EPACT and the repeal of PUHCA have not affected the pace of utility acquisitions.
Elliot Roseman is a vice president and Kimberly Richardson is a research associate with ICF International in Fairfax, Va. Contact Roseman at firstname.lastname@example.org.
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.