Merger means uncertainty for Raleigh utility’s workers

The new company would be the nation's biggest utility, with 7.1 million customers.

Staff WriterJanuary 10, 2011 

  • Executives could reap millions in a potential Duke Energy-Progress Energy merger, according to estimates in Securities and Exchange Commission filings by the companies.

    Progress Energy CEO William Johnson would be eligible for the biggest sum, according to the filings. Johnson could receive about $22 million from severance, the vesting of stock awards and other payments if he loses his job following a "change-in-control." That includes a cash severance payment of $5.66 million, about three times his base annual salary and bonus.

    Other Progress executives who could benefit from severance, vesting of stock awards and other payments if they lose their jobs after a change in control are: Mark Mulhern ($5.7 million), Jeffrey Lyash ($7 million), Lloyd Yates ($7.3 million) and Paula Sims ($4.9 million).

    If the deal is considered a change in control for Duke Energy, CEO Jim Rogers wouldn't receive any severance payments but would benefit from the vesting of stock awards and options worth $3.9 million.

    Other Duke executives are also eligible for change-in-control payments if they lose their jobs: Lynn Good ($4.5 million), Marc Manly ($5.2 million) and Keith Trent ($4.5 million). These totals include severance, stock awards and more.

    Change in control payments are typically intended to compensate executives for doing deals that might be beneficial to shareholders even if it costs management their own jobs.

    Charlotte Observer Staff Writer Rick Rothacker

  • Based: Raleigh

    Top executive: CEO and Chairman William "Bill" Dean Johnson, 56

    Business: provides electricity to 3.1 million customers in Florida, North Carolina and South Carolina

    Employees: 11,000, including 5,600 in North Carolina

    2009 revenue: $9.89 billion

    2009 net income: $757 million

    History

    1908: Carolina Power & Light Co. formed in merger of three companies, Raleigh Electric, Central Carolina Power and Consumer Light & Power

    1952: CP&L merges with Tide Water Power to expand in southeastern part of state.

    1987: Opens Shearon Harris nuclear plant in southwestern Wake County

    2000: Buys Florida Progress to expand in Florida, changes name

    2002: CP&L name is phased out.

    2004: Builds new corporate headquarters in downtown Raleigh

    2005: Buys naming rights to Raleigh's performing arts center downtown, a 20-year deal worth about $5.5 million to the city

    2006: Announces plans to build two new nuclear reactors at Shearon Harris plant; declines to comment on reports surface that Atlanta-based utility Southern Co. is interested in a merger

    2007: Names Bill Johnson as CEO after former CEO Bob McGehee dies unexpectedly

    2011: In talks of an acquisition by Charlotte rival Duke Energy

    Duke Energy

    Based: Charlotte

    Top executive: Chairman and CEO James "Jim" Rogers, 63

    Business: provides electricity to 4 million customers in the Carolinas, Indiana, Kentucky and Ohio

    Employees: 18,500 including about 7,600 in North Carolina

    2009 revenue: $12.7 billion

    2009 net income: $1.1 billion

    History

    1904: Duke Power's founders begin making hydroelectric power on Catawba River in South Carolina.

    1963: Completion of the last of 11 reservoirs on the Catawba, Lake Norman

    1973: Startup of Duke's first nuclear power plant in Oconee County, S.C.

    1997: Duke and natural gas company PanEnergy merge, creating Duke Energy

    2006: Duke Energy and Cincinnati-based Cinergy merge, retaining Duke Energy name; Rogers named president and CEO.

    2007: Duke spins off its gas business to form Spectra Energy.

    2008: Regulators OK a 825-megawatt expansion of Rutherford County's Cliffside.

    Sources: The News & Observer and Charlotte Observer

  • $13.1 billion

    market value of Progress Energy, based on Friday's closing price

    $11.4 billion

    Progress Energy's debt

    $23.6 billion

    Duke Energy market value

    7.1 million

    number of customers for the combined company

    56,000 megawatts

    the power generation capacity of the combined company

  • The merger of Duke Energy and Progress Energy will have to be approved by state and federal energy regulators.

    At the state level, regulators will want assurance that the merger benefits customers and the state. The primary benefit would be a rate cut that would result from savings in operational costs.

    Federal regulators will be concerned about Duke's market dominance in wholesale electricity markets. Regulators want to prevent anti-competitive practices that would increase power costs or restrict open access to the regional transmission grid.

Duke Energy and Progress Energy are expected to announce this morning a merger that will put the headquarters of the combined North Carolina companies in Charlotte and make it the biggest utility in the nation, with 7.1 million customers.

