Mergers May Bring Services For Home in Single Package
All it the debut of one-stop griping.
Consumers exasperated with their local utilities and other home services - including telephone and cable TV - might soon be able to fire all their complaints at a single target.
Deregulation of the gas and electricity industries is sparking mergers between utilities and companies in other sectors eager to expand their customer base and cut billing, marketing, and other costs. Before long, a typical consumer might peruse a single monthly bill itemizing charges for water, gas, electricity, telephone, cable TV, and home security services.
It is hoped the mergers and stepped-up competition under deregulation will help cut both the number of service snafus and the total average bill. For instance, price wars among electricity producers could reduce costs for the average household by 10 percent or more, industry analysts say.
Electricity, gas, and water utilities across the country have announced 20 mergers in the past 18 months, according to A.G. Edwards & Sons, a brokerage house based in St. Louis.
"There'll be more of these mergers if the same forces of deregulation keep going on," says Eugene Abraham, chief executive officer at Sargent & Lundy, an engineering firm in Chicago.
"Electric utilities especially want to gain customers and secure their own customer base in preparation for deregulation," says Tim Winter, a securities analyst at A.G. Edwards. Many companies are girding for the loss of their monopoly by merging with firms in the same industry or by staging cross-industry tie ups: electricity with gas or electricity with water.
This week Long Island Lighting Company (Lilco) and Brooklyn Union Gas Company announced a merger through a $3 billion stock swap. Brooklyn Union brings to the match 1.1 million customers in three of New York City's outer boroughs. Lilco's 1.1 million electricity customers are on Long Island. The combination would yield total revenue of $4.5 billion.
In another recent variation, NIPSCO Industries Inc., a provider of gas and electricity to Northwest Indiana, announced a merger with IWC Resources Corp. (IWCR), whose largest subsidiary provides water to some 235,000 customers in the Indianapolis area.
IWCR "is located in one of the fastest-growing areas of the Midwest, and its management vision is consistent with [NIPSCO's] commitment to grow in utility and utility-related businesses," says Gary Neale, NIPSCO's chief executive officer.
The deal expands the customer base for both companies; NIPSCO serves 700,000 gas customers and 404,000 electricity customers. Also, executives reckon that consumers buying a big bundle of services from one company are less likely to switch to a competitor.
In one of the most spectacular marriages, Panenergy Corp. and Duke Power Company last month announced they would merge in a $7.7 billion swap of company stock to create a network selling electricity and gas nationwide. They are targeting states that have opened up, or intend to open up, the energy market to competition.
Most utilities seeking to expand beyond their traditional service area must overcome strong customer adherence to local utilities. Consumers are often reluctant to buy vital services like gas and electricity from a newcomer with an unfamiliar name or record.
"Especially with a product like natural gas or electricity, customers have come to trust their local utilities, and they balk at an unknown name coming into the territory," says Michael Heim, another A.G. Edwards analyst. With that in mind, Mobil and Chevron have sought to leverage their well known names by launching subsidiaries to market natural gas.
Some of the freshest opportunities for consolidation and mergers involve water utilities.
Of the 60,000 water systems in the United States, 80 percent are municipally run, just 17 are publicly traded, and the remainder are privately owned, says Tim Winter, an analyst at A.G. Edwards.
Many municipalities eager to curtail taxes and heed a call for budgetary austerity are either selling their water works outright or hiring water companies to run them. Also, many privately owned water works are small and thus readily sell out to larger, more efficient firms, analysts say.