Survey sees utility merger, acquisition activity picking up

Survey sees utility merger, acquisition activity picking up

Washington (Platts)--11Apr2006

The gas and electric utility industry will have fewer, but larger,
companies 10 years from now, and they will address challenges such as
environmental concerns and finding new fuel sources if political and
regulatory factors are addressed, according to a report released Tuesday.

The report, by PricewaterhouseCoopers, is based on a survey of 116 senior
executives from utility companies in 43 countries, which shows that security
of supplies remains the primary concern, as it has over the last two years.
The 2006 edition marks the eighth year PricewaterhouseCoopers has issued the
report.

The firm says nearly two-thirds of the utility executives surveyed
believe the industry needs to adopt a 10-year focus on reducing environmental
damage, developing new technologies, improving customer service relationships
and finding new fuel sources. Policymakers also have work to do, however,
since 80% of respondents believe political and regulatory factors are
inhibiting the ability of the sector to respond to those challenges.

Merger and acquisition activity is at record levels, with the value of
utility deals reaching $196 billion in 2005 from the $123 billion in 2004, the
report said. In the future, "we can expect to see a future power and gas
utilities sector that is radically different from now. On the ownership and
sector structure front, we will see many fewer and much larger super-regional
generation and distribution companies, greater fusion of upstream and
downstream energy and a continued move of infrastructure entities into private
investment fund ownership," said Manfred Wiegand, global utilities leader at
PricewaterhouseCoopers.

The report says many within the industry believe the pace of change needs
to be stepped up to face important challenges, including renewable energy and
technology enhancements. For example, 42% said the sector is lagging behind in
the development of renewable energy sources.

Regulatory uncertainty continues to affect investment in the utility
sector and was cited as one of the top three concerns among the utilities
polled, PricewaterhouseCoopers said.

Meeting projected supply needs will require a global investment of $13
trillion by 2030 in power generation, transmission, distribution and
gas-supply infrastructure, said the report, citing figures from the
International Energy Agency's World Energy Outlook. But 42% of respondents
felt that government or regulatory policy restricts their ability to develop
long-term plans.

"Our report highlights yet again the need for the industry to work with
government and investors to make the infrastructure, technological,
environmental and investment leaps that need to happen to arrive at a
long-term sustainable solution," Wiegand said.

Many in the industry feel there is the very real prospect of "cap and
trade" emission control efforts being enacted around the world, the report
said.

Other highlights of the report include that coal ranks alongside gas as
the fuel expected to make the biggest contribution to meeting increased demand
in the next five years. Half of the respondents in the Americas and Europe and
44% of all respondents said they expect nuclear capacity to increase in their
region as a result of concerns about climate change.

Companies are increasingly looking to technological innovation to deliver
efficiencies and respond to the combination of increased demand and
environmental concerns, with distributed generation expected to play a large
role.

---Tom Tiernan, tom_tiernan@platts.com

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