Would someone please explain to me which way is up - and how to make a solid nickel of profits?

The entire world sometimes seems to be upside down. Maybe it is an Alice in Wonderland economy.

Here is the trigger to my perplexity. PPL announced it will pay $6.7 billion for E.On's utility business in the United States. What that means is picking up Louisville Gas and Electric and Kentucky Utilities - and 1.2 mllion customers. That should be a good thing. Taking control of our US assets away from foreigners - specifically Europeans that do not give us equal investment opportunities in their lands - is good.

But here is the deal. The PPL executives said the deal will not generate cost savings "which often drive corporate consolidations," reported the Wall Street Journal.

Existing management stays on. No staff cuts are anticipated.

Driving the deal? PPL's desire to get into new regions to "become a more formidable U.S. utility business," said the Journal.

If you read on to the jump page inside the paper buried on the bottom of page B4, you learn that PPL plans to finance the deal with a short-term $6.5 billion bridge loan and issue new stock and debt.

Growth is good, right? That is why we give our kids plenty of glasses of milk. But when you put A and B together, save no money and then have to issue stock and debt to pay for the matrimony - how does that make sense? The entire operation has to cover a debt burden that would not otherwise exist. Will rates have to go up? You can be sure that regulators are going to be asking why increase rates for a deal that generates no economies. Why does Joe the Plumber care if his utility is more "formidable?"

I had a chat with a knowledgeable industry source recently and he said there will be a rising tide of M&A for a simple reason. Most utilities' revenues - from industrial, commercial and residential customers - are off. Part is because of  the recession. Part is the result of a paradigm shift. Everyone is trying to use less energy. So utilities will try to turn to M&A to generate value there for investors.

But issuing more stock to pay for a deal - all things being equal - is dilutive. Assuming more debt, when there are no new antcipated revenue streams or savings - that is bad.

I refer you to a story in late February that appeared in the NY Times: FOR BUYOUT KINGPINS, THE TXU UTILITY DEAL GETS TRICKY. Why? The big boys in that $48 billion 2007 buyout - the hugest private equity deal - gambled to a large extent on the price of natural gas - and lost. Now they face a $20 billion balloon payment in four years.

Someone please explain to me how the guys at Energy Future Holdings - the "winners" in the TXU sweepstakes - are willing to inflate such a large balloon and not be trembling about the noise it will make when it goes pop. Or why PPL is enamored of a deal that creates no savings - but burdens to come.

Are they - like others - betting they are becoming too big to fail? Or, like our society's run-away debt train - are they willing to let others down the road sort out the mess when things get derailed?  

Or, maybe I am missing something, and bigger will be better as the energy industry tackles an unknown future?

Why do I keep getting the notion that some kids in a garage will define our energy future and lumbering dinosaurs have to do much more than scramble to the alter if they intend to remain in the game.

Footnote: PPL is acquiring coal-powered generation plants in the deal. Coal plants - you know - the kind that no one wants to build these days.

Intriguing.