Thursday, February 22, 2018
Business

Feds give conditional okay to Progress Energy merger with Duke Energy

Third time is the charm.

After two do-overs, federal regulators granted conditional approval for the merger of Progress Energy and Duke Energy, clearing the way for the two companies to form one of the largest utilities in the country.

State regulators in the Carolinas, where both companies are based, still must approve the deal, though that is widely expected.

The Federal Energy Regulatory Commission's conditions for final approval of the merger, which include the companies submitting timely reports, aren't considered major roadblocks. Progress and Duke expect to close the merger by July 1.

The new company will assume Duke's name and include 7.1 million customers in six states, the most of any U.S. utility.

The merger is expected to result in more than 1,800 job cuts as the company consolidates operations in the Carolinas. More than 1,100 will result from voluntary severance, 368 from vacancies and about 350 through cuts, including some potentially in Florida, said Progress spokesman Scott Sutton.

St. Petersburg will continue to be the headquarters for Progress Energy Florida.

Progress and Duke announced the merger in January 2011, but the deal stalled after federal regulators twice rejected the plan over concern that it would hurt competition in the Carolinas.

The utilities largely resolved the issue by proposing to add $110 million worth of transmission lines to import electricity from other companies to increase competition.

"We are pleased that the FERC has conditionally approved the merger," said Jim Rogers, chairman, president and chief executive of Duke Energy. "We will quickly complete the evaluation of the conditions in the orders while working to obtain the remaining regulatory approvals to close the merger on July 1."

One benefit of the merger is the combined company's increased ability to acquire capital. About 30 lenders have pledged credit lines that total $6 billion to be available after the merger is complete.

The added size and financial strength will increase leverage for Duke and Progress projects, but it remains unclear what impact the merger will have on Progress' nuclear ambitions in Florida.

Progress wants to repair its broken Crystal River nuclear plant, which has sat idle since workers in 2009 discovered a crack in the 42-inch-thick concrete containment building that houses the nuclear reactor.

Progress estimates that repairs to the building will cost as much as $1.3 billion, plus $300 million a year to purchase alternative electricity while the plant remains offline.

In addition, Progress proposes to build a $24 billion nuclear plant in Levy County. The rising cost of that project could scuttle it and lead the combined company to pursue other projects.

"Looking at Crystal River, I think the game plan has always been to take whatever action is necessary to bring that plant back into commercial operation," said Paul Fremont, an electric utility analyst at Jefferies & Co. Inc. "I don't see anything changing with or without the merger with respect to that plant."

A lack of government subsidies and low natural gas prices will work against building any plants other than two under construction in Georgia and South Carolina, Fremont said.

"There's a lot more generic uncertainty about anybody building a new nuclear project today than three or four years ago," he said.

Some opponents of the merger argue that it is not yet a done deal because of the uncertainty regarding Progress' nuclear projects in Florida.

Jim Warren, executive director of the North Carolina watchdog group NC WARN, said his organization plans to challenge the merger before the North Carolina Utilities Commission because of concern that the broken Crystal River plant and the Levy project could pose financial harm to Carolina customers.

Warren cited a lack of disclosure about those two Florida projects and plans by Duke to purchase some ownership of a nuclear plant in South Carolina, though he sees them as material to the merger.

"It's time for everything to be out in the open," Warren said.

Stephen Smith, executive director of the Southern Alliance for Clean Energy, said his organization hopes the larger utility will focus less on new nuclear and promote energy efficiency, in particular in Florida.

"We actually think that Duke and Progress as a merged entity could be more of a leader than they have," Smith said. But he said part of the problem is a lack of clear policy direction at the Florida Public Service Commission, which he describes as "dysfunctional."

But some are not optimistic about the new company's efforts to promote clean energy and efficiency because Progress' president and CEO, Bill Johnson, will be the chief executive officer of the new company and he has not been as active as Duke's Rogers.

"We don't see that as the most positive situation," said Susan Glickman, who lobbies for SACE in Tallahassee. Johnson is "old school. Jim Rogers is at least forward thinking."

Ivan Penn can be reached at [email protected] or (727) 892-2332.

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