity Exposure, Grow