S&P predictscontinuing mergers in utility industry
Benefits from economies of scale and market strength derived from size are driving the ongoing electric utility industry merger trend, according to Standard & Poor`s (S&P) analysts. Deregulation and increasing competitive pressures have utilities finding a partner before the relatively healthy utilities are taken, according to Curtis Moulton, S&P managing director.
U.S. utilities are interested in aligning with electric companies in the United Kingdom because the British utilities tend to have low debt levels and would produce an immediate cash flow for the acquiring company. S&P predicts many merger announcements continuing from the United Kingdom in the future. Noting S&P`s high ratings for U.K. utilities, Moulton said they have little debt and are “inherently leverageable.” He predicted Long Island Lighting Co. will “cease to exist” if the company can get book value for its equity. He also took a negative look at Niagara Mohawk Power Corp., which has declining sales and escalating costs for purchased power.