Rising cost pressures may ramp up utility mergers: Merrill Lynch

Knoxville, Tennessee (Platts)--6Mar2006

Rising cost pressures and "size envy" are two of several reasons Merrill
Lynch analysts believe that utility mergers and acquisitions will accelerate
this year, the firm said in a report released Monday.

     "We are hearing many US utilities openly discuss interest in corporate
M&A activity for the first time since the late 1990s," said analysts Steve
Fleishman, Jonathan Arnold and Elizabeth Parrella.

     The drivers for this trend, the analysts said, are "size envy" related
to recently announced deals; regional market scale and diversity; fuel scale
and diversity; rising cost pressures and interest in mitigating rate
increases; increased options under the repeal of the Public Utility Holding
Company Act; and a "more pragmatic" US Federal Energy Regulatory Commission.

     Merrill Lynch noted certain deals announced in the last 18 months,
including Exelon/Public Service Enterprise Group, Duke/Cinergy,
FPL/Constellation, and National Grid/KeySpan. The analysts said these
combinations of larger utilities, accomplished at generally low premiums,
likely will continue in future deals.

                 ---Stephanie Seay, stephanie_seay@platts.com

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