Time to start bracing for coming Duke Energy-Progress Energy merger and higher rates
Wake up and good morning. Is this reality or fantasy? Bloomberg News reports this week that state regulators are putting up fewer obstacles to U.S. utility mergers as companies become more skillful at emphasizing benefits, from limiting job cuts to restraining rate increases.
Huh? We care about such things because Duke Energy is starting to wrap up its announced acquisition of Progress Energy, including Progress Energy Florida that supplies electricity to most of west central Florida and the bulk of the greater Tampa Bay area. It's not that there was ever much debate whether regulators would nix this deal, but more a matter of regulators demanding the resulting behemoth power producer from raising electricity rates with even greater ease than now.
In other words, it's time to start worrying less about Progress Energy's intentions and more about what its buyer, Duke Energy, is doing with the price it charges for electricity.
The Bloomberg story -- here it is -- is revealing but you have to read between its lines. The story quotes Tony Clark, president of the National Association of Regulatory Utility Commissioners, who says regulators may be seeing the benefit to consumers of larger companies that can operate more efficiently to keep rates from rising rapidly while ensuring a steady supply of electricity.
"Utility companies may be getting better at providing what regulators need to feel comfortable with a merger," Clark, who also serves as chairman of the North Dakota Public Service Commission, said in a Bloomberg interview. "There are just huge investments that are coming on down the line, and some of the potential advantages of size and scale may be working their way into some of these decisions."
Okay.... And here's a July 2 story from the Charlotte Observer that says Duke seeks a 17 percent residential rate hike. That hike, the paper says, is the largest request for a rate hike in North Carolina in 20 years.
Bottom line? The real story is that big rate hikes are coming for users of electricity and regulators are simply looking for bigger power companies to try and keep the soaring increases from becoming too absurd. Why such big rate hikes ahead? Plenty of reasons. Duke and Progress Energy combined plan more and more nuclear power plants and we already know the staggering price tags for those units. Listen to Duke CEO Jim Rogers himself right here. In addition, government rules seeking to limit air pollution will make some forms of electric generation -- especially those produced by coal, but also natural gas and other fossil fuels -- more expensive.
If there's a bright light, forgive the pun, in this it's the notion that rising electricity prices will eventually make alternative forms of generation, like solar power, much more competitive. In the meantime, watch that electric meter spin.
-- Robert Trigaux, Business Columnist, St. Petersburg Times