The proposed merger between Duke Energy and Progress Energy just got more interesting.

State regulators who begin public hearings on the merger this morning have agreed to review the broad social costs of the $26 billion deal, including possible remedies for the hundreds of job losses the merger will bring.

The state's two biggest electric companies had argued that such concerns were out of bounds in a merger proceeding and should not be allowed for debate. The utilities plan to combine into the nation's largest electric utility, with 7.1 million customers in six states, and say it will result in greater financial stability and leaner operations.

Critics countered that it would be reckless not to consider the long-term consequences of the 2,000 job cuts the companies plan as part of their consolidation. North Carolina's jobless rate is above the national average, and the state's economy is still sputtering more than a year after the recession ended.

"This is too big of a decision, too big of an issue," said Stephen Smith, director of the Southern Alliance for Clean Energy, one of the groups challenging the merger. "When you couple the significant job loss with questionable benefit numbers, that's why you need a public hearing. Are there other potential downsides that haven't been accounted for?"

State law requires the N.C. Utilities Commission to review utility mergers and to make sure the public benefits outweigh the costs and risks.

The merger is widely expected to be approved, but the N.C. Utilities Commission has broad powers to impose conditions that could require the companies to hold down rates, contribute money to social programs, and promise greater strides in clean energy and pollution reductions.

The merger hearings, which could last all week in Raleigh, take place in the wake of last week's news that the state's jobless rate in August was 10.4 percent, the highest unemployment level in more than a year.

The merger also requires approval from the Federal Energy Regulatory Commission, which could require the sell-off of transmission systems and power plants if the merger is found to create a monopoly. But the review in North Carolina could have greater impact on the final terms of the merger because both companies are based in the state and the economic repercussions of the merger will play out here for decades.

'A broad perspective'

The corporate marriage will mean the loss of a Fortune 500 corporate headquarters in Raleigh after the company is consolidated in Charlotte. Progress plans to eliminate as many as 1,000 jobs - half its downtown Raleigh workforce. Duke has yet to say how many cuts could come in the Charlotte area.

Still, Duke and Progress had urged the commissioners to restrict the scope of the hearings to consider only the merger's impact on customer rates, not other consequences.

"The commission is taking a broad perspective in assessing the costs and benefits of the proposed merger," Progress spokesman Mike Hughes said. "That is certainly the commission's prerogative."

The merger's costs have not been quantified. Duke and Progress plan to spend hundreds of millions of dollars on severance payments to employees who are laid off and those who take voluntary buyouts. The companies then plan to ask the commission to make customers pay for those payments in their monthly utility bills. The state's consumer advocate, the Public Staff, has vowed to fight that request whenever it's made.

A number of nonprofit advocacy organizations contend the merger's sweeping job cuts will require substantial compensation to offset the damage to the state's depressed economy. The critics suggest an increase in green energy and conservation programs to help create jobs. N.C. Waste Awareness and Reduction Network, based in Durham, wants the merged utility to contribute $270 million to low-income housing assistance programs for weatherization and other services.

The companies have guaranteed that the net savings from combined fuel contracts and power plant operations will be $650 million over five years. Those savings will benefit customers, executives say, by reducing the overall impact of rate increases.

"We believe the benefits of the merger are compelling for customers," Hughes said. "The merged company will be better positioned than the companies individually to invest billions of dollars needed to build new plants and power systems in the coming years while ensuring reliability and lower overall cost for customers."

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