Savvy NRG step may tip scale against utility deal
By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Imagine if Wal-Mart were to buy Target and PepsiCo tried to block the deal. Thatās sort of whatās happening, albeit on a far smaller scale, in a corner of the U.S. electricity market. NRG Energy, one of the nationās largest independent power producers, has filed a petition with regulators that could derail plans by $6.1 billion Northeast Utilities to buy $4.7 billion NSTAR and create the dominant utility in New England.
On Thursday, NRG requested that Connecticutās Public Utilities Regulatory Authority re-examine its right to intervene in the merger process. Earlier in the year, PURA decided it did not have jurisdiction to do so, leaving final approval to Massachusetts regulators.
That was before Hurricane Irene in August and a snowstorm over Halloween left millions of Nutmeg State residents ā who pay the highest electricity rates in the continental United States ā without power for weeks. Subsequent independent investigations into the outages revealed multiple failures on the part of Northeast Utilitiesā Connecticut Light & Power unit. NRGās filing cites these findings in urging Connecticut to act.
NRGās arguments are politically savvy, in that many state legislators on both sides of the aisle are united in their displeasure with Northeast Utilities. The power groupās petition appears to give Governor Dannel Malloy an opportunity belatedly to reassert his administrationās role in ensuring the interests of Connecticut residents are safeguarded as part of any merger.
That said, NRGās interests are not necessarily aligned with those of electricity users. Going back to the Wal-Mart-buys-Target analogy, NRG appears worried ā as Pepsi or other suppliers would be in that example ā that an even larger customerās market dominance would give it huge purchasing power. In Northeast Utilities-NSTARās case, the combined companyās new heft could also enable it to generate more of its own power to compete with NRGās five Connecticut facilities.
If the state does decide it made a mistake in waiving its rights to intervene, thereās a higher likelihood the merger will be derailed. Given the experience of Northeast Utilitiesā captive customers this year, they might prefer the company doesnāt get even bigger ā even if NRGās motives for blocking the deal are entirely different from theirs.