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More Credible Buyers than Sellers
in Retail Provider M&A Space

November 30, 2009

For about the last two months, there have been more credible buyers than credible sellers in the retail electric provider merger and acquisition space, Rob Potosky, Executive Vice President and Chief Legal Counsel for AEG Affiliated Energy Group, told Matters.

That's a reversal from most of the past year dating back to the credit market collapse of the fall of 2008, after which the only retailers for sale were distressed assets with few willing buyers, as potential buyers were most concerned with conserving cash.

Potosky reported that AEG, which is typically retained by potential sellers, is now being contacted more often by prospective buyers looking to get a sense of what books may really be for sale. As the capital markets have thawed, Potosky said that potential buyers are starting to loosen up and have concluded that the sky isn't falling, and that they can pursue judicious acquisitions without endangering their capital positions.

The sale of Reliant Energy's ERCOT operations to NRG Energy can be seen as a watershed event, Potosky said, because of the value NRG has obtained from what was a distressed sale. That has prompted other retailers to stay on their feet and look for opportunities to buy the right books, lest they be left behind.

Indeed, NRG has said that it remains interested in acquiring additional customer books, particularly to drive Reliant's residential customer growth (Only in Matters, 11/23/09). Just Energy continues to cite M&A potential during its earnings calls as well (Only in Matters, 11/9/09).

Turning to commercial and industrial sales, Potosky said that long-term contracting between retailers and customers has returned to about 60% of its pre-Lehman bankruptcy activity. Although large risk premiums are still embedded in contracts for certain credit-risk customers, even that is a change from the end of last year where retail providers generally would not even entertain such business and not even quote a premium-laden price. Retail providers, Potosky added, also seek to place more risk for various charges on end users though pass-throughs, to limit their hedging and collateral requirements.



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