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Regulating Mergers and Acquisitions of U.S. Electric Utilities: Industry Concentration and Corporate Complication
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What happens when electric utility monopolies pursue their acquisition interests—undisciplined by competition, and insufficiently disciplined by the regulators responsible for replicating competition? Since the mid-1980s, mergers and acquisitions of U.S. electric utilities have halved the number of local, independent utilities. Mostly debt-financed, these transactions have converted retiree-suitable investments into subsidiaries of geographically scattered conglomerates. Written by one of the U.S.’s leading regulatory thinkers, this book combines legal, accounting, economic and financial analysis of the 30-year march of U.S. electricity mergers with insights from the dynamic field of behavioral economics.
What happens when electric utility monopolies pursue their acquisition interests—undisciplined by competition, and insufficiently disciplined by the regulators responsible for replicating competition? Since the mid-1980s, mergers and acquisitions of U.S. electric utilities have halved the number of local, independent utilities. Mostly debt-financed, these transactions have converted retiree-suitable investments into subsidiaries of geographically scattered conglomerates. Written by one of the U.S.’s leading regulatory thinkers, this book combines legal, accounting, economic and financial analysis of the 30-year march of U.S. electricity mergers with insights from the dynamic field of behavioral economics.
More Information
Critical Acclaim
Contents
More Information
What happens when electric utility monopolies pursue their acquisition interests—undisciplined by competition, and insufficiently disciplined by the regulators responsible for replicating competition? Since the mid-1980s, mergers and acquisitions of U.S. electric utilities have halved the number of local, independent utilities. Mostly debt-financed, these transactions have converted retiree-suitable investments into subsidiaries of geographically scattered conglomerates.
Written by one of the U.S.’s leading regulatory thinkers—a litigating attorney, regulatory advisor, expert witness and law professor—this book combines legal, accounting, economic and financial analysis with insights from the dynamic field of behavioral economics. With a clear assessment of the 30-year march of U.S. electricity mergers, the author describes the economic losses that result when merger promoters and their transactions face neither the discipline of competition nor the rigors of regulation.
This work is essential reading for regulatory practitioners, consumer advocates and investment advisors—as well as citizens concerned with concentration of economic power. The principles explored are relevant anywhere regulated utility monopolies have the legal right to merge, acquire or be acquired.
Written by one of the U.S.’s leading regulatory thinkers—a litigating attorney, regulatory advisor, expert witness and law professor—this book combines legal, accounting, economic and financial analysis with insights from the dynamic field of behavioral economics. With a clear assessment of the 30-year march of U.S. electricity mergers, the author describes the economic losses that result when merger promoters and their transactions face neither the discipline of competition nor the rigors of regulation.
This work is essential reading for regulatory practitioners, consumer advocates and investment advisors—as well as citizens concerned with concentration of economic power. The principles explored are relevant anywhere regulated utility monopolies have the legal right to merge, acquire or be acquired.
Critical Acclaim
‘Regulating Mergers and Acquisitions offers a powerful and persuasive argument that utility mergers raise unique challenges for energy regulators. Regulating Mergers and Acquisitions is a terrific book, but its importance is not in showing that electric utility mergers have harmed electricity markets. We already know that, in no small part because of Hempling’s prior work. Its contribution lies in its analysis of why utility mergers are harmful. Hempling makes a convincing case that acquirers leverage a utility’s unearned advantage to subsidize non-utility affiliates. Doing so exposes utility customers to the affiliate’s risks and gives the affiliate an advantage that was never intended to be used in the non-affiliate’s market.’
– Joshua C Macey, Energy Law Journal
‘Scott Hempling’s important new book challenges us to think differently about purchases, sales, and mergers of electric utilities. Drawing on his vast understanding of this industry, he argues that utility franchises are public privileges intended to serve consumers but have become commodities batted around by private financial interests. He explains how this has come about, with what effects, and what now needs to be done to fix it. This book is a must-read for all who care—and should care—about the private exploitation of public interests.’
– John Kwoka, Finnegan Distinguished Professor of Economics, Northeastern University, US
‘Scott Hempling does what few in the utility regulatory sphere do. He challenges the regulator to deeply and fundamentally evaluate the public policy that underpins their decision making. Here he has chosen one of the most important areas of regulation to issue that challenge—utility mergers. As this carefully researched and meticulously documented analysis is widely read by current and future commissioners it will, no doubt, transform that process for the good of all consumers.’
– Jon Wellinghoff, CEO of GridPolicy, Inc. and former Chairman, Federal Energy Regulatory Commission, US
– Joshua C Macey, Energy Law Journal
‘Scott Hempling’s important new book challenges us to think differently about purchases, sales, and mergers of electric utilities. Drawing on his vast understanding of this industry, he argues that utility franchises are public privileges intended to serve consumers but have become commodities batted around by private financial interests. He explains how this has come about, with what effects, and what now needs to be done to fix it. This book is a must-read for all who care—and should care—about the private exploitation of public interests.’
– John Kwoka, Finnegan Distinguished Professor of Economics, Northeastern University, US
‘Scott Hempling does what few in the utility regulatory sphere do. He challenges the regulator to deeply and fundamentally evaluate the public policy that underpins their decision making. Here he has chosen one of the most important areas of regulation to issue that challenge—utility mergers. As this carefully researched and meticulously documented analysis is widely read by current and future commissioners it will, no doubt, transform that process for the good of all consumers.’
– Jon Wellinghoff, CEO of GridPolicy, Inc. and former Chairman, Federal Energy Regulatory Commission, US
Contents
Contents: Part I The transactions: Sales of public franchises for private gain, undisciplined by competition, producing a concentrated, complicated industry no one intended 1. Diverse strategies, common purpose: selling public franchises for private gain 2. Missing from utility merger markets: competitive discipline 3. The structural result: concentration and complication no one intended Part II The harms: Economic waste, misallocation of gain, competitive distortion, customer risks and costs 4. Suboptimal couplings cause economic waste 5. Merging parties divert franchise value from the customers who created it 6. Mergers can distort competition: market power, anticompetitive conduct and unearned advantage 7. Hierarchical conflict harms customers Part III Regulatory lapses: Visionlessness, reactivity, deference 8. Regulators'' unreadiness: checklists instead of visions 9. Promoters'' strategy: frame mergers as simple, positive, inevitable 10. How do regulators respond? By ceding leadership, underestimating negatives and accepting minor positives 11. Explanations: passion gaps and mental shortcuts Part IV Solutions: Regulatory posture, practices and infrastructure 12. Regulatory posture and practice: less instinct, more analysis; less reactivity, more preparation 13. Regulatory infrastructure: strengthen regulatory resources, clarify statutory powers, assess mergers’ effects References Index
