Duke Energy and Progress Energy today asked federal regulators to conduct a fresh review of the companies' proposed merger, suggesting the regulators are applying standards so strict and unreasonable as to imperil utility mergers in general.
The two North Carolina power companies, which want to create the nation's largest electric utility, use such terms as "unrealistic" and "unprecedented" to characterize the Sept. 30 finding by the Federal Energy Regulatory Commission that the proposed Duke-Progress merger raises significant and severe monopoly concerns. The FERC said last month the combined company could manipulate the market price of electricity, and in response Duke and Progress have proposed selling off wholesale power at a fixed price to appease the commission's concerns.
But today's filing by Charlotte-based Duke and Raleigh-based Progress suggests their proposed $26 billion merger is in deeper trouble than had been acknowledged. The tone of their filing suggests that Duke and Progress executives had expected a quick federal approval but instead were blindsided by the FERC's ruling. See the documents here.
"The Commission's unprecedented analysis, if left unchanged or unexplained, will have far reaching and long term impacts on potential mergers," Duke and Progress wrote in their filing.
The companies go on to say the federal commission's requirements are "incompatible with reality" and do "not represent reasoned decision-making," accusing the FERC of "fundamental errors" that vastly overstate the companies' monopoly influence.
It's not clear how the companies would proceed if the federal commission rejects their plea. Progress spokesman Mike Hughes said the companies still hope to get their merger approved in time to finalize the deal this year. Hughes said if the FERC agrees with the wholesale electricity sell-off proposal, the companies will be satisfied, but just in case, the companies are also appealing the Sept. 30 ruling.
"We do think they departed from their normal rules in applying a more stringent analysis," Hughes said. "They applied a different standard than they had used in virtually every utility merger since 1996."
For months since they announced their merger in January, Duke CEO Jim Rogers and Progress CEO Bill Johnson assured investors their merger proposal posed no monopoly risks and would sail through regulatory reviews. Wall Street analysts have expressed confidence the merger will clear all regulatory hurdles.
The merger was opposed by some environmental groups and a pair of small towns in North Carolina: New Bern and Rocky Mount. The two towns hired their own lawyer in Washington, D.C., at a cost of nearly $300,000. The municipalities today asked the FERC to subject the Duke-Progress merger to even stricter standards.
"The September 30 Order underestimates the extent of the market power that the proposed merger would create," the towns argue, 'and is therefore highly likely to underestimate the extent of market power mitigation required in order to render the proposed merger 'consistent with the public interest.' "
Meanwhile, the companies have moved forward aggressively with merger plans, planning the elimination of 2,000 positions and the dismantling of Progress's corporate headquarters in Raleigh as the companies consolidate corporate functions in Charlotte.
Duke and Progress had planned to complete their merger by the end of this year, a target now only nine weeks away and looking increasingly unlikely.
The merger also requires approval from the N.C. Utilities Commission, but the state agency is awaiting a federal regulatory ruling.
N.C. regulators have said that if the feds impose standards that change the economics of the merger, the state review could require a new round of public hearings, which could set the merger back by several months.
The N.C. commission will base its decision on whether the benefits of the merger outweigh its costs and risks to the state.