Power Players

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But this regulatory uncertainty hasn't been enough to dampen M&A enthusiasm. Last month Britain's electric and gas utilities announced a merger that would create a national powerhouse with the cash to make its own push into the U.S. National Grid Group, the monopoly electric carrier in England and Wales, and Lattice Group, which owns a British gas network, will form a company worth $21 billion.

The Brits' intentions are clear. The two companies took pains to win the confidence of credit-rating agencies: Standard & Poor's, Moody's and Fitch all affirmed their A-rated debt. And in announcing the merger, National Grid CEO Roger Urwin said he plans to "deploy the combined resources and financial capacity of National Grid Transco [the merged company] to take advantage of opportunities in the liberalizing energy markets abroad, in particular extending National Grid's successful U.S. strategy." Half the company's profits already come from the U.S., thanks to three utilities it owns in the Northeast, including Niagara Mohawk, which National Grid bought in January.

All this attention might be just the thing to boost the sagging fortunes of U.S. energy companies. Without access to the capital markets, power producers canceled an estimated 33% of the power projects on the drawing board for this year, according to Platts, an energy-industry research service based in New York City. "You'll pretty much see the power-plant cycle stopping dead in its tracks," says John Olson, an energy-industry analyst at Sanders Morris Harris in Houston. Selling off some assets may strengthen the power companies' balance sheets, but it's still unclear whether this will be enough to stave off a power-capacity shortage in the next three or four years, when those canceled power plants would have been coming online. Analysts say the Northeast will be particularly vulnerable to price hikes and perhaps even California-style rolling blackouts.

In the meantime, cash-strapped U.S. firms are finding creative ways to meet the demand for power, securing cheaper sources of natural gas (the fuel for many power plants) in Canada and Mexico rather than financing new development domestically. U.S. firms spent more than $27 billion last year buying Canadian oil and gas companies, and the government of Mexico is considering 18 separate U.S. proposals to bring to the Baja peninsula liquefied-natural-gas terminals, which would receive shipments from all over the world and pipe gas to the U.S. European and U.S. energy firms have at least that in common: they know a good deal when they see one.