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Determining the efficacy of consolidating municipal electric utilities in Ontario, Canada

Determining the efficacy of consolidating municipal electric utilities in Ontario, Canada This paper aims to examine empirically if the encouragement by government policy of merger and acquisition activity involving municipal and provincially owned electricity distribution utilities (LDCs) in the Province of Ontario has had positive effects in terms of value creation, operating performance and economies of scale.Design/methodology/approachIt was anticipated that with LDC consolidation, there will be increased operational efficiency and improvement in the cost-effectiveness of the merged electrical utility. Using matched pairs dependent t-testing and Wilcoxon signed-rank testing, the authors compared data for three years before and after the merger or acquisition of 16 municipal utilities (616 total observations) to determine if there were any statistically significant changes (positive or negative) in measures of financial, operational and service efficiency.FindingsThe findings indicate statistically significant increases in debt as a percentage of shareholder equity in post-merger/acquisition utilities and consequently leveraged higher returns on equity. However, there were no statistically significant changes in financial, operational or service efficiency measures (with the exception of decreased efficiency in telephone response).Research limitations/implicationsA total of 16 mergers or acquisitions were reviewed involving 32 of 79 LDCs, with the research implications pointing to a need for existing policy to be reviewed to determine whether a more detailed examination is required by the provincial energy regulator, including a closer examination of managerial motives, before approving mergers between municipal electricity distributors. This research involves only a quantitative approach and further research would examine these transactions using qualitative measures for a deeper examination as to managerial motives.Practical implicationsThe results suggest that the mergers or acquisitions to date have served only to increase shareholder risk without improvement in other financial, operational or service efficiencies, a contradiction to the rationale behind the Province’s merger policy.Social implicationsThe consolidation policy for Ontario LDCs has not resulted in any statistically significant improvement in electricity rates or service for consumers.Originality/valueThis paper is the first examination of the effects of Ontario’s LDC consolidation policy in terms of specific financial, operational and service efficiency measures. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Energy Sector Management Emerald Publishing

Determining the efficacy of consolidating municipal electric utilities in Ontario, Canada

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References (58)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1750-6220
DOI
10.1108/ijesm-07-2018-0017
Publisher site
See Article on Publisher Site

Abstract

This paper aims to examine empirically if the encouragement by government policy of merger and acquisition activity involving municipal and provincially owned electricity distribution utilities (LDCs) in the Province of Ontario has had positive effects in terms of value creation, operating performance and economies of scale.Design/methodology/approachIt was anticipated that with LDC consolidation, there will be increased operational efficiency and improvement in the cost-effectiveness of the merged electrical utility. Using matched pairs dependent t-testing and Wilcoxon signed-rank testing, the authors compared data for three years before and after the merger or acquisition of 16 municipal utilities (616 total observations) to determine if there were any statistically significant changes (positive or negative) in measures of financial, operational and service efficiency.FindingsThe findings indicate statistically significant increases in debt as a percentage of shareholder equity in post-merger/acquisition utilities and consequently leveraged higher returns on equity. However, there were no statistically significant changes in financial, operational or service efficiency measures (with the exception of decreased efficiency in telephone response).Research limitations/implicationsA total of 16 mergers or acquisitions were reviewed involving 32 of 79 LDCs, with the research implications pointing to a need for existing policy to be reviewed to determine whether a more detailed examination is required by the provincial energy regulator, including a closer examination of managerial motives, before approving mergers between municipal electricity distributors. This research involves only a quantitative approach and further research would examine these transactions using qualitative measures for a deeper examination as to managerial motives.Practical implicationsThe results suggest that the mergers or acquisitions to date have served only to increase shareholder risk without improvement in other financial, operational or service efficiencies, a contradiction to the rationale behind the Province’s merger policy.Social implicationsThe consolidation policy for Ontario LDCs has not resulted in any statistically significant improvement in electricity rates or service for consumers.Originality/valueThis paper is the first examination of the effects of Ontario’s LDC consolidation policy in terms of specific financial, operational and service efficiency measures.

Journal

International Journal of Energy Sector Management – Emerald Publishing

Published: May 15, 2019

Keywords: Restructuring; Energy sector; Distribution; Cost comparison; Correlation analysis; Strategy; Inferential statistics; Electricity

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