Dive Brief:
- Great Plains Energy has announced plans to acquire Westar Energy, the largest electricity provider in Kansas, for $8.6 billion. It is the largest electric utility merger so far this year, Reuters points out.
- Based in Topeka, Westar serves about 700,000 customers across eastern Kansas and owns more than 7 GW of generation. The deal would give Great Plains, which owns Kansas City Power & Light, more than 1.5 million customers in Kansas and Missouri and over 13 GW of total generation.
- The deal is the latest in a trend of consolidation in the utility industry, which includes recent acquisition moves from Exelon and Dominion, among others. Westar stock rose from about $53 to over $57.60 in pre-market trading on Tuesday, below the offer price of $60 per share. Shares of Great Plains fell more than 5% upon news of the deal.
Dive Insight:
As electric utilities across the country feel the squeeze of low commodity prices, stagnating electricity demand and regulatory pressures, an increasing number are turning to consolidation to shore up revenues and ensure financial stability.
Already this year, Dominon announced plans to buy natural gas utility Questar for $4.4 billion while Exelon closed its deal with mid-Atlantic utility Pepco for $6.8 billion, though the merger still faces residual regulatory hearings.
Both those deals, Reuters notes, are dwarfed by the dollar value of Great Plains's bid for Westar Energy, which priced the Kansas utility at $8.6 billion, or about $51 per share in cash and $9 per share in stock.
The companies said they will pursue approval from shareholders and the Kansas Corporation Commission this year, and expect the deal to close in the spring of 2017. The merger must also be approved by the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.
Westar operates 7.2 GW of electricity generation, with a projected 2017 capacity mix of 41% coal, 30% natural gas, 22% renewables (mostly wind), and 7% nuclear.
Great Plains operates 6.4 GW of generation through its Kansas City Power & Light subsidiary. In 2015, it generated 74% of its electricity from coal, 16% from nuclear, 8% from wind, and 1% each from hydro power and combined gas and oil.
Though the deal would be the largest electric utility merger so far this year, there is a larger acquisition involving a power provider that's expected to close later this year. In March, regulators in California unanimously approved the acquistion of natural gas utility AGL Resources by Atlanta-based Southern Co. for over $12 billion, which would create the nation's second-largest gas and power utility, serving about 9 million customers.
As utility consolidation has increased in many regions of the country, so has regulatory scrutiny of the deals. The Exelon-Pepco merger, which created the largest electric utility in the country by customer base, took more than two years to close after regulators rejected an initial merger bid last year.
Meanwhile, a deal that would have seen real estate firm Hunt Consolidated buy Houston utility Oncor Electric fell apart earlier this month over restrictions that regulators put on the deal. That, analysts said, could tempt Florida-based NextEra Energy to abandon its embattled $4.3 billion bid for Hawaiian Electric Industries and pursue Oncor, which has a customer base of more than 10 million in Texas.
