• Twitter
Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors

Feature Article

The Takeout Menu Narrows

By Roger S. Conrad on Nov. 14, 2017

Mergers and acquisitions have figured prominently in the utility business since Thomas Edison threw the first switch. And industry consolidation will continue, regardless of trends in interest rates, the stock market, the economy, and politics.

(Click graph to enlarge.)
Utility Deals

Most of these tie-ups have created stronger companies. Even Ohio Edison’s acquisition of Centerior Energy Corp in the 1990s—a deal I dismissed as “mindless”—ultimately resulted in a utility that made a decent amount of money for its investors: FirstEnergy Corp (NYSE: FE).

Why do mergers and acquisitions in the utility sector usually create value for shareholders?

Corporate cultures don’t differ too dramatically, nor do job functions and equipment; the lessons learned at one utility often apply elsewhere.

These transactions also bring economies of scale that make companies partners with their vendors, not merely customers. Consider electric utilities’ growing dominance of the market for renewable energy, a trend that has transformed First Solar (NSDQ: FSLR), SunPower Corp (NSDQ: SPWR) and other components manufacturers from potential disruptors to facilitators of an important secular growth opportunity.

Superior economies of scale also reduce utilities’ costs, making it less expensive to add to rate base and convert system investment into earnings.

Nevertheless, mergers and acquisitions didn’t figure prominently in the panel discussions or my conversations with management teams at the Edison Electric Institute’s 2017 financial conference.

In fact, several executives went out of their way to emphasize that acquisitions weren’t their first priority when it comes to capital allocation. Representatives from one large utility denied any interest in purchasing SCANA Corp (NYSE: SCG), which trades at book value after abandoning the Summer nuclear power project.

Several factors explain the waning interest in mergers and acquisitions.

Keeping to Themselves

For one, management teams expect investments in their own regulated franchises to generate better returns. Utilities are replacing aging facilities on a massive scale for the first time in decades, with inexpensive natural gas and renewable energy adding to rate base and reducing operating costs.


Conrad's Utility Investor

Invest Smarter! Join Conrad’s Utility Investor!

What sets renowned income-investing expert Roger Conrad apart from the pretenders? His more than two decades of covering utility stocks and essential services—a wealth of knowledge and experience that you can’t find anywhere else.   

Smart investing. Taking advantage of real opportunities and not fads (and knowing the difference). Finding the companies and stocks that will deliver for the long haul, so investing lets you live instead of investing turning into your life. Roger Conrad has dedicated his career to these principles—and that’s what Conrad's Utility Investor delivers.

Subscribe today for instant access to a treasure trove of investment insight and knowledge, as well as Roger’s exclusive model Portfolios and ratings of more than 200 essential services.



Roger S. Conrad needs no introduction to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. Roger b