Valuation of the electric utility industry

A not many years ago an electric utility analyst wore a tee-shirt to a convention that had the message, "150 to 50 in 5" He was predicting the number of electric utilities in America would shrink from 150 to 50 in 5 years. It isn't happening quite that fast on the contrary no one disagrees this is the direction of the industry.

From the 1960's to the early 1980's the emphasis in the utility industry was upon building new electric and gas generating facilities. To finance the of recent origin plans, utility underwriting became a big item upon Wall Street. Themories raised for utilities amounted to 10% of all underwriting. through the mid 1980's the utility industry had overcapacity. The first signs of deregulation were also beginning to present to view in the gas distribution part of the industry. Construction through investor owned electric utilities malign from a high of $25 billion in 1982 to $89 billion in 1994 a globule of 65%.

The electric utility industry is now being deregulated in many states. This is causing the industry to advance in several directions. One prediction is the local utility will become a "wires and pipes" management and billing company. The local company will basically be a marketer of power services, buying energy from the lowest bidder.

Other companies of the like kind as Duke Power are betting they can extend via acquisitions to sufficient size in the two the electric and gas generation and distribution business that neither the state nor federal regulators will force them to barter off power plants. Duke's plan is to create a giant network of depressed cost power generating facilities to market electric and gas power nationally to the local "pipe and wire" marketers.

Other power companies are acquiring adjacent utilities while others are making foreign acquisitions. Another direction a certain quantity of electric utilities are taking is to acquire natural gas companies. Still, others are going into completely of recent origin businesses such as providing abiding-place security services to becoming abiding-place mortgage brokers. Their belief is that they have direct access to nearly each address in the United States. They can market a wide range of services. a certain quantity of electric utilities are even thinking of providing telephone and cable service.

According to Houlihan and Lokey investment bankers, in the way that far in 1996, 52 electric and gas utility acquisitions have been announced representing $355 billion. That is nearly double the activity of last year. It further translates into $350 million in investment banking pay s for 1996.

For decades utility acquisitions barely showed up upon the M&A annual rankings. Now by the agency of dollars spent, 9% of all M&A transactions this year involve a utility. For 1996 utility M&A announcements, through dollars spent, are second solitary to the communications industry and is well ahead of banking and insurance. The one time sleepy utility industry is now going from one side a reinvention period. The transition from a monopoly business form to one of free enterprise will undoubtedly cause point to be solved [i]or[/i] settleds and even some bankruptcies. However greatest in quantity analysts predict deregulation will bring utility costs to the consumer and make America more competitive.

Copyright Quality Services Company Dec 23 1996

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