Duke-Progress merger troubles regulators

Utilities have 60 days to remedy

jmurawski@newsobserver.comOctober 2, 2011 

Federal regulators say the merger between Duke Energy and Progress Energy can go forward only with sweeping restrictions.

The Federal Energy Regulatory Commission's 97-page ruling, issued late Friday, raises the possibility that the merger is in trouble unless the companies can find a way to resolve the agency's numerous concerns.

The agency said the corporate merger would "have an adverse effect on competition" in the Southeast's electricity market, characterizing the problems as "significant," "systematic" and "severe."

As a result, the commission conditionally approved the merger but said the two electric utilities had 60 days to propose solutions if they wished to proceed with the merger. The agency's suggested remedies are to sell off power plants, build new transmission lines, or join a regional transmission authority.

Once Progress and Duke comply with the agency's request, other parties have time to comment, and then the commission will decide whether the utilities' proposed mitigations are adequate, or whether the merger is doomed.

Raleigh-based Progress and Charlotte-based Duke have said they wanted to complete the $26 billion merger by the end of the year. This unexpected review could put them behind schedule.

The agency issued its ruling based on legal filings from dozens of affected parties but without holding public hearings. The ruling does not spell out which steps to take and characterizes the merger's potential violations in technical terms.

The companies are not indicating whether they think they can overcome the concerns.

"We're evaluating the order and expect to have more information next week," said Progress spokesman Mike Hughes.

But it is clear that the companies underestimated the issues their merger would raise when they announced in January that they would create the nation's largest electric utility and declared confidently it would not have a significant effect on competition.

They have proceeded with integration plans, outlining a strategy to cut 2,000 positions, selecting 65 senior executives and running their companies with 300 to 400 vacancies.

According to the regulatory commission's report, the proposed merger fails multiple price sensitivity analyses, a standard of review to determine whether utility mergers undermine competition in wholesale electricity markets.

The commission found that the combined company would have an unacceptably high level of market control, giving it too much power over electricity prices and too much controlover who could access its transmission lines.

Murawski: 919-829-8932

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