Duke CEO Sees M&A For All Independent Power Firms

PHOENIX (Reuters) – The remaining independent U.S. power producers will likely all be involved in some sort of merger or takeover activity in the next year and a half, the head of Duke Energy Corp told Reuters on Tuesday.

A hostile takeover attempt of NRG Energy Inc by Exelon Corp, and the purchase of Constellation Energy Group Inc by MidAmerican, has shaken up the industry’s view of so-called merchant power providers.

So analysts and executives now wonder who will be next in a sector that includes Mirant Corp, Dynegy Inc, Reliant Energy Inc and Calpine Corp.

While he did not name any specifically, Duke Chief Executive Jim Rogers said generally: “I think within 18 months you’ll see either consolidation or acquisition of all of them.”

“The case for consolidation in our industry is more compelling today than it’s been in my 20-year career as CEO because of what’s going on in capital markets, because of the economy we’re in and no growth,” he said in an interview on the sidelines of the annual EEI Financial Conference.

The huge cost of moving away from carbon-producing fuels only made a stronger case for power producers to be part of a company with regulated utility assets and a strong balance sheet, he said, drawing an analogy with what happened in the financial industry in the current crisis.

“You look at the consolidation in banks, and you look at the size of the utility companies compared to the utility companies in Europe — we don’t really have the size that we need in the capital markets that are evolving,” Rogers said.

Asked if Duke would do any of the buying, he said he liked the company’s mix of businesses. “There are certain scenarios where it might make sense. But we’re in a prolonged recession and we’re in uncharted waters in the financial markets.”

Exelon, the largest U.S. nuclear power company, launched a hostile bid for NRG on Tuesday, two days after the power producer rejected its $6 billion-plus offer. Rogers described the battle as like watching two friends fight in a bar.

But he felt it was hard to argue with the inherent logic behind such a combination given how tough it was at the moment for many in the power industry to get the capital they need.

“We grow based on deploying capital. Behind the government and financial institutions, we’re the third-largest user of capital in the United States,” he said. “So having access to capital on reasonable terms is key to our growth, it’s key to our future, and it’s key to maintaining our infrastructure.”

On another hot topic for his industry, Rogers said power conservation would have to be a key part of any government policy because it would drive economic growth in the future as cheap forms of energy become harder to find.

“Today, Japan and Denmark are the two most efficient countries in the world,” he said. “If you’ve got this growth in population, you’ve got this battle for scarce resources, the country that’s the most energy efficient has the greatest potential to grow the GDP per capita.”

By Braden Reddall

(Editing by Lincoln Feast)