Why integration may win out in the long run.
The Hon. Richard Cudahy serves as a judge on the U.S. Court of Appeals for the Seventh Circuit, in Chicago.
In the electric power industry, the urge to merge has gained a new lease on life. American Electric Power Co. (AEP) had thought it successfully wooed distant Central and South West, and despite a setback in the D.C. Circuit on account of the Public Utility Holding Company Act (PUHCA), AEP probably still will achieve a happy coupling. Exelon (itself a product of merger) is taking nearby Public Service Electric & Gas Co. under its wing, and most recently, Duke Power has proposed a merger with Cinergy, a close-by but not contiguous utility.
These combinations are witness to the powerful forces of consolidation let loose when deregulation makes consolidation a preferred tactic in an uncertain world. But to what extent will government policy encourage or resist this trend? What exactly is the regulatory environment that nurtures combinations or, for that matter, supports fragmentation? As we shall see, there are many cross-currents.
PUHCA is a good place to start, for although that statute has lingered on its deathbed for a number of years, it is still alive and kicking as of late June. If repealed, it should be replaced by some policy governing the structure of the industry that will either encourage consolidation or discourage and perhaps virtually forbid it.