Electric Utility Mergers:
Industry Concentration and Corporate Complication

            My third book, Regulating Mergers and Acquisitions of U.S. Electric Utilities:  Industry Concentration and Corporate Complication, will be published by Edward Elgar Publishing around October 2020. Each of my next 14 essays will excerpt from the book’s 13 chapters, in sequence starting with the Preface. (Click here for a Summary of Contents.) I hope this essay series, and the book, will stimulate a community-wide discussion on this crucial topic.

           What happens when electric utility monopolies pursue their acquisition interests—undisciplined by competition, and insufficiently disciplined by regulators responsible for replicating competition?                

            Since the mid-1980s. a stream of mergers and acquisitions has cut the number of local, independent electric retail utilities by more than half. Nearly 80 transactions, mostly debt-financed, have converted retiree-suitable investments into subsidiaries of geographically scattered conglomerates—multi-layered, multi-state and multinational holding company systems that mix lower-risk utilities in with higher-risk ventures.

            No one—no legislator, no regulator, no utility CEO, no bond analyst, no investment banker—intended this result. No objective analyst ever recommended that the U.S. electric utility industry look like it does now. And no thinking citizen would find comfort with these five facts:

            1.  Control of a public privilege—the government-granted, monopoly utility franchise—is sold and re-sold by the private franchisee to the highest bidder, in multi-billion-dollar transactions undisciplined by normal competitive market forces.

           2.  The gain extracted from these sales goes mostly to the acquired utility's shareholders and executives, even though the economic value underlying that gain comes not from shareholder risk-taking or executive decision-making, but from customers—customers made captive by state laws that protect the utility from competition.

            3.  The purpose commonly claimed by the merging companies—“synergies”—is non-factual because they create their efficiencies estimates only after they sign their merger agreements.

            4.  The regulators responsible for deciding who should control these franchises have no plan or procedures for finding the most cost-effective provider. Instead they let their utility choose—knowing that the utility will base its choice on gain to its shareholders rather than performance for its customers.

            5.  While the merging companies seek to maximize return for their shareholders, the regulators seek mostly to avoid harm to the customers—a passion gap that produces predictably lopsided results . . .


Testimony, Papers, and Presentations

Direct testimony before the Public Service Commission of Wisconsin in the Joint Application of Wisconsin Electric Power Company and Wisconsin Gas LLC, for Authority to Adjust Electric, Natural Gas, and Steam Rates
A layperson’s introduction to regulation created by Scott Hempling in support of The British Columbia Utilities Commission's inquiry into whether utility regulation should extend to utilities owned by indigenous nations.
This tesimony relates to the modification of rates, charges, and tariffs for retail electric service in Oklahoma.
The testimony relates to AltaGas’s proposed acquisition of WGL Holdings, Inc. and Washington Gas Light Company.
The testimony addresses the following: the effect of the transaction on consumers, including: (1) reasonableness of the purchase price, including whether the purchase price was reasonable in light of the savings that can be demonstrated from the merger and whether the purchase price is within a reasonable range; (2) whether ratepayer benefits . . .

Books by Hempling

Regulating Public Utility Performance

“[A] comprehensive regulatory treatise …. In all respects, it merits comparison with Kahn and Phillips."

Regulating Public Utility Performance:  The Law of Market Structure, Pricing and Jurisdiction

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Preside or Lead

Preside or Lead?
The Attributes and Actions of Effective Regulators

Now Available on Kindle

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Hempling Appearances

Energy Bar Association
Panel on Practice Principles for New Regulatory Lawyers

UDC Law School Panel
Is the Exelon Takeover of Pepco in the Public Interest?

Nigeria Electricity Regulatory Commission
3rd Judges’ Seminar

Telecom Forum
Asamblea Plenaria REGULATEL

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