Standard & Poor’s believes this week’s announcement of the merger of Duke Energy Corp. (DUK) and Progress Energy Inc. (PGN marks the beginning of the acceleration of the long-awaited consolidation of the U.S. electric utility industry, according to this free download from the Alacra Store.
Despite all of the mergers to date (the number of U.S. shareholder-owned electric utilities dropped 41% between 1995 and 2009, according to the Edison Electric Institute), the industry is still relatively fragmented. If the Duke/Progress merger is a watershed event, as we believe it is, other large utility holding companies will be seeking out other substantial partners to create ever-larger companies in an effort to keep pace.
From our perspective, that kind of future would mean an improving credit quality picture that could eventually return the average industry rating back to the ‘A’ category where it was before the deregulation trend began a generation ago.
The following factors drive the current wave of mergers among the electric utilities:
- Credit quality, rather than equity concerns, is the impetus;
- Regulatory approval process has become less onerous and time consuming;
- Modest acquisition premiums; and
- Lower cost-saving assumptions in deals.
U.S. Electric Utility Consolidation Will Accelerate Following The Duke-Progress Merger; Industry Credit Quality Could Improve has been made available free of charge to Research Recap users for 30 days by special arrangement with Standard & Poor’s, an Alacra content partner. After 30 days, the report will revert to its regular Alacra Store price of $500.00.