Utility Merger Frenzy Isn’t Healthy

Date: 27 Aug 1996 | posted in: From the Desk of David Morris, The Public Good | 0 Facebooktwitterredditmail

Utility Merger Frenzy Isn’t Healthy

by David Morris

August 27, 1996

Once upon a time in America, both political parties damned giant monopolies. At the turn of the century, Republican President Teddy Roosevelt used anti-trust laws to battle concentrated corporate power. His favorite target was the energy industry. In the 1930s Democratic President Franklin Roosevelt helped enact laws like the Public Utility Holding Company Act that broke up the powerful utility conglomerates whose financial manipulations had wreaked such havoc on the national economy.

Today our political parties have lost their willingness to challenge concentrated power. The clearest example of this is their cowardly silence in the face of one of the most remarkable phenomena in recent history: the frenzied mergers of the nation’s energy utilities.

Ten years ago utility mergers were rare. In the last 18 months, on average, one large merger has been announced every month. Last year $18 billion of mergers took place . So far this year another $20 billion has been announced. The most recent was that of Houston Industries, the nation’s ninth largest electric utility with NorAm Energy Corporation the nation’s third largest natural gas utility.

In state after state concentrated power is growing at an astonishing speed. For example, in 1990 Iowa boasted six investor owned utilities. After the latest merger two will remain. By the year 2000 only one might be left.

Utilities argue that mergers save money. But even by their own self-serving estimates, such savings are trivial and short term. Moreover many utility experts believe these savings could be achieved without the need for increasing the concentration of power within the utility sector.

Consider, for example, the proposal by the Wisconsin Energy Corporation (WEC) and Minnesota’s Northern States Power (NSP) to create a new $6 billion company called Primergy. NSP says customers will save less than $1 a month.

The cruel irony is that these mergers are occurring at precisely the moment that we are radically revising the rules that govern the electricity sector in order to promote more competition. On the one hand we are developing policies to expand the number of electricity suppliers that customers can choose from. On the other hand we are agreeing to mergers that will shrink the number of suppliers and hamper competition. That these two courses contradict one another apparently has yet to occur to our politicians. For them the attitude seems to be, “Full speed ahead and damn the consequences”.

To date no state legislature or state or federal regulatory commission has rejected a merger application. This year the Minnesota legislature refused even to hold hearings on the potential impact of the proposed NSP/WEC merger.

Newspapers put merger stories in their financial pages. Reporters call up financial brokers for predictions about how the mergers will affect bond ratings and stock prices. No newspaper has offered its readers a critical scrutiny about the impact of mergers on Main Street rather than Wall Street.

It is possible that in a few years we will have the worst of two worlds: a deregulated electric industry dominated by a handful of energy conglomerates. 1990s, meet the 1920s.

Electric utilities have $300 billion in annual revenues. That is more than the telephone and airline industries combined. Electricity is not a convenience. It is a necessity. Industrial economies cannot survive without electricity. That is why 60 years ago we decided not to allow decisions about this vital sector to be the province of giant conglomerates and Wall Street financial firms.

In this dreary situation a few heroes exist. One is Irwin Popowsky, Vice President of the National Association of State Utility Consumer Advocates. In June Popowsky made the eminently reasonable request that federal regulators deny a merger unless the companies show an “actual benefit” to consumers. Other experts have urged the federal government to use an anti-trust framework when evaluating utility mergers.

In Wisconsin, the state’s smallest investor owned utility, the Madison Gas and Electric Company is leading the way. MG&E has spent $1 million to fight the NSP/WEC merger.

In most states utilities have enticed legislatures and regulatory commissions to support their petitions by promising to freeze or slightly reduce energy rates for a few years. The old Republican and Democratic Parties of Teddy and Franklin Roosevelt would not have been bought off so easily. They understood the dangers of concentrated power not only to the economy but to our democracy.

At recent political conventions the names of these two great Presidents still are bandied about. But the passion for democracy and the courage to speak truth to power that drove the two Roosevelts has long since been extinguished in their political descendants.

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David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.