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By Katherine Tweed

During the first quarter of 2012, mergers and acquisitions in the North American power and utility sector declined, according to an industry snapshot from PricewaterhouseCoopers.

The lower rate of M&A activity is due to several factors, according to the report, including the pending mergers between some of the nation's top utilities. However, the lull is likely temporary, according to John McConomy, U.S. Power and Utilities Transaction Services Leader for PwC.

“Many factors were responsible for the dearth of deal announcements during Q1 2012, including the continuing weak economy, lack of load growth, the regulatory process on two large deals announced in 2011, changing national environmental proposals and the price of natural gas,” he said in a statement. “On the plus side, there appears to be continued progress on the regulatory approvals on regulated utility transactions. Successful approvals may lead to a revival of transactions in the regulated space.”

The volume of deals in 2012 was slightly higher than in 2011, with 31 deals total and five over $50 million in the first three months of this year. The largest deal was Cascade Acquisition Sub, a unit of Fortis Inc., acquiring CH Energy Group Inc., a Poughkeepsie-based electric utility, for about $1.5 billion.

Of course, that deal is downright small potatoes compared to the recent Exelon and Constellation Energy merger, which will create a company with a market cap of $34 billion. Then there’s Duke Energy’s awaited $26 billion merger with Progress Energy, which would make it the largest utility in the United States in terms of generation capacity.

So far, it is tough to tell what the mega-mergers will mean for smart grid plans. There is clearly a place for synergies and shared best practices across large companies. But as Duke and Progress await regulatory approval, there does not appear to be any new significant projects until the merger is finalized.

As Greentech Media noted when the Exelon (NYSE:EXC)/Constellation (NYSE:CEG) deal was finalized, the real benefit could be in the backend of offices, and particularly in streamlining growing IT needs. Balancing supply and demand using higher levels of demand response could be another benefit, especially for Exelon, which picked up a dynamic demand response program when it merged with Constellation.

The Duke (NYSE:DUK)-Progress (NYSE:PGN) merger could be a while, however. The two utilities have been working through issues to satisfy the Federal Energy Regulatory Commission, which conditionally approved the merger in September.

Although some utilities and investors may be watching to see what happens with Duke-Progress, not everyone is sitting on the sidelines. Northeast Utilities (NU) recently completed a $5 billion purchase of NStar, after a year and a half of regulatory review. The utility will now serve 3.5 million gas and electricity customers across New England.

In the case of Northeast Utilities, one of the agreements was that the utility would buy some of the power from the proposed Cape Wind project. But the large investment in wind is likely slowing overall with the expiration of tax credits. "We expect to see a slowdown in wind project development as the product tax credit approaches expiration," added Jeremy Fago, PwC’s U.S. power and utilities valuation services leader. "We’re also seeing unscrubbed coal facing tougher retrofitting investment decisions as natural gas prices continued their downward trend."

In Connecticut, there were other demands including $300 million for system improvements, according to reports.

For the New England states, the mergers were a chance to increase transparency with the utilities and to increase the reliance on renewable energy, including existing hydro from further north. Other states that will be faced with mega-utility mergers in coming years will be able to use the transaction to push their utilities toward cleaner energy and grid investment in a way that is potentially more efficient than a traditional regulatory process.