After twice rejecting a proposed merger between Progress Energy and Duke Energy, federal regulators on Friday conditionally approved the $26 billion deal that will result in sweeping job cuts in North Carolina and create the nations largest electric utility.
The approval means the utilities executives can proceed with their corporate integration plans, which include eliminating 1,860 jobs over three years and dismantling Progress downtown Raleigh headquarters as the companies consolidate in Charlotte.
The Federal Energy Regulatory Commission issued its ruling Friday evening, saying that the merger, as revised, would not have an adverse effect on competition. But the commission imposed more than a dozen additional conditions on the merger and has given the utilities 15 days to indicate whether they will accept the conditions and move ahead with their merger, or reject the conditions and walk away from the deal.
The companies are analyzing the order but said they will proceed with getting the merger approved in the coming weeks by state regulators in North Carolina and South Carolina. Progress and Duke have set July 1 as their target for completing the merger and are reviewing the federal order to determine whether it might complicate the state-level reviews.
The federal agencys conditions largely cover the latest round of revisions the companies have proposed to address federal regulators monopoly concerns. The conditions cover specifics, notifications and monitoring related to the revisions.
Progress CEO Bill Johnson is to run the combined Duke Energy out of Charlotte. Duke CEO Jim Rogers will be the companys chairman.
The selling point of the megadeal was the significant savings it will generate more than $1 billion for residential and business customers in the Carolinas even though utility executives warned that customer bills will be increasing as corporate operating costs climb. Both Progress and Duke have said they plan to file for rate increases this year, spelling the end of decades of low power bills that were well below the national average.
The merger will create an energy conglomerate throughout the Western Hemisphere with 7.1 million electricity customers and operations in a dozen U.S. states. The combined Duke Energy would sell power in the South and Midwest, own hydroelectric operations in Central and South America, and wind farms in the western United States.
In Raleigh, the merger approval will bring to an end Progress Energys 103-year run as a stand-alone company that achieved Fortune 500 status and that had a long tradition in supporting the arts and other local causes.
The merger included promises to continue Progress philanthropic tradition and to maintain a significant presence in Raleigh as the home base of Duke Energys subsidiary, which will continue operating as Progress Energy.
Even after the merger is complete, Duke and Progress customers will continue paying different rates to two respective companies for a period likely to be years.
The companies will now focus on completing their merger by July 1, leaving less than a month to win approval from state regulators in North Carolina and South Carolina. While the merger has the backing of leading consumer advocates and environmental organizations in both states, the utilities commissions are independent agencies and can impose their own requirements on the merger, such as rate freezes, nonprofit donations and green energy commitments.
Past mergers in other states have gotten snagged at the state commission level after meeting the requirements of federal regulators, even though at this time there is little indication here that the merger is a divisive and controversial political issue.
State consumer advocates have already agreed not to fight the merger in exchange for promises not to charge residential and business customers here for merger-related costs. As part of that promise, Progress and Duke will absorb nearly a quarter of a billion dollars in expected severance payments to laid-off and departing employees, rather than charging those expenses to customers.
The deal was first announced in January 2011, and the utility executives expected it to close last December. But it has been held up by FERC in Washington, which raised concerns that the corporate union would give the companies too much monopoly power in North Carolina and encourage them to manipulate wholesale electricity prices. Those rejections forced Duke and Progress to revise their merger plan three times in an effort to appease regulators.
The proposal the commission approved Friday calls for Progress and Duke to invest about $110 million in transmission line upgrades to make it easier for competing utilities to sell wholesale electricity in this state.
The upgrades would help clear transmission bottlenecks between North Carolina and its neighbors, Virginia and South Carolina.
The conditions imposed by federal regulators latest ruling require that proposed transmission upgrades be completed by June 1, 2015, and that within 15 days the companies provide the commission with binding agreements needed to complete the transmission projects.
The conditions require also that the companies submit regular status updates on the transmission projects, and that wholesale customers are not charged for these projects.