Determining the Efficacy of Consolidating Municipal Electric Utilities in Ontario, Canada

Description

Part of the TRSM Research Seminar Series

This presentation examines 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. It 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, data was compared 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.

The 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). The 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.

Presenter:

Dr. Phil Walsh is an Associate Professor, Entrepreneurship & Strategy at the Ted Rogers School of Management. He was formerly a Lecturer in Corporate Strategy and MBA Programme Director at the University of Surrey, U.K. Prior to joining academia in 2003, he was the Managing Director of a consultancy that provided strategic planning and policy services to major energy utilities, a number of governmental and municipal agencies, and various Canadian and British energy consuming organizations. Dr. Walsh is a Researcher with Ryerson’s Center for Urban Energy, a Fellow of the Ryerson Entrepreneurship Research Institute and a member of the Ryerson Institute for the Study of Corporate Social Responsibility. His research areas include innovation, sustainability and energy policy. He is a registered professional geoscientist in Ontario.