EIA notes utility merger trend

Jan. 31, 2000
The US Energy Information Administration has reported that many investor-owned electric utilities (IOUs) have merged with other utilities to improve their positions in the new, more competitive electric power industry.

The US Energy Information Administration has reported that many investor-owned electric utilities (IOUs) have merged with other utilities to improve their positions in the new, more competitive electric power industry.

It said, over the past 3 years, IOUs have completed 22 mergers. By the end of 2000, another 25 pending mergers are likely to be completed.

"One consequence of this trend is the increasing concentration of power plant ownership. By the end of 2000, the 10 largest IOUs will own approximately 51% of all IOU-owned power production capacity [up from 36% in 1992], and the 20 largest IOUs will own approximately 73% [up from about 56% in 1992]."

EIA said many electric utilities are combining with natural gas production, transportation, and sales companies, creating large diversified energy companies. Since 1997, 20 mergers between IOUs and natural gas firms have been completed or are pending completion, furthering the convergence of the electric power and natural gas industries.

The EIA report said that, besides merging, many IOUs are divesting some or all of their power plants. Since late 1997, IOUs have divested, or are in the process of divesting, over 300 power plants, equivalent to 133 Gw, or 17% of US power generation capacity.

"The majority of these power plants have been purchased by independent power producers who, as a group, are rapidly becoming a major segment in the power generation business.

"Most divested power plants have sold for values from 1.5 to 2.5 times their book values, indicating a strong competitive market for existing power plants.

"Nuclear power plants that were sold have not fared as well, usually selling for less than their book values."

EIA said joint ventures and strategic alliances between electric utilities and other energy companies are becoming popular.

A sample of recent joint ventures indicates that electric utilities are using them to create business opportunities in customer billing, metering, energy trading, and energy services.