Mergers & Acquisitions, Consolidations & Divestitures
Driven by deregulation and competition, mergers and divestitures are becoming common place in today’s utility industry. Whatever the reason and however large or small the acquisition, divestiture or merger, the procedure is complicated and time-consuming. EES Consulting has assisted many clients over the past few years in considering options, evaluating strategies and completing transactions.
Once a decision has been made that involves changing the strategic path of the utility, it is necessary to look at an economic comparison of the proposed options to ensure financial feasibility or determine potential savings. It is possible that financing for a new venture might need to be arranged. This could be accomplished in several ways. EES Consulting’s economic analyses are adept at forecasting and financial modeling and can assist in the examination of various scenarios.
Once a thorough assessment of the utility’s current situation and future plans has been made, negotiation with any proposed partners in the transaction must proceed. EES Consulting has experience in contract negotiations that will result in the most advantageous transition for the client.
City of Centralia and Lewis County PUD
EES Consulting was retained by the Centralia City Light Department (Centralia) and PUD No. 1 of Lewis County PUD (PUD) to assess the initial feasibility of a combined utility. This work was undertaken to determine if a combined utility would yield savings in costs which could be used to benefit electric customers. Because of the proximity of the two utilities, the efficiency of a combined operation was expected to create benefits. A financial proforma model was developed to look at the costs and sales for a combined utility as well as for each individual utility. The separate operations of the two utilities were compared to various options for a combined utility. Both the total utility costs as well as the expected rates for customers were examined. Because of the uncertainty of various factors, a scenario analysis was completed to look at the comparison under several different circumstances.
City of Shoreline
The City of Shoreline (City) has entered into a verbal Agreement with Seattle Public Utilities (SPU) to purchase SPU’s water facilities inside the City boundaries in the year 2020. Currently water service is provided to City residents directly by SPU. The acquisition will allow the City to operate the water utility on behalf of its residents.
Prior to finalizing the purchase agreement, the City conducted due diligence on the acquisition and put the issue up for a city-wide vote. As part of the due diligence, the City retained EES Consulting to provide three inter-related analyses. The first was an Engineering Review to assess the SPU assets that are included in the acquisition, develop operating costs and procedures for the new utility, and develop the short-term and long-term capital needs of the utility. The second piece was a long-term financial analysis to determine the projected revenues and costs associated with operating the water utility, along with the associated financial risks. The final component was the development of a Business Plan to address how the tasks and responsibilities required of the new water utility will be carried out. The vote of the residents resulted in 2/3 approval for proceeding with the acquisition.
