Recently merged companies show little financial performance: study

Ellicott City, MD, June 4, 2007 — The Newton-Evans Research Co. issued a new brief of the status of mergers and acquisitions in the nation’s electric power industry. The report is based on attempted and completed merger and acquisition activities occurring in the industry over the past 15 years. Entitled “Mergers and Acquisitions among Electric Power Companies: A Mixed Bag of Successes and Failed Opportunities” the study was conducted during the April-May time frame of 2007.

Among the highlights in the white paper report are:

* There was little noticeable improvement in the financial performance of merged companies as of the end of the first quarter of 2007.
* Financial measures including price-earnings ratio and return-on-equity were better for the industry as a whole, than it was for the selected merged companies.
* A total of 7 financial measures were used in the comparative performance review.
* A summary compilation of chronological events related to the merger and acquisition activities among 19 major electric utility holding companies is presented in the report.
* A review of state-level disapprovals of proposed mergers found that the key reasons for turning down the merger proposal centered on lack of perceived benefits to rate payers within the state(s) affected.

State regulators seem to be more in favor of mergers that would bring substantive benefits to ratepayers within their state in the form of rate reductions or, at the least, rate freezes in moderate electricity-cost states through changes in tariffs; demonstrable increases in proposed customer service responsiveness; increased service delivery reliability; job retention within the state. Basically, as public service commissioners, state regulators want to obtain benefits for rate payers (voters) in their jurisdictions. If these are not apparent, and if opposition voices become loud, the merger or acquisition will not be approved. In most proposed merger cases over the last few years, FERC regulators have themselves approved the proposed mergers or acquisitions. It is the state level public service commissions that have subsequently turned down many of the proposed mergers and acquisitions.

In reviewing the benefits promised by recently approved mergers, geographically-neighboring utilities seem to have a better chance at successfully arguing their case before state commissions and in successfully completing the merger. Newton-Evans believes this is due to the ability of the merged companies to provide “back-up” or “contingency” power in emergencies. Also, neighboring utilities have an ability to unify grid operations and service fleets at both the transmission and distribution levels.

For more information on the study, visit www.newton-evans.com.

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