More consolidation could trim costs, but some CEOs fear a backlash from regulators.
Richard Stavros is Fortnightly's Executive Editor.
With the possible exception of keeping the lights on, the merger game dwarfs just about every other question facing today’s electric utilities. The last big wave of consolidation hit in the late 1990s. Now the forecast calls for a repeat performance, but don’t bet the farm.
There’s a hitch, you see. It’s today’s high commodity costs. Compare the prices of natural gas, crude oil, and other fuels and commodities, compared to what we saw five to 10 years ago, back during the last M&A boom.
And why is that a problem? Well, for one thing, high commodity prices push utility operating costs higher, putting pressure on rates. And it’s that threat—more rate case reviews—that leads many executives to conclude that the M&A wave everyone had predicted, following repeal of the Public Utility Holding Company Act (PUHCA), may not actually happen.
Speaking at EXNET’s 19th Annual Utility M&A Symposium, held in late January in New York, Richard C. Kelly, chairman, president, and CEO of Xcel Energy, outlined the utility position succinctly: “Rate cases and mergers usually don’t mix. Not that you can’t get them, but states will grasp something from you.”