Friday, May 25, 2018
Business

Don't count on Duke-Progress Energy merger to stem trend of higher electric rates

There's only going to be predators and victims. And if those are the only two choices, then I want to be a predator, not a victim.

Dick Korpan, former CEO of Florida Progress in St. Petersburg, 1993.

That comment is as right on the money now as it was nearly 20 years ago. Despite Korpan's wish, the local parent of Florida Power Corp. became a victim in 2000 when Progress Energy swooped down from North Carolina and bought the local power company for $5.3 billion.

Now it's Progress Energy's turn to morph from predator to prey. In an era of large power companies getting ever bigger, Duke Energy of Charlotte, N.C., is expected this week to wrap up its 18-month effort to acquire Progress and create the largest electricity provider in the United States.

So what do Floridians get out of yet another takeover of the dominant power company in Tampa Bay and west-central Florida? Is this just another case of "meet the new (Carolina) boss, same as the old (Carolina) boss" or can Duke bring something fresh — and hopefully better managed — to the Florida market?

To a state anxious for improvement, Duke has a tremendous opportunity to show Florida that anything Progress Energy does here, a Duke-led merger can do better.

I doubt that will happen. I'll explain why in a moment.

But first, it would be easy to argue that given Progress Energy's so-so track record in Florida, any change would be an improvement. The company arrived in Florida in 2000 confident it would simply outperform its fading predecessor by raising customer service, delivering more competitive electric rates and being a more efficient organization.

Exactly the opposite happened.

• Progress Energy Florida for years has received the lowest business and residential customer satisfaction ratings of any investor-owned utility in the entire southeastern United States. That dubious achievement is compounded by the same J.D. Power surveys that show Progress Energy somehow manages to provide superior service to its Carolina customers.

• Progress Energy charges Floridians some of the highest electric rates among big investor-owned utilities. Tampa Electric is about 13 percent cheaper. And Florida Power & Light, which handles most of South Florida, is at least 25 percent less expensive. I can deal with modest price variations in electricity, but gaps this big smack of bad management. Those rate differences are now so severe that some other utilities use them in their marketing materials to show Florida customers how much they save by being in service territories other than Progress Energy Florida's.

• Progress Energy tried and failed a do-it-yourself fix of its only nuclear power plant in Florida. The Crystal River plant has remained broken since 2009. At the same time, Progress Energy says it wants to build a new nuclear plant in the state. It's collecting hundreds of millions of nonrefundable dollars via higher rates from Florida customers expressly for a now delayed and grotesquely overpriced project that may never even happen.

Here's why the Duke takeover of Progress Energy probably won't help Floridians.

First, combining Duke and Progress Energy into a behemoth is not unlike the creation of another Goliath organization (which also happens to be based in Charlotte) whose reputation is in tatters: Bank of America. The bank got too big, buying too many poorly run businesses, fumbling customer service and losing touch with its markets.

Second, Florida represented roughly 50 percent of Progress Energy's overall business. The Sunshine State dwindles to about 20 percent after Duke and Progress Energy combine. That makes it more of a minority interest in what will be the country's largest power company.

Third, while the larger Duke is buying Progress Energy, it is Progress Energy CEO Bill Johnson who becomes chief executive of the merged companies. That transition suggests that "meet the new boss, same as the old boss" is, in this case, quite accurate.

And, finally, the most disturbing reason this big, new power company is unlikely to make Floridians happier? Higher electric rates.

Duke CEO Jim Rogers, who becomes chairman of the merged companies, hardly hides his forecasts of escalating electricity prices ahead. In remarks late last year at an Orlando conference, he said a combined Duke-Progress Energy will have to retire and replace all of its aging power plants by 2050. That's a gargantuan project that will start much earlier than you think because of the time it takes to win approval and build new plants.

Said Rogers: "My view of the future is you will see a steep increase in prices and that is different than what has happened in the past 50 years."

Duke likes Progress Energy's large stake in Florida for another unfortunate reason. This state's regulator of utilities and rates — Florida's Public Service Commission — is widely considered a patsy of the industry it supposedly oversees.

When Progress Energy took over Florida Progress here 13 years ago, Floridians enjoyed a brief honeymoon of new company promises and even a brief dip in electric rates.

This time we know what's coming. We won't be fooled again.

Contact Robert Trigaux at [email protected]

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Published: 05/25/18