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. That’s sort of what’s happening, albeit on a far smaller scale, in a corner of the U.S. electricity market. NRG Energy, one of the nation’s 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 Connecticut’s 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 – who pay the highest electricity rates in the continental United States – without power for weeks. Subsequent independent investigations into the outages revealed multiple failures on the part of Northeast Utilities’ Connecticut Light & Power unit. NRG’s filing cites these findings in urging Connecticut to act.
NRG’s 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 group’s petition appears to give Governor Dannel Malloy an opportunity belatedly to reassert his administration’s role in ensuring the interests of Connecticut residents are safeguarded as part of any merger.
That said, NRG’s interests are not necessarily aligned with those of electricity users. Going back to the Wal-Mart-buys-Target analogy, NRG appears worried – as Pepsi or other suppliers would be in that example – that an even larger customer’s market dominance would give it huge purchasing power. In Northeast Utilities-NSTAR’s case, the combined company’s new heft could also enable it to generate more of its own power to compete with NRG’s five Connecticut facilities.
If the state does decide it made a mistake in waiving its rights to intervene, there’s a higher likelihood the merger will be derailed. Given the experience of Northeast Utilities’ captive customers this year, they might prefer the company doesn’t get even bigger – even if NRG’s motives for blocking the deal are entirely different from theirs.