Merger of Duke, Progress Energy is denied again

The (Raleigh) News & ObserverDecember 15, 2011 

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 late Wednesday that 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 just hours before the agency was expected to consider the matter at a public hearing in Washington this 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."

The merger had won support from the state's consumer advocate, known as the Public Staff, and from environmental advocacy groups. Organizations representing rural electric cooperatives and municipal power agencies also praised the terms of the proposed deal.

Wednesday'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.

This time around, the FERC also gave Charlotte-based Duke and Raleigh-based Progress the option of coming up with alternatives to fix the problem. But the agency said the companies' proposals to address monopoly concerns are vague, lack support, riddled with flaws and would not work.

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.

The merger also requires approval by the N.C. Utilities Commission, but the commission has been waiting for the federal ruling.

Now, if Duke and Progress submit further modifications to appease the FERC's concerns, the Utilities Commission might have to hold another round of public hearings on the merger. The issue for the state commission is the benefits of the merger versus its risks and costs to the public.

To read the complete article, visit www.newsobserver.com.

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