A wave of merger and acquisition activity in the gas and electric utility industry is expected due to repealing the Public Utility Holding Company Act (PUHCA). Michigan needs the PSC to be given the authority to review these transactions, balance the interests of ratepayers against potential additional investment, and issue advisory comments.
Environmental Impacts
As global markets grapple with climate change’s effects, a shift in how companies like BKV Energy think about sustainability has occurred. They are now proactively discussing their role in the energy transition and examining how to reduce emissions or seize opportunities to deliver marketable solutions to the climate challenge.
Annemargaret Connolly counsels a wide range of multinational corporations and government entities on a broad spectrum of environmental compliance and liability issues in mergers and acquisitions, private equity investments, financing transactions, infrastructure projects, and corporate restructurings (Weil, Gotshal & Manges LLP). She also advises on disclosure issues in preparing financial statements and public securities filings and negotiates transaction-specific environmental insurance transactions.
In her work, she uses a multi-disciplinary approach involving environmental economics and climate change to quantify the sustainability impacts of mergers. She is a Weil’s Climate Change Practice Group member and a leader in its Environmental Practice.
According to Datasite, a global survey of 400 dealmakers found that environmental concerns drive capital allocation in M&A. The intersection between demand for returns and a focus on ESG factors causes the shift to a new type of M&A strategy.
Under China’s new Environmental Protection Law (EPL), companies that fail to assume legal responsibility for pollution control are subject to severe penalties. This policy encourages firms to adopt green production strategies and is considered an essential element of China’s environmental reform. It significantly affects the reduction of pollution costs, the improvement of corporate social responsibility performance, and green finance, all measured by the three CG, EP, and EC variables.
Health Impacts
The impact of power company mergers on consumers and the environment is multi-faceted. While it is impossible to say for sure, the unions will likely positively impact consumers by lowering energy costs and expanding access to renewable and clean sources of electricity. In addition, the mergers will create a harmony that could result in higher profits and lower operating expenses for the merged companies.
In terms of health care, it is also difficult to say. Reimbursement pressures, physician recruiting challenges, and the transition to new payment models have eroded revenues and lowered cash flow for many providers. In the long term, however, consolidation may be a wise move for healthcare providers that can harness the power of scale to improve operational efficiency and enhance quality outcomes.
A merger is not a magic bullet; it takes a concerted effort by regulators and other policymakers to ensure the deal is a win for consumers and the consolidated entities. One way to do this is by improving information transparency about mergers so that the public can assess the impact of such deals on healthcare costs and quality. Another is using tools such as rate review and the MLR to mitigate the effects of the big three on consumer price increases.
Economic Impacts
As with other industries, mergers in the power industry can be seen as a way to promote efficiencies and cost savings. However, these benefits tend to be heavily weighted in favor of shareholders rather than utility customers.
As a result, the impact of utility mergers can be difficult to assess, especially when a deal involves large, non-contiguous companies.
Utilities typically own the equipment to produce and deliver electricity and the infrastructure to bring it to customers’ homes or businesses. But due to a technological trend toward decentralized grid resources, many utilities are losing ground in competitive markets to more customer-friendly alternatives like rooftop solar and battery storage.
This leaves the utilities at a disadvantage to their competitors regarding revenue, and they must maximize value for investors. Regulators must work hard to counter this bottom-line motivation with their responsibility to the public interest. Otherwise, the interests of utility customers will remain secondary.
Despite promises of cost savings and efficiency, studies have found that mergers reduce efficiencies at the target companies, leaving customers with worse overall prices. This happens because the target company’s efficiencies are already below the baseline before the merger and continue to fall once the transaction is complete.
Fortunately, state regulators can play an essential role in shaping the outcome of utility mergers by evaluating deals using a public-benefit standard. This requires that unions provide substantial benefits to the public rather than just causing no harm. It also allows regulators to force dealmakers to offer customer-friendly concessions like rate freezes and credit toward energy-efficiency projects.
Social Impacts
A wave of mergers over the last decade has fundamentally reshaped the electric utility industry. As a result, utilities have service territories that span several states and serve millions of consumers. They claim gobbling up competitors delivers efficiencies and cost savings, but the truth is that these benefits are primarily confined to shareholders.
Despite these benefits, consumers must catch up in the power company mergers rush. A recent study found that most utility mergers feature considerable benefits for company shareholders but much smaller ones for customers.
As a result, consumer satisfaction has been hit hard by the wave of mega-mergers, especially in high-cost, low-service areas. In some cases, mergers have been accompanied by significant changes in local competition, which has a cascading effect on consumers’ energy bills.
In some states, regulators have taken the opportunity to change the game. For example, Massachusetts has retooled its rubric to evaluate whether a proposed deal will deliver substantial benefits rather than merely avoid harming customers.
The most important question is how to measure these mergers’ impact on consumers and the environment. In particular, the question is how these deals will impact environmental performance and social responsibility, particularly in green power, renewable energy, and climate change. The best answer to this is a mix of qualitative and quantitative analysis.
