Federal regulators have again rejected the proposed merger between Duke Energy and Progress Energy, assuring the $26 billion deal won't get done this year, and raising questions whether it can get done at all.
The Federal Energy Regulatory Commission said this evening the merger raises serious concerns about giving the companies too much monopoly power in North Carolina. Announced in January, the merger would create the nation's largest electric utility to be based in Charlotte. It would also result in the elimination of 1,860 positions, mostly in North Carolina.
The federal commission issued its ruling the day before the agency was expected to consider the matter at a public hearing in Washington on Thursday morning. The ruling blindsided executives at both companies, who had hoped for an approval of the deal they have been working on for the past 11 months.
"It's certainly a surprise," said Progress spokesman Mike Hughes. "We are reviewing the ruling as to what our options are."
Charlotte-based Duke and Raleigh-based Progress had argued the merger would result in hundreds of millions of dollars in savings for customers, and would hold down rising electricity costs. The deal had won support from the state's consumer advocate, known as the Public Staff, as well as from environmental advocacy groups. Organizations representing rural electric cooperatives and municipal power agencies also praised the terms of the proposed deal.
Today's ruling was the second time the FERC said the merger was unacceptable. After the first such ruling in September, Duke and Progress said they'd cap their profit at 10 percent of some wholesale power sales, but the FERC said that wasn't good enough.
The agency said the companies' proposals to address monopoly concerns are vague, lack support, are riddled with flaws, and would not work. The feds said Duke and Progress still have the option of coming up with more alternatives to fix the problem.
The ruling throws into disarray a series of plans and schedules that were contingent on the merger being approved quickly. The companies had hoped to close the deal this year.
Progress had planned to vacate one of its two office towers in downtown Raleigh, creating headquarters space for software company Red Hat. It is now unlikely that Red Hat will occupy the space on schedule, unless Progress moves hundreds of employees to temporary facilities.
Meanwhile, several hundred Progress and Duke employees have already left the companies rather than face uncertainty or layoffs. A number of managers and executives who have been told they will be reassigned from Raleigh have already begun house shopping in Charlotte in anticipation of their move.
The merger also requires approval by the N.C. Utilities Commission, but the commission had been waiting for the federal ruling before signing off on the deal.
Now, if Duke and Progress submit further modifications to appease the FERC's concerns, the N.C. commission might have to hold another round of public hearings on the revised merger. The issue for the state commission is the benefits of the merger versus its risks and costs to the public.
The merger could be delayed by many months if Duke and Progress decide to try to salvage their marriage. The FERC has said the companies can sell off power plants, transmission lines or cede control of portions of their system, moves the utilities are reluctant to adopt so as to preserve the financial value of the merger for investors.
"This clearly is a bitter pill for our employees, who've been living with considerable uncertainty for the last year," said Hughes, the Progress spokesman. "It's also frustrating in that it delays significant benefits for customers, shareholders and communities."
More importantly, it is now conceivable that the merger may not happen at all. In a recent filing, Duke and Progress hinted as much in warning the FERC that it was applying standards so strict as to foreclose the possibility of any utility merger from taking place.
In its ruling today, the FERC wholly agreed with the towns of New Bern and Rocky Mount, two of the most vocal opponents of the merger, that the utilities' proposed fixes amounted to window dressing.
"Applicants propose to offer [wholesale energy] under restrictive terms that will reduce the pool of eligible buyers, and provide a product that buyers may not even want," the FERC wrote, adopting arguments raised by the two towns.