The current market favors further consolidation by energy utilities, but especially those on the electric side, a Duke Energy official said Tuesday in Washington, DC.
The consolidation rate in the energy industry is “pretty slow right now,” with about two or three transactions being considered, but it’s expected to pick up steam in the months ahead, said Doug Esamann, senior vice president of strategy and planning for Duke Energy, during the winter meetings of the National Association of Regulatory Utility Commissioners.
He declined to say whether Duke Energy had its eye on a particular marriage partner at the present time. “We always are looking” to acquire companies that would make “great partners for us,” he told NGI.
The Charlotte, NC-based energy company is coming off two years of merger and spin-off activity. In 2005 it acquired Cincinnati-based Cinergy Corp. for $9 billion in stock, incorporating the utility company’s 5.4 million gas and electric customers into Duke Energy (see Daily GPI, Dec. 16, 2005). And in early 2007 it spun off its natural gas businesses to a new company, Spectra Energy Co. (see Daily GPI, Jan. 3, 2007).
Esamann said a key attraction for Duke Energy when eying possible mergers is diversity — diversity of product and geography. He noted that the biggest risk associated with consolidations is that they “don’t produce the kind of cost savings” that were anticipated by the partners.
The electric utility industry currently is extremely capital-intensive and will become even more so in the future, according to Esamann. Citing a figure from Cambridge Energy Research Associates, he noted that investment in the electric utility sector is expected to increase by $800 billion over the next 15 years, which effectively is a doubling of the current level of investment in the sector.
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