A challenging year brings a change in the rankings.
Cap-ex plans raise the stakes for utility mergers.
Investors historically have been skeptical about merger synergies in utility mergers, assuming that regulators will insist that most or all economic benefits flow to customers. However, recent transactions suggest utilities are taking a different approach to valuing synergies that might strengthen the case for mergers — not just for the merging parties, but also for investors and regulators.
FirstEnergy closes $4.7 billion stock acquisition of Allegheny Energy; BHP Billiton agreed to by shale gas interests from Chesapeake Energy; Capital Power to acquire gas-fired cycle power plants from Brick Power Holdings and others.
Do regulatory and economic trends favor industry mergers?
Now that some new major transactions have emerged, and financial recovery appears slowly moving forward, utility mergers are beginning to appear likely again. Although regulatory hurdles still impede new transactions, some changes at the federal level are reducing concerns about market power and competition. Plus, changing market conditions and new compliance requirements are strengthening the case for scale economics.
Beyond-the-meter technologies challenge the utility monopoly.
Smart metering and beyond-the-meter technologies are challenging the utility monopoly model. Now, regulated utilities must re-think their customer relationships as a revitalized retail sector provides growth opportunities.
Alstom introduces a new 3-MW wind turbine, one of the world’s most powerful for onshore installations; Solyndra reports its larges-ever rooftop installation of cylindrical photovoltaic (PV) systems — a 704-kW project in New Jersey; Plug Power reports that its GenDrive fuel cell units will power Walmart Canada’s fleet of electric lift trucks at a Alberta distribution center.
Will shifting winds bring consolidation?
A spate of newly announced deals, including Allegheny Energy’s proposed $9.27 billion acquisition of FirstEnergy, plus PPL’s takeover of E.ON US for $6.73 billion, has left the utility industry cautiously optimistic for a revival of M&A activity.
Bringing flexibility and efficiency to energy RFPs.
With the introduction of retail competition in the electricity industry, regulatory authorities in many jurisdictions are now overseeing the purchase of electricity at wholesale by electric utilities for customers that do not otherwise obtain supply from independent retailers. There are two primary ways in which, under the supervision of regulatory authorities, electric utilities purchase electricity for these non-shopping customers: through simultaneous descending clock auctions or through fairly common sealed-bid auctions, commonly known as Requests for Proposals.