Progress Energy and Duke Energy plan to give up some control over their service areas in the Carolinas in a third attempt to persuade regulators that their planned merger will not create a monopoly that manipulates electricity prices.
Executives at both electric utilities provided merger updates Thursday to Wall Street analysts when discussing fourth-quarter earnings. It was to be the last earnings release the companies filed separately before their planned merger target date, which came and went last December.
In the latest revision, expected to be filed next week, Charlotte-based Duke and Raleigh-based Progress will offer to make permanent system changes, going much further than the companies had ventured earlier to appease regulators. They will propose spending up to $100 million on transmission upgrades and new transmission lines to give competitors greater access to sell wholesale electricity in the Carolinas.
"We feel pretty confident we will respond to everything in their December order," Progress CEO Bill Johnson said, referring to the federal commission's most recent rejection of the merger. "We will expect to have met the mark."
Still, because of market power concerns at the Federal Energy Regulatory Commission in Washington, the merger review of the $26 billion deal could now drag on six months. About 250 employees already have left Progress in the past year in anticipation of staff cuts and layoffs, the company said. The two companies plan to cut 1,860 positions over three years after they merge and consolidate the headquarters in Charlotte.
Shareholders continued to express confidence the merger is as good as done. The two companies' stock is tracking in tandem, in anticipation the combination will result in an exchange of shares.
Each Progress share will be exchanged for about 2.6 shares of Duke stock, which closed at $21.10, up 23 cents. Progress closed at $53.92, up 60 cents a share, despite weak fourth-quarter sales.
The key to getting the merger approved is not only winning support from the FERC in Washington, but also from the N.C. Utilities Commission in Raleigh, not to mention investors on Wall Street. Every constituency will demand its share of the benefits from the corporate union, the clincher for North Carolina regulators being the utilities' earlier promise to deliver $650 million in savings from combined operations in the Carolinas.
Much about the proposed revision still remains unclear, but the companies will address questions in the coming weeks as they present their plan to regulators.
For now, Duke and Progress executives are not saying where they plan to expand and upgrade transmission lines, how many miles of transmission might be built, or which electric companies might use the lines to try to bid for wholesale power contracts in the Carolinas. Progress and Duke could benefit from the opened access by buying some of the power for their own retail customers, Johnson said.
"There will be greater opportunity for power to flow into the market," said Johnson, who will become CEO of the combined Duke Energy after the merger.
Transmission lines typically cost between $1 million and $2 million per mile to build, not including the cost of buying rights-of-way from local property owners and governments. Building large transmission towers, which can resemble Eifel towers with outstretched arms, can spark protests from local communities.
It would take three years to get the transmission project completed. During that lag Duke and Progress would sell wholesale electricity into the power markets to minimize their market control.
