Recent Trends in Utility Mergers: Standards of Review

Mergers and acquisitions are changing the business landscape of the utility industry.  While each merger is based on a unique set of facts and circumstances, we can also learn from the broader trends underlying the drive toward consolidation in the industry.  As is evidenced in the chart below, the number of investor-owned utilities has declined by more than 50%, and the pace has not slowed.  This is the first in a series of articles where we will explore recent trends in utility mergers.



Most State Regulatory Commissions Have Recently Approved One or More Mergers

As shown in the map which follows, since 2010, 37 state regulatory commissions have reviewed 33 mergers.



Of the 33 mergers reviewed by these state regulatory commissions, 31 have been approved and closed,[1] and two were terminated by the acquirer.[2] Two additional mergers are in the final stages of their state regulatory proceedings.  Concentric is an expert witness in two pending transactions:

Predominant Standard of Review

The most common standard of review used by regulators in the U.S. deliberating utility mergers is the “public interest” standard.  The method for establishing the public interest standard (e.g., by statute, rulemaking) and the factors that are considered in assessing the public interest standard vary by state.  In fact, the regulatory review of several recent transactions has been preceded by the regulator clarifying its merger standards and/or establishing specific questions to be addressed in the regulatory review.

Regardless of these differences, the fundamental intent of the “public interest” standard has several common elements:

Consideration of  “external” effects such as the impacts on employees, the local economy, and the environment.

Applying the “Public Interest” Standard

The “public interest” standard had typically been applied as determining either the absence of harm, i.e., “no net harm,” or whether the post-merger condition would be equal to or at all better than the status quo (e.g., $1 of customer benefit could satisfy the public interest standard).  In the last several years, however, more regulators have considered whether a proposed transaction, inclusive of commitments made by the buyer and the seller, will create specific benefits or new risks for customers.

Benefits considered by regulators include merger-related savings or synergies, rate credits and/or rate freezes, customer service, operational capability and reliability, financial capability and the cost of capital, commitments to employees, and community involvement.  Risks that have been considered include those related to financial condition and exposure to parent or affiliate financial obligations or risks, the role of local management, affiliate interests and codes of conduct, and impacts on competitive markets.

Most buyers and sellers make specific regulatory commitments in their merger applications.  A transaction’s regulatory commitments usually reflect the unique characteristics of that merger and may also seek to address areas of interest to the regulator and stakeholders.  We will explore regulatory commitments further in a coming article in this series on Recent Trends in Utility Mergers.

Balancing the Interests of Stakeholders

There are many stakeholders in a merger, and most merger proceedings have multiple intervenors.  In addition to the buyer and seller, acting as proponents for the merger, consumer advocates, unions, customer groups, large industrials, competitors, and environmental groups are actively involved in these proceedings.  It is not uncommon for some parties to view a merger application as an opportunity to seek specific benefits or to advance regulatory agendas that are not a direct product of the merger.

Many mergers also involve multiple state jurisdictions which may have different statutes, precedents, and policies.  Satisfying the public interest as defined in different jurisdictions requires a delicate balance. Commissions generally evaluate mergers in comparison to the status quo or the most likely scenario but for the merger.  Merger approvals are binary decisions for the regulator – approve the merger, with or without conditions, or reject the merger.  Commissions have generally not evaluated mergers in comparison to hypothetical alternatives or different future state scenarios.

Ultimately, a balance of interests is typically struck in utility mergers.  For a transaction to reach a Commission for its approval, it already reflects the balance struck by the buyer and seller regarding their respective interests.  It must also reflect the interests of customers, and the other external factors cited above in the merger agreement and regulatory commitments.  As noted, most mergers brought before a Commission since 2010 have been approved and closed.  To the extent that regulators have expressed specific concerns about a proposed merger, they have generally imposed approval conditions that addressed those concerns.  Most Commissions avoided imposing conditions which would disrupt the balance of customer, shareholder and other interests and thus cause the transaction to not move forward.[3]


The “public interest” standard is the predominant standard of review used by regulators in the U.S. considering utility mergers.  The standard provides regulators with a broad foundation upon which to conduct their review and how the standard is applied has evolved as the industry has consolidated.  Regulators increasingly consider whether a proposed transaction will create specific benefits or new risks for customers.  As we will explore in future articles, merger commitments made by the seller and buyer are key contributors to the public interest.  While intervenors in some transactions have sought additional commitments, most Commissions have avoided imposing conditions on a merger which would disrupt the balance of customer, shareholder and other interest and cause a transaction to be aborted.  The importance of understanding your Commission’s policies and precedents, and the interests of other stakeholders cannot be underestimated in a merger.  Precedent in the industry provides prospective buyers and sellers with a “road map” for successful merger approvals.


By: Lisa M. Quilici, Senior Vice President

T: 617.872.0248



[1]       Algonquin/Empire, Fortis/ITC, Duke/Piedmont, Dominion/Questar, Southern/AGL, Emera/TECo, Macquarie/Cleco, Exelon/PEPCo, Black Hills/SourceGas, Iberdrola/UIL, WEC/Integrys, Berkshire Hathaway/Altalink, TECO/NM Gas, Laclede/Alabama Gas, Fortis/UNS, Laclede/New England Gas, Algonquin/New England Gas, Berkshire Hathaway/NV Energy, Laclede/Missouri Gas, Fortis/CH Energy, Algonquin/Atmos, Algonquin/Granite State, Duke/Progress, Gaz Métro/CVPS, NU/NSTAR, Exelon/Constellation, AGL/NICOR, AES/DPL, FirstEnergy/Allegheny, UIL/Berkshire Gas, PPL/E.ON

[2]       NextEra Energy/HEI and Hunt Group/Oncor

[3]       Utility merger agreements typically contain a “regulatory out” provision which allows the transaction to be terminated without recourse if an unacceptable regulatory order is received.  In addition to a merger being rejected by the regulator, this could include a condition to an approval order which changes the economic bargain or other balance agreed to by the buyer and seller.


Source:© 2017 Concentric Energy Advisors, Inc. Not to be reproduced or reused without authorization.

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