Power companies seek US acquisitions

THE UK'S largest power companies are lining up to get into the US, confident they can overcome obstacles that have thwarted their attempts to buy utilities there so far.

Veterans of deregulation at home, the UK utilities think they can put their knowledge to profitable use in a US market that is just opening up to competition. In the most publicised transaction, British Energy and Peco Energy of Philadelphia said in July they would buy the one working reactor at the Three Mile Island plant, scene in 1979 of the worst nuclear accident in US history.

At $100m (pounds 61m) analysts say Three Mile Island is a great buy for the two partners. Still, that a foreign company would want such a notorious asset is an indication of how attractive the US electricity market, the biggest in the world, has become to UK utilities whose growth prospects are limited at home.

"It's an enormous opportunity. . . This is a market that has been fossilised for 50 years and is at the early stages of being opened up to proper competition," said Peter Atherton, an analyst at Dresdner Kleinwort Benson.

The UK push into America faces enormous risks and formidable obstacles. To succeed, British companies must be prepared to outbid well-heeled US rivals and deal with regulators who so far have prevented foreign control of American utilities.

While they have had some success buying assets such as power plants, UK companies have been frustrated in their efforts to merge with or acquire US utilities.

After more than three months of negotiations, merger talks collapsed last week between PowerGen, which generates 19.5 per cent of the power used in England and Wales, and Houston Industries, one of the biggest utilities in Texas. Together, the two companies would have had a market value of more than $16bn.

Earlier this year, Scottish Power abandoned efforts to buy Florida Progress, an electric utility, in what would have been a more than $4bn acquisition. Yet both Scottish Power and PowerGen say they won't give up on finding US acquisitions or merger partners.

"We continue to talk to a number of people," said Peter Hickson, PowerGen finance director. "We're very enthusiastic about the US."

UK companies, which want to become global competitors, cannot ignore emerging opportunities to grab a piece of $230bn in annual US power sales. Driven by the prospect of lower electricity prices, 16 states

are preparing to eliminate utility monopolies over the next few years and let new players vie for customers. The entire market is expected to open in the next decade.

Five of the biggest power companies in the UK have said they are planning to buy or merge with US utilities, or acquire multimillion-dollar assets such as power plants and transmission lines.

Entering a foreign market is full of pitfalls, as US companies know from their own experiences in Britain. American power companies have acquired eight UK utilities over the last three years, but they have not earned nearly as much as they expected on the other side of the Atlantic.

UK companies can expect similar problems with regulation in the US, where state officials often view utilities as public trusts run on behalf of local customers rather than profit-making enterprises entitled to global aspirations.

"There are 56,000 people involved in electricity regulation in the US. The regulatory burden should be in no way underestimated," said Mike Bottomley, group manager of KPMG's global utilities team.

US regulators can delay acquisitions for two years or more, increasing the risk that a bid will fail or giving competitors time to come up with rival offers. State regulators often demand big rate cuts for consumers before approving acquisitions, biting into returns.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes
Independent writers remember their Saturday jobs:

Independent writers remember their Saturday jobs

"I have never regarded anything I have done in "the media" as a proper job"
Lyricist Richard Thomas shares his 11-step recipe for creating a hit West End musical

11-step recipe for creating a West End hit

Richard Thomas, the lyricist behind the Jerry Springer and Anna Nicole Smith operas, explains how Bob Dylan, 'Breaking Bad' and even Noam Chomsky inspired his songbook for the new musical 'Made in Dagenham'
Tonke Dragt's The Letter for the King has finally been translated into English ... 50 years on

Buried treasure: The Letter for the King

The coming-of-age tale about a boy and his mission to save a mythical kingdom has sold a million copies since it was written by an eccentric Dutchwoman in 1962. Yet until last year, no one had read it in English
Can instilling a sense of entrepreneurship in pupils have a positive effect on their learning?

The school that means business

Richard Garner heads to Lancashire, where developing the 'dragons' of the future is also helping one community academy to achieve its educational goals
10 best tablets

The world in your pocket: 10 best tablets

They’re thin, they’re light, you can use them for work on the move or keeping entertained
Lutz Pfannenstiel: The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents

Lutz Pfannenstiel interview

The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents
Pete Jenson: Popular Jürgen Klopp can reignite Borussia Dortmund’s season with visit to Bayern Munich

Pete Jenson's a Different League

Popular Klopp can reignite Dortmund’s season with visit to Bayern
John Cantlie video proves that Isis expects victory in Kobani

Cantlie video proves that Isis expects victory in Kobani

The use of the British hostage demonstrates once again the militants' skill and originality in conducting a propaganda war, says Patrick Cockburn
The killer instinct: The man who helps students spot potential murderers

The killer instinct

Phil Chalmers travels the US warning students how to spot possible future murderers, but can his contentious methods really stop the bloodshed?
Clothing the gap: A new exhibition celebrates women who stood apart from the fashion herd

Clothing the gap

A new exhibition celebrates women who stood apart from the fashion herd
Fall of the Berlin Wall: Goodbye to all that - the lost world beyond the Iron Curtain

The Fall of the Berlin Wall

Goodbye to all that - the lost world beyond the Iron Curtain