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Electric and Telecom Cooperative Mergers

Mergers of electric cooperatives are nothing new.  Over the years, several mergers have occurred, mostly for the purpose of consolidating business functions and generating savings for members.  For example, currently DS&O Electric Cooperative and Rolling Hills Electric Cooperative, both located in Kansas, are considering a merger.  Such mergers often do not result in decreases in electric rates, because cooperatives typically already have long-term arrangements in place with their G&T or with third-party suppliers. Savings are most often achieved in the areas of human resources, IT, insurance, accounting, and legal fees.  On the basis of such savings, as demonstrated by extensive studies and a 10-year financial forecast, two cooperatives in Texas – Humboldt County REC and Midland Power Cooperative – recently decided to seek approval of merger from their members.   Of course any proposed merger must take into account complex issues such as tax considerations, regulatory issues, member relations, the effect on employees, management and the Boards of Directors, and financing and credit.

A different type of merger recently occurred, however, that has generated much interest.  In Indiana, Central Indiana Power (CIP), an electric cooperative, recently merged with Hancock Telephone, a rural telecommunications cooperative, to form a company now called NineStar Connect.

While contemplating a smart grid project involving installation of smart meters, CIP discovered that Hancock Telephone already had a fiberoptic network installed that connected to the homes of many of CIP’s members.  After discussions, Hancock Telephone saw an opportunity to expand its fiber network to additional CIP customers and add new subscribers for its broadband services.  The cooperative now operates with a telecommunications division and an electric division.  While this type of merger is not the first of its kind, it is the first that has drawn serious attention from those in the electric and telecommunications industries.

Electric cooperatives are already taking the lead in bringing broadband into rural areas.  For example, one of AHC’s clients, North Georgia Network Cooperative, is building a 1,000-mile fiber optic network in rural north Georgia and was created through a partnership that includes two Georgia electric cooperatives.  In geographic locations where electric cooperatives overlap with telephone cooperatives, mergers may well deserve consideration.  Such mergers will involve different considerations and advantages than the typical merger of two electric cooperatives.  For example, merging an electric cooperative with a telecommunications cooperative could accelerate smart grid buildout on the electric side, allow members to access more services while using a single technical support and billing contact, and give the telecom side a greater footprint (with easier access to pole attachments and rights-of-way) to build out its network and provide services.

While such mergers may be attractive, they present a new set of challenges as well.  The NineStar Connect merger required a change in state law because prior state law explicitly prohibited such a merger.  Regulatory barriers will have to be analyzed and considered.  Further, for most such mergers two very different company cultures from different industries would have to be integrated.  Under the right circumstances, however, such mergers may well result in business and technology synergies that would allow cooperatives to provide cutting-edge services to their members at affordable rates.