Electric utility mergers and acquisitions (M&As) are forged in the boardroom and fueled by Wall Street. But their success or failure is determined at power plants and depends largely on whether plant managers embrace or resist the inevitable changes that a merger or acquisition produces.
With activity heating up in the industry, utilities large and small are considering jumping on the M&A bandwagon to achieve one or more of the following business objectives:
- Mitigating risk. Expanding its customer base and diversifying and growing its generation portfolio help immunize a company against becoming too small to compete.
- Surviving. As in a game of musical chairs, no utility wants to be the last one standing when the M&A music stops. That's why even some smaller, cash-strapped companies are actively seeking a suitable suitor.
- Achieving economies of scale. Reducing costs by leveraging core capabilities across a larger generation fleet is the most common utility M&A objective.
Wall Street analysts expect that America's 65 remaining investor-owned utilities will combine into five to 20 large companies over the next five to 10 years, much as integrated oil companies have consolidated to form five "majors." This will represent the acceleration of an existing trend; according to the Edison Electric Institute (EEI), the U.S. had 98 shareholder-owned electric utilities on December 31, 1995.
Merger mania augurs profound changes and high anxiety for plant managers. If their company merges or is acquired, they will have to adopt new ideas and new approaches for increasing profits. All of the business processes that they have fine-tuned over the years to make production, procurement, and administrative systems run like clockwork will be scrutinized from a new perspective: their compatibility with the new company's business model and operating practices.
As next-generation utilities define and implement new strategies for maximizing efficiency, reducing costs, and wringing every available dollar from their bigger fleets, some "tried and true" processes will be phased out. Many plant managers won't have time to lament the losses, however, because they will be busy accepting a corporate vision whose elements may run counter to beliefs, practices, and accepted wisdom that served them well in the past. Some managers may equate this imposition of a new culture with a loss of their status, power, and esteem—although that is never the intent.
In reality, changes brought on by utility M&As create as many opportunities as challenges for plant managers. Their expertise and skill—while remaining key ingredients in the recipe for a profitable plant operation—now will also be valued as drivers of the merger's, and the new firm's, success.
Plant managers are in a unique position to lead the way in implementing innovative new business practices—enterprisewide asset optimization, integrated supply chain optimization, and business process outsourcing, to name just a few. By doing so, they will encourage all plant employees to buy in to the marriage. Realizing the importance of this new role of plant managers, top management of the new company would be wise to lavish on them a full suite of new resources and benefits, to facilitate getting the job done.
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