What I Have Learned From Exelon's Deal

NEW YORK (TheStreet) -- Listening to Exelon's (EXC) Pepco Holdings (POM) merger conference call, I kept thinking the future of the utility industry will increasingly be focused on the customer experience. For all intent and purposes, it really has to, and that's what makes this deal of particular interest.

Why? It highlights how technological advancement is causing utilities to consolidate in order to offset lower power consumption by consumers as a result of, drum roll please, energy efficiency. 

If energy efficiency is lowering the amount of power consumed by consumers, it only stands to reason that providers like Exelon need to evolve or, like many coal players, it  will be faced with a challenged future. 

For investors, the real utility winners will be the ones who embrace change. So for that reason I like the Pepco move by Exelon. That means rivals, such as Duke Energy (DUK), American Electric Power  (AEP) and Southern Co.  (SO), a company that just delayed by one year the much hyped $5.2 billion Kemper County, Mississippi, clean coal test thanks to rising costs, must follow Exelon's lead and hunt for value as a means to recover from the uppercut the Supreme Court hit them with by ruling to regulate air pollution from coal-buring power plants.

Keep in mind Exelon said its deal for Pepco was "opportunistic" and it sees a continued recovery in the power prices and overall power markets.

So does that mean that other utility players must now be even more proactive to acquire cheaper energy assets? I think the answer is yes, considering Exelon did pay a 24.7% premium for Pepco. Therefore, the hunt for value may foster social Darwinism, a survival of the fittest for utilities. Considering 25% of American's electric generation capacity comes from older coal plants that will be retired in the next two years, I'm expecting them to be most willing to move next and make acquisitions, which help achieve better energy efficiency and grid resiliency.

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