The estimated $25 billion deal, in which Charlotte-based Duke would buy Raleigh-based Progress, was confirmed by three people with knowledge of the negotiations.

The result would be the loss of a Fortune 500 corporate headquarters for Raleigh and the potential loss of hundreds of employees locally, with a corresponding boost in prestige for Charlotte as the state's business capital.

Duke's all-stock purchase of the smaller Raleigh utility would offer a "modest premium" to Progress' share price, which closed Friday at $44.72.

The deal would leave Progress with a significant presence in Raleigh and accelerate Charlotte's efforts to build an energy hub in the region. The companies think they will gain state and federal regulators' approval by the end of the year and that the deal will result in "huge benefits for customers in terms of savings," one of the sources told The Charlotte Observer.

The combined company would be called Duke Energy, though it was not clear who would lead it. Duke CEO Jim Rogers and Progress CEO William Johnson started talking about a strategic combination in July, the source said. Barring any last-minute complications, the two will be in Charlotte today to announce the deal.

Neither Progress nor Duke officials would comment Sunday.

The deal would further expand Duke's transcontinental business footprint, which already extends from Argentina to New England. The combined power company would sell electricity in six states, including Florida, North Carolina, South Carolina and others in the Midwest. Wind energy farms, solar farms, hydroelectric projects and other energy interests give Duke a presence throughout the Western Hemisphere.

"It's a huge deal," said C. Dukes Scott, executive director of the S.C. Office of Regulatory staff, a state consumer advocate who said he didn't know about the negotiations. "The size - it'll be a huge company."

The combined company would have a market value of $36 billion, about the size of Exxon Mobil and three times as big as Cisco Systems.

The acquisition would spell the end of Progress Energy's 102-year run as an independent company.

The deal would require approval from shareholders and regulatory agencies, including the utility commissions in North Carolina and South Carolina.

Cheaper energy rates?

For electricity customers in North Carolina and in other states, the agreement would initially bring rate cuts as a condition of regulatory approval. A typical household pays $102 a month for electricity from Progress Energy but about $89 a month to Duke Power for the same amount of electricity.

Federal and state regulators would seek assurances that Duke's growing market dominance did not result in anti-competitive practices that drive up power costs for Duke's wholesale customers, especially neighboring power companies and municipal governments.

The N.C. Utilities Commission would review the merger to determine whether it promotes the interests of state residents, mainly through rate reductions from power purchase deals, power plant efficiencies and other cost benefits.

"It provides an opportunity for consumer advocates to get concessions that they might not otherwise be able to accomplish," said Edward Finley Jr., chairman of the North Carolina commission.

The companies are also expected to provide details today on how Progress would be incorporated into Duke's global empire, and which executives would run the company. The respective ages of the two current chief executives suggest that Duke CEO Rogers, 63, would be the presumptive head of the organization. Some analysts suggested that Progress CEO Johnson, 56, could be groomed to take over upon Rogers' retirement, but others expect top Progress executives to leave.

Wall Street analysts said the merger of the two companies makes sense, because either operating alone would have difficulty financing the construction of a nuclear reactor that's expected to cost at least $10 billion. The two North Carolina companies have applied for federal licenses to build a total of six reactors.

The industry is in the midst of a wave of consolidations, with eight mergers and acquisitions announced or completed last year.

Progress has been the subject of takeover speculation for years. Several years ago Progress was nearly acquired by Atlanta-based Southern Co., but those talks broke off at the 11th hour. Some of the same issues - the purchasing price and control of board seats and other management issues - could derail a Progress-Duke deal.

In 2007, Peter Scott, then-chief financial officer at Progress, told Wall Street analysts that a Duke-Progress marriage would be a good thing for customers.

Better for Duke

Analysts say that both companies could benefit from a merger, but it's less pressing for Progress. Still, Progress is not expected to see any significant growth until at least 2013, when the company plans to raise rates in North Carolina, South Carolina and Florida.

Progress also has more than $11 billion in debt, which Duke would assume.

Meanwhile, Duke is fighting a potential rate cut in Ohio resulting from falling energy prices. A rate cut in that state would significantly impair the company's earnings. In Indiana, Duke has experienced more than $500 million in cost overruns on a power plant using coal gasification technology.

As a regulated electric utility lacking far-flung subsidiaries, Progress would dilute Duke Energy's risks and uncertainties, said Macquarie Capital analyst Angie Storozynski in New York.

"Progress doesn't need this merger," she said. "Duke needs this way more than Progress does."

john.murawski@newsobserver.com or 919-829-8932

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