Utilities Thankful for Mergers

In the meantime, Karl Miller is pointing to the recent utility transactions as evidence that "there is a place for private equity to participate in the regulated power and gas sector." But Miller's own private equity firm, MMC Energy, is far more interested in the unregulated assets that are gathering dust on utility shelves.

"There are still 200,000 megawatts of substantially untouched distressed merchant power generation in North America, which requires significant capital and management by a seasoned operations and risk-control team," Miller said, adding that his own firm is "focused on this significant problem."

Bargain Bin

To be sure, debt-laden utilities have plenty of power plants to sell. They just can't ask very much for them.

Take Duke Energy (DUK Quote), for example. After sinking $8 billion into merchant energy plants, the company says it is now being offered "20 cents on the dollar for state-of-the-art facilities." The company must, therefore, sell the plants at a steep loss or hold onto them -- and lose money -- as it waits for demand to pick up and absorb the current glut of capacity.

But some of the industry's own players see no recovery in sight. Fleishman recently noted that two separate utilities -- International Power (IPR Quote) and Williams (WMB Quote) -- have hinted at a long road ahead. International, which owns power plants in both New England and Texas, could in fact walk away from some of its plants before a recovery even nears.

"If that occurred," Fleishman wrote, "this would be the first instance of which we are aware of relatively new, efficient gas combined-cycle plants being mothballed in this region."

Waiting for a recovery could be even tougher. Just 10 days after International slashed its 2004 guidance -- blaming the 35% shortfall on weak merchant profits -- Williams came forward and predicted that power markets could remain depressed for the next five to 10 years. Some on Wall Street were clearly struck by that forecast.