What Duke Energy’s upcoming merger means to NC amid spending jump, rate backlash
AI-generated summary reviewed by our newsroom.
- Duke Energy expects to merge Duke Energy Progress and Duke Energy Carolinas on Jan. 1.
- Duke projects $2.3 billion in customer savings through 2040.
- One expert cautions the merger reduces internal comparisons that regulators use
After 14 years operating as separate entities, Duke Energy’s two electric utilities in North Carolina are poised to become one.
Charlotte-based Duke Energy expects to merge Duke Energy Progress and Duke Energy Carolinas on Jan. 1, a deal the N.C. Utilities Commission approved last week. Duke has owned both utilities since combining with Progress Energy in 2012 to create what at the time was the nation’s largest electric utility.
Duke Energy Carolinas and Duke Energy Progress split the Carolinas, with the latter covering the western regions and Progress serving the Triangle and the eastern Carolinas. When it announced the merger last summer, Duke Energy estimated it would save customers more than $1 billion. Duke, the state’s main regulated utility monopoly, had upped those projected savings to $2.3 billion through 2040 in a news release Tuesday celebrating the state approval.
“All savings will flow to customers,” Duke Energy wrote.
“We’re pleased the commission agrees our North Carolina customers will see significant future cost savings and other meaningful benefits from combining our two utilities in the Carolinas,” said Kendal Bowman, president of Duke Energy’s utility operations in North Carolina. “It will reduce customer costs, simplify operations, promote regulatory efficiencies, and support economic growth across the Carolinas.”
That’s one view. Jackson Ewing, director of Energy and Climate Policy at Duke University’s Nicholas Institute for Energy, Environment & Sustainability, believes its worth scrutinizing the merger with more nuance. There will be efficiencies, yes. But combining Carolinas and Progress weakens what regulators may know about the company, he says.
This deal comes as Duke Energy faces public backlash over its requests for an 18% residential rate increase and roughly $800 million in additional charges. It also arrives as Duke Energy looks to aggressively spend to meet data center demands. In February, the company announced a record-high five-year capital plan. Then this week, Duke Energy CEO Harry Sideris told investors he anticipates a “once-in-a-generation build cycle” to meet rising load demands.
The N&O conversation with Ewing, which follows, has been lightly edited for clarity and length.
N&O: What’s the takeaway that people should have from this merger?
Ewing: I would advise looking at this in two different ways. The positive framing would be that these are both subsidiaries of Duke Energy, and so by merging them, you can gain a lot of efficiencies. You can try to have more efficient dispatch of energy, which could lead to using less fuel. You could avoid some duplicated planning and investments. You could streamline your regulatory processes, all which would lower internal costs for Duke.
Duke is putting out a pretty high projected customer savings. We’ll see if that actually transpires. But it’s a strong and viable argument that by gaining efficiencies, you can enjoy some more effective power system outcomes and some cost savings.
And the other way to look at it?
Ewing: I would argue that the other side of the coin is that you are reducing some internal versions of competitions between the two different systems, even though they’re within Duke. In some instances that competition would have some positive characteristics. For example, you could see benchmarking of practices across the two different systems that offer a point of comparison that either decision makers at Duke or regulators could point to say, ‘Well, why are rates in Duke Energy Carolina higher than the rates of Duke Energy Progress? Why is our capital expenditure taking on these characteristics and theirs are not? Why are they getting better outcomes per dollar of investment then we’re getting.?’
Also, I think you could see some different decisions being made by the expansion of the overall service territory in ways that could lead to less appropriate energy solutions being offered for smaller parts of the territory. So what I mean by that is, if you have this now-combined territory, it could make things like natural gas expansion more attractive because you have a greater overall need for firm dispatchable power. Whereas if you had these two smaller systems continuing to operate relatively independently, then they would be making decisions that are based more on the specific bespoke needs of those smaller territories.
That build-out can be positive and effective and meet the needs of the region, but it also can have negative consequences. We could end up locking in that natural gas infrastructure in ways that lead to significant pollution and emissions concerns. It could lock in that natural gas infrastructure in ways that if gas prices do go up over time, end up costing rate payers more than had Duke Energy made different decisions on what sort of power to build and so forth.
So, this merger is not as clear-cut of a decrease of competition as if two fully unconnected entities were combining. But it is removing competition to some degree?
Ewing: That’s right. And look, if you’re going to be really bullish on the merger, I think you could argue that the Duke Energy Progress and Duke Energy Carolina’s status quo before the merger was sort of the worst of both worlds. Because it wasn’t true competition, given that it was all under the same corporate umbrella. And yet at the same time, you had the inefficiencies that exist with multiple systems. And so again, there’s a really strong argument for the merger along those terms.
But we shouldn’t discount the fact that even though these were all under the same Duke corporate umbrella, having separate systems did enable Duke Energy Progress and Duke Energy Carolinas to make different decisions that were more fully aligned with the smaller service territories that they were responsible for, and that by being able to compare them, regulators and higher C-suite decision makers at Duke had more points of reference for performance and for different decisions on how to invest in and manage our power system.
Why has the merger taken so long? If Duke bought Progress Energy in 2012, why not combine in like 2013, 2017, or any year before now?
Ewing: I could partly answer the “why now” question. We have seen relatively flat load demands for most of this entire century, and that’s really changed markedly over the last 24-30 months or so. And so with that load growth, there is an argument for more systems optimization or large infrastructure builds. And so expanding your territory and integrating it in this way is big part of an effort to streamline those build outs to meet the load-growth challenge.
Any final takeaways on this merger?
Jackson: I know I maybe sound a bit equivocal here, but that is really how I see it. It’s quite an understandable decision, and I think the efficiency gains are real.
But we should keep in mind that the Southeast is already, in many ways the location of the least competitive energy markets in the country. And where you have that kind of monopolistic control, you can run into problems on consumer choice and on different sorts of price dynamics that ultimately, in some other parts of the country, have led to more positive outcomes.
This is a further reduction, even though it’s internal, of that sort of shadow competition and at least comparative benchmarking.
