Oct. 23-- Oct. 23--A potential $67 billion merger of Avangrid with Pennsylvania-based PPL Corp. could shore up earnings at Central Maine Power's domestic parent company, but run the risk of shortchanging Maine customers, analysts and utility experts said Wednesday.
It also could give more oxygen to a pending push for public power in Maine.
The merger talks were first reported this month by the Financial Times, citing sources close to the discussions, but neither company has confirmed the news. If both companies combined all of their operations, it would create one of the largest energy companies in the United States and further consolidate utility ownership in New England and the mid-Atlantic.
The impact on Iberdrola, Avangrid's parent company in Spain, is unknown. The Financial Times report said it was unclear whether a potential deal would include investment from Iberdrola, which owns about 80 percent of Avangrid.
"We do not comment on rumors or speculation," Zsoka Mcdonald, Avangrid's vice president for corporate communications, said Wednesday. Ryan Hill, director of corporate communications for PPL, also declined comment.
Any merger would be of great interest in Maine. CMP is the subject of ongoing investigations at the Public Utilities Commission over the rates it charges as well as accusations of faulty billing practices, following the rollout of new billing software that coincided with widespread power outages following a violent storm in October of 2017. About 97,000 customers received bills that were much higher than normal in the immediate months following the launch. A Press Herald investigation found that CMP mismanaged the rollout and misled the public, a controversy that continues to dog the utility.
CMP's website, a sore point for customers during the 2017 outage, again failed to provide accurate information in the wake of last week's powerful storm.
CMP also is pursuing a $1 billion project to build a transmission line through western Maine to bring hydroelectric power from Quebec to Massachusetts. It has drawn opposition from many communities on its route and currently is the target of a petition drive to force a citizens initiative to block the project.
In July, Avangrid adjusted its earnings outlook downward, citing lower production from its onshore wind farms and costs associated with recent storms.
In a report for investors last week, analysts in the United States and the United Kingdom, where PPL also does business, said the deal could be a "merger of equals," rather than a clear acquisition by one party. They said it also could temper likely reductions in Avangrid's long-term earnings growth.
Earnings have been impacted by delays at the Vineyard Wind offshore project in Massachusetts, in which Avangrid Renewables is a major partner, and rate cases in New York and Maine and transmission permitting, they said.
"We see this as a bit of defensive move, given the shifting (earnings per share) guidance and pending succession plans," wrote Julien Domoulin-Smith, a research analyst at Bank of America Merrill Lynch and Harry Wyburd, an analyst at Merrill Lynch International.
Beyond the earnings pressures on Avangrid, Domoulin-Smith and Wyburd also said the merger could address succession issues at both companies, where top management has shifted titles or announced transitions.
"Bottom line:" they concluded, "the social issues in transition would appear to prove amenable to a possible deal."
WHO IS PPL?
PPL Corp. is headquartered in Allentown, Pennsylvania, and is the parent company to seven regulated utility companies in the U.K., Pennsylvania, Kentucky, Virginia and Tennessee. It also delivers natural gas and generates electricity in Kentucky. A subsidiary, Safari Energy LLC, provides solar power solutions to commercial customers.
PPL Corp. is set to release consolidated third-quarter 2019 earnings results on Nov. 5. It is on track to record earnings of nearly $8 billion this year. Avangrid, meanwhile, is expected to report revenues of $6.4 billion.
In recent filings, PPL said it plans to invest about $15 billion in infrastructure over the next five years to build a more secure, cleaner energy grid. The company employs about 12,500 people globally.
In Maine, Avangrid and CMP have pledged to spend $29 million over the next two years to harden its distribution system against more-powerful storms, a proposal currently under review at the PUC.
Avangrid is itself a product of mergers that swept up CMP, beginning in 1999, when the Maine utility became part of New York-based Energy East. In 2008, Iberdrola S.A. of Spain purchased Energy East. In 2015, Iberdrola merged with UIL Holdings Corp. in Connecticut to become Avangrid. Ibedrola remains Avangrid's lead shareholder. Avangrid employs about 6,500 people.
Any merger of Avangrid and PPL would need approvals by agencies that include state regulators in the United States and the Office of Gas and Electricity Markets in Great Britain. In Maine, recently amended language in the the PUC's statute clarifies that any acquisitions above a certain size must benefit ratepayers, not just do them no harm.
That test should focus on the basics, according to David Littell, a former PUC commissioner who now works as an energy and environmental attorney in Portland. CMP had enjoyed a good rate of return, but its compensation now is being scrutinized in light of performance questions surrounding the rollout of its SmartCare billing system.
"From my perspective," Littell said, "they need to do well on their core electricity utility business to deserve those high returns they got when they were letting their basic utility functions slip."
Consideration of a merger by state regulators, Littell said, would give Maine an opportunity to push for better service and more local resources, as a condition of approval.
"As companies get bigger," he said, "they are more focused on billion-dollar-plus items that move stock prices."
But size and financial resources also can be beneficial, according to Tony Buxton, a Portland lawyer who represents large businesses in energy matters. The trend to shift heating and transportation from petroleum to electricity to fight climate change will require investments in the electric grid, he said.
"The question," he said, "is what kind of utility structure will make that happen?"
That decision should lead regulators to take a comprehensive overview of Maine's future economy and customer needs, and which structure would best serve it, according to Scott Hempling, a lawyer in Silver Springs, Maryland.
Hempling has been involved with dozens of utility mergers and is writing a book on the topic.
"These companies are monopolies but they don't have to be," he said. "Today, there are options."
One option is the consumer-owned utility model being pushed by some of CMP's adversaries. A bill promoting a Maine Power Delivery Authority was held over last spring in the Legislature for study, but is expected to re-emerge next year.
Buxton said news of merger talks could increase interest in public power and how Maine utilities should be owned and structured. But Hempling noted that he has seen both good and bad investor-owned and publicly chartered utilities, and suggested Maine move cautiously.
"Be careful not to lurch from one type of solution to another," he said. "This is no time for ideology. Both have their pros and cons."
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