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U.S. utility mergers encountering fewer obstacles for approval

On Behalf of | Jul 15, 2011 | Mergers And Acquisitions |

In 2006, state officials repeatedly shot down attempts for a merger between Exelon and Public Service Enterprise Group Inc., a utility company based in Newark, New Jersey. Antitrust regulators were concerned that such a move might allow the resulting company to monopolize regional power markets and gouge prices. Other proposed utility mergers were rejected as well, due to companies unwilling to make all the concessions requested of them by regulators.

Since those failed attempts, it has become easier for U.S. utility companies to merge. According to a Bloomberg article on the issue that appeared in the San Francisco Chronicle, this has been credited mainly to companies becoming more adept at minimizing rate increases and limiting job cuts, along with getting better at showing how the merger will benefit consumers. Doing these things may have assuaged the fears of regulators, making them more likely to approve merger requests.

According to the Bloomberg article, the president of the National Association of Regulatory Utility Commissioners explained that larger companies can more dependably supply electricity while limiting the speed at which rates rise, benefiting consumers.

Larger utility companies enjoy many benefits due to their size, explained one expert in the Chronicle. For example, utility companies must pay more than $40 billion in order to meet new air-pollution standards being implemented by the EPA, according to Bloomberg. By merging with larger companies, utilities can more easily spread costs and borrow money, which could result in slower price hikes for consumers.

Companies wishing to merge have offered additional incentives to state officials, such as contributing money toward economic programs and offering rate freezes. Some companies have also provided their customers with credit packages and promised not to cut jobs for a set period of time after a merger is completed. Experts believe such measures may be crucial for regulators to approve more utility mergers.

 Source: San Francisco Chronicle, “Duke Energy Deal Shows Cheap-Power Pledges Ease Merger Approvals,” 12 July 2011