Do regulatory and economic trends favor industry mergers?
Douglas G. Green is a partner with Steptoe & Johnson.
Three major electric power merger and acquisition (M&A) transactions have been announced in the last several months,1 and a number of leading power company executives recently have expressed the need for increased consolidation in the industry. These developments raise some interesting questions.
Not many years ago, the power industry experienced an apparently never-ending wave of merger activities sweeping across the country. The repeal of the Public Utility Holding Company Act of 1935 (PUHCA), and its burdensome regulatory rules, including the requirement that registered holding companies be operationally integrated, opened up the possibility of mergers between geographically distant U.S. companies and made U.S. acquisitions more attractive to regulation-averse foreign companies. Then suddenly, M&A activity dropped off a cliff. The failure of the Exelon-PSE&G merger in September 2006 heightened concerns about state regulatory approvals. Soon after, financial markets dried up, and load growth reversed itself. Prolonged M&A doldrums followed.