Regarding “Consolidating Co-ops,” June 2004
Bill Conway is an Investment Banker at Christenberry Collet. Matt Berry is Manager, Customer Service at Midwest Electric.
To the Editor
“Co-ops are beginning to look like ripe fruit” for IOU acquisition, Michael T. Burr wrote in his story on cooperatives (“Consolidating Co-ops,” June, p. 71). In many cases, just the opposite is true.
Across the country, cooperatives are making acquisitions, cherry-picking service territory from investor-owned utilities. They may not make the big industry headlines, but rural electric cooperatives have become players in utility mergers and acquisitions.
During 2002 and 2003, five cooperatives acquired service territories, power plants, and distribution/transmission lines from IOUs, including Westar Energy, Citizens Communications, and Dominion Resources. (In contrast, no IOU has acquired all or part of a cooperative since 2000, according to Burr’s article.) When Citizens Communications put three of its electricity divisions up for sale, cooperatives acquired two of them.
This trend is likely to continue. Over the past 20 years, cooperatives have built significant equity; they now have the financial resources for these transactions. According to the National Rural Electric Cooperative Association (NRECA), distribution cooperatives enjoy an average equity-to-asset ratio of 43 percent, much stronger than many IOUs; U.S.-traded IOUs have an average equity-to-asset ratio of about 33 percent, according to Multex.