Stagnant load growth fueling US utility merger mania

Dive Brief:

Utility deals in North and South America reached $57 billion in the third quarter of this year, marking a 5-year record for the quarter, USA Today reports, based on data from accounting firm EY.
That figure is a marked increase over just $6.2 billion in second quarter activity; the bulk of Q3 merger value was fueled by the U.S. electric sector, including Southern Co.'s bid to purchase AGL Resources for $12 billion.
The spike in merger activity is being fueled by stagnant load growth and increasing interest from the electric sector in gas investments.

Dive Insight:

A spike in utility mergers is being fueled by stagnant electric load growth, USA Today reports, ahead of merger figures from EY which are expected to show an almost-1,000% increase in deal activity from Q2 to Q3 this year.

"In the U.S., it's pretty difficult for people to make money," EY's Matt Rennie told the newspaper. "So we're seeing decisions being taken by larger companies to diversify their holdings to move upstream or downstream to try to recover some of the revenues or profits that they're losing." Rennie is EY's global leader for power and utilities transactions.

While the merger figure includes water, power and gas utilities in South and North America, the bulk of Q3's value came from the United States. In particular, the growth was fueled by growing interest in natural gas. In August, Southern Co. announced it would purchase natural gas distribution company AGL Resources in a $12 billion deal, including a total equity value of $8 billion.

More recently, Duke Energy, the largest electric utility in the nation, announced last month it would buy Piedmont Natural Gas for about $4.9 billion in cash. The acquisition of the natural gas distributor would add about 1 million new gas customers to Duke's service territory.

"Large integrated utilities are looking at acquiring quality regulated assets, which offer predictable and stable cash flows to reduce the impact of earnings volatility," EY said in its report, which is scheduled to be released soon.