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Profit Pressures Push Power Companies To Merge, But Regulators Pose Wildcard

Posted by New Leaders Council 4 Admin on August 27, 2015 at 2:34 PM

Originally published on Forbes on August 26 by Ken Silverstein.

Mergers are uncertain marriages. Witness Tuesday’s rejection of the Exelon EXC +0.00% Corp. and Pepco Holdings POM +0.00% Deal. That dumping by state regulators, though, may not apply to the Southern Co SO +2.27%. and AGL Resources GAS +0.00% proposal announced Monday.

It’s all about future growth, although the deals were proposed for different reasons: Southern wants to increase its participation in the natural gas business, which its Atlanta neighbor AGL provides. Meanwhile, Exelon wanted Pepco to gain entrance to certain northeastern markets and to get steady cash flows.

Both mergers have or will endure the scrutiny of federal monitors and state utility commissions. And that has been problematic: Before the economic recession in 2008, state utility commissions had rejected a spate of proposed mergers, noting that they didn’t benefit local customers. However, after the recession, mergers involving big utility companies started to heat up. Regulators in regions that had been financially hurt looked favorably on those deals that provided access to capital from those entities with deep pockets.

Read the full story here: http://www.forbes.com/sites/kensilverstein/2015/08/26/evolving-energy-economics-spawn-utility-mergers-and-regulatory-scrutiny/