Bloomberg News

Utility Mergers to Continue as Costs Rise, Dominion Says

June 14, 2011

(Updates with additional comments from CEO starting in third paragraph, share price in last paragraph.)

June 14 (Bloomberg) -- U.S. utility mergers will continue as electricity companies seek to share costs of building new plants, Dominion Resources Inc. Chief Executive Officer Thomas Farrell said.

The fragmented industry would benefit from mergers that would lead to fewer and larger companies that can take on big spending projects, Farrell said in an interview today at an Edison Electric Institute meeting in Colorado Springs, Colorado. Farrell declined to comment on merger-and-acquisition opportunities for Dominion.

Two U.S. utility acquisitions rank among the top 10 transactions this year by total announced value, according to Bloomberg data. Duke Energy Corp. said on Jan. 10 it would buy Progress Energy Inc. for $13.7 billion, forming the largest U.S. utility. Exelon Corp. agreed to buy Constellation Energy Group Inc. for about $7.9 billion in April.

“They are difficult to make work, but I think an economist would tell you that they would make sense,” Farrell said, referring to takeovers.

Regulators have become more amendable to mergers and acquisitions as they have come to recognize utilities need to make large capital investments, he said. Additionally, some states have grown more receptive to allowing companies to raise rates to pay for power plants while they are being built, according to Farrell.

“It’s just better for everybody” to share the costs of large construction projects, he said. “It keeps the debt costs down and ultimately that is of a large benefit to the customers.”

Dominion is focusing its four-year growth plan “almost entirely” on its regulated power and natural-gas businesses, Farrell said. The company, based in Richmond, Virginia, serves energy customers in 15 states.

The shares fell 0.3 percent to $47.69 in New York Stock Exchange composite trading.

--Editors: Jessica Resnick-Ault, Ryan Woo.

To contact the reporter on this story: Mark Chediak in Colorado Springs at mchediak@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.


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