Federal regulators begin audit of anti-monopoly measures in Duke-Progress merger

jmurawski@newsobserver.comFebruary 7, 2014 

BIZ DUKEENERGY-JOHNSON 2 RA

In this September 20, 2011 file photograph, Duke CEO Jim Rogers, left, and Progress CEO Bill Johnson appear in the N.C. utility commission hearing. Pressure is building on Duke Energy to explain why it ousted Bill Johnson as CEO this week, as former Progress Energy board members break their silence and express outrage at what they term a calculated deception. (Takaaki Iwabu/Raleigh News & Observer/MCT)

TAKAAKI IWABU — tiwabu@newsobserver.com

— Federal regulators have begun an audit of Duke Energy’s compliance with the anti-monopoly safeguards set out in the company’s 2012 merger with Raleigh-based Progress Energy.

Duke notified the N.C. Utilities Commission on Thursday that the federal audit, which is being conducted by the Federal Energy Regulatory Commission, is underway.

The Washington agency characterizes the audit as a comprehensive review and has not indicated when it might complete its analysis. Regulators launched the audit as several merger opponents, including the town of New Bern, await a ruling on their 2012 request to impose tougher merger conditions on Charlotte-based Duke.

Federal regulators approved the $32 billion Duke-Progress merger about 19 months ago with a list of conditions to prevent the combined electric utility from hindering regional competition in wholesale power transactions. The merger, as conditioned by federal regulators, was also approved by the N.C. Utilities Commission.

The timing of the federal audit suggests that regulators may not be satisfied with the way Duke’s merger with Progress has played out. The audit follows recent disclosures by Duke that, when originally calculating the merger conditions, the company low-balled some assumptions and made a “potential error,” but without intent to deceive federal regulators.

Duke had agreed to conditions on the merger, but only after the FERC twice rejected the deal as anti-competitive. The FERC was concerned that combining Duke and Progress would give the combined company too much market concentration for wholesale power pricing in the Southeast.

Duke agreed to address those concerns by building $110 million in electricity transmission lines to unclog regional transmission bottlenecks, and to commit to selling blocks of wholesale power until those upgrades are made.

Those steps would assure that other utilities would have access to wholesale power when they needed it. Such access would stabilize the cost of electricity by maintaining adequate supply to meet demand.

Duke ultimately agreed to make available between 25 megawatts and 800 megawatts at different times of the year to regional utilities. The company’s math error meant that Duke underestimated by 104 megawatts the amount of wholesale power it would have to make available.

But merger critics say Duke continues to low-ball the economic analysis.

In a filing this week with the FERC, New Bern said “the real merger-induced increases in market concentration are significantly more severe than those presented” by Duke.

Lawyers for New Bern told the FERC on Thursday that Duke should be required to sell 2,000 megawatts of power onto regional power grids, nearly 20 times more than Duke suggested. Such a condition, if approved, could significantly undermine the financial underpinnings of the merger for Duke.

Duke’s error came to light in an internal investigation the company conducted after an anonymous, handwritten complaint was filed with the FERC in June 2012. The brief complaint, apparently made by an employee, accused Duke of submitting misleading information to federal regulators to get the deal approved.

Duke spokesman David Scanzoni said the company’s investigation, handled by an outside law firm, found no evidence of wrongdoing. He said two of Duke’s assumptions “were open to question,” but the company said the discrepancies don’t warrant changing the anti-monopoly conditions set in 2012 when the merger was approved.

Murawski: 919-829-8932

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