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IOU Mergers Continue:EIA

Issue 2 and Volume 104.

The Energy Information Administration recently released a report counting 22 IOU mergers over the past three years and anticipating another 25 pending mergers will reach completion by the end of this year.

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 percent of all IOU-owned power capacity, up from 36 percent in 1992. The 20 largest IOUs will own approximately 73 percent, up from about 56 percent in 1992.

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 companies have been completed or are pending completion, suggesting a convergence of the electric power and natural gas industries, according to “The Changing Structure of the Electric Power Industry, 1999: Mergers and Other Corporate Combinations.”

Other notable facts and analysis in the report include:

  • Many IOUs are divesting some or all of their power plants. Since late 1997, IOUs have divested, or are in the process of divesting, more than 300 power plants, equivalent to 133 GW, or 17 percent of U.S. 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 approximately 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.
  • Joint ventures and strategic alliances between electric utilities and other energy companies are becoming popular.