Since the passage of the Energy Policy Act of 1992, which opened the U.S. electric power industry to the start of competition, investor-owned electric utilities (IOUs) have been under pressure to cut costs, to become more efficient, and to expand their products and services. Mergers, acquisitions, asset divestitures, and other forms of corporate combinations have become widespread as IOUs seek to improve their positions in the increasingly competitive electric power industry.

Since 1992 IOUs have been involved in 26 mergers, and an additional 16 mergers are pending approval. One effect of these mergers is that the industry is becoming more concentrated. In 1992 the 10 largest IOUs owned 33 percent of total IOU-held generation capacity. By 1998 the 10 largest IOUs owned 39 percent. As more mergers are completed over the next few years, the 10 largest IOUs will own an estimated 51 percent of IOU-held generation capacity.

From the combinations that have taken place over the past few years, three trends have emerged: (1) an increase in the size of IOUs and the concentration of generation capacity within the IOU sector; (2) an expansion of IOUs, which once focused mainly on electricity production and delivery, into the natural gas industry (a trend that has been labeled “convergence” in the trade press and elsewhere); and (3) the move of many vertically integrated IOUs (i.e., utilities that own generation, transmission, and distribution assets) to exit the power generation business to become “wire” companies, enabling them to concentrate solely on operating their transmission and distribution systems.

This report presents data about corporate combinations involving IOUs in the United States, discusses corporate objectives for entering into such combinations, and assesses their cumulative effects on the structure of the industry.

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