Overview

The recently announced acquisitions of Energy Plus Holdings, LLC by NRG Energy, Inc. and of Fulcrum Retail Holdings LLC by Just Energy (U.S.) Corp. reflect a continuation in the consolidation of the retail electric power market that has been gaining momentum over the past couple of years.  As public utilities and large independent retail suppliers continue to seek ways to expand their retail customer bases, and smaller independent providers seek capital and other resources for continued growth, this consolidation is expected to continue.

How Did We Get Here?

As a result of deregulation in the mid-1990s, individual states began opening their retail electricity markets to competition giving rise to the creation of independent retail energy providers, which in turn allowed consumers to choose their energy supplier.  The level of deregulation varies from state to state, with Texas and states in the northeastern United States providing the highest level of deregulation and market penetration and many states remaining regulated.

The competition created by deregulation led to a boom of independent retail providers of varying sizes, many with limited capital for growth.  In addition, regulated power producers lost customer base as retail (as well as commercial) customers could easily, and frequently, change their providers.  After many years of growing numbers of retail energy providers, we are in the midst of a consolidation that is expected to accelerate as some regulated utilities seek to expand their retail customer base and larger independent retail energy providers seek to increase market coverage. With over 100 retail energy providers operating in the deregulated markets, there is substantial opportunity for the consolidation to continue.

Recent Transactions

In addition to the two recent transactions mentioned above, a number of other notable transactions in the retail energy market have occurred over the past couple of years.  NRG’s recent acquisition of Energy Plus followed its 2009 acquisition of the retail power marketing business of Reliant Energy and its 2010 acquisition of Green Mountain Energy.  Earlier this year, Direct Energy acquired Gateway Energy, a retail and small commercial customer provider focused in the northeast, Constellation Energy completed its acquisitions of MXenergy and StarTex Power, thereby more than doubling its residential customer base, and Interstate Gas Supply acquired Accent Energy. 

M&A Outlook

The consolidation in the retail energy provider market is expected to continue, particularly in Texas and the northeastern U.S.  Certain power generators are expected to continue efforts to expand and strengthen their retail platforms through acquisitions to more effectively leverage their generation assets and compete with other power generators and the larger independent retail providers.  The most attractive acquisition targets will be those that, in addition to providing scale and an expanded footprint, will offer power generators with the ability to differentiate their product offering and expand their sales of power and energy services.

Independent retail providers will also play an integral role in the consolidation.  Like the power generators, the larger independents will continue their efforts to expand their footprint and product offerings to be able to effectively compete.  As competition increases, the need for capital will force the smaller independents to seek partners to help finance their efforts.

The views expressed in this article are those of the writers.