Florida gets no direct say in proposed power merger

As Duke Energy and Progress Energy seek to become the nation's largest power company, serving 1.6 million Floridians, they'll need a lot of permission — but not from the state of Florida. Why?

While many states give their utilities commissions some authority to approve or deny electric utility mergers, Florida lawmakers don't.

That means that as North Carolina preps to look for savings for ratepayers as a condition of its approval, Florida just waits. The $13.7 billion deal could go through with Florida merely kept in the loop — but without a direct say.

Where does that leave Florida consumers?

• • •

When two power companies want to join forces, there's no shortage of regulators. The approval process often takes a year, and sometimes more. Duke and Progress, for example, say they will seek approval from the Carolinas, plus the Department of Justice, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission. But as those federal authorities ask questions about power markets, antitrust concerns and safety, states play a unique role: They're closer to ratepayers.

Take a failed 2006 merger in New Jersey.

A Chicago company, Exelon, announced in 2004 it wanted to acquire the Public Service Enterprise Group, based in Newark. At the time, it would have created the country's largest electric company, serving 18 million people in three states. Over two years, three federal agencies and Pennsylvania regulators all gave their blessing, with stipulations.

The Department of Justice, for example, said the companies first needed to shed six power plants, and the companies agreed.

But New Jersey regulators were concerned the new company would have too much market power, and said it ought to offer greater relief on rates to New Jersey customers. By September 2006, the deal was off.

"We did not believe the companies offered enough direct and real rate relief for New Jersey families and businesses," New Jersey's public advocate, Ronald Chen, told the Associated Press at the time. "Perhaps most significantly, the companies also would not agree to measures that our experts, and the Board of Public Utilities staff, believed were necessary to ensure that the merged company could not manipulate regional energy markets and drive up statewide energy costs."

New Jersey could draw a tougher line than federal agencies did.

That's a role some say Florida gives up at its own risk.

• • •

Still, a former commissioner says the Public Utilities Commission can wield plenty of power, at least if it wants to.

Joe Garcia was the chairman a decade ago, when Carolina Power & Light Co. bought Florida Progress Corp., creating Progress Energy. The Miami Beach Democrat, who recently worked for the U.S. Department of Energy, said the PSC had the authority he needed.

"It may not have direct merger authority, but it has so much power over what companies do and don't do," he said. "… In these cases, the last thing that someone engaged in a merger wants is to leave someone in the dark that can ask very poignant questions."

For example, the PSC controls the rates companies are allowed to charge customers. What does it matter who owns a utility company, some argue, if the state sets how bills are calculated?

But after-the-fact rate review just isn't enough, says Scott Hempling, executive director of the National Regulatory Research Institute, an organization funded by state utilities commissions.

"It can leave the commission with less flexibility to protect the public than a review in advance," he said.

High bills aren't the only danger for consumers. What if a company wants to structure itself in a way that invites too much financial risk?

Hempling told Congress in 2008 that states need to review the structure of company mergers up front — before the merged utility becomes responsible for providing electricity to customers.

Otherwise, he told lawmakers, it "invites too-big-to-fail situations."

"We all are familiar with situations in which a company's size or national importance pressures regulators to prop them up," he said.

If utilities invite risk, ratepayers also bear it.

Meanwhile, back in 2000, Garcia had to chastise Florida Progress for taking a long time to answer questions about its pending buyout by Carolina Power & Light.

"In the end, I think we got the information we needed," he said last week. "But you won't get it if you won't ask. … At times, it requires you to sort of push."

In North Carolina, attorney Robert Gruber directs the public staff that represents the state's ratepayers before the utilities commission. Duke Energy, based in Charlotte, and Progress Energy, based in Raleigh, will have to show their merger is justified by "the public convenience and necessity." In other words, that it's in the public interest.

Often, mergers save power companies money — they may get better rates on fuel, or be able to cut redundant staff. States seek to put that money back in their ratepayers' hands, rather than in shareholder pockets.

"(Duke and Progress) haven't offered any rate reductions or rate freezes, so we will explore whether there should be any," Gruber said.

It helps that the commission has direct authority over the merger: "They have to get approval from us, so that gives us leverage," he said.

• • •

Even critics of Florida utilities regulation see benefits in Duke Energy and Progress Energy joining forces.

"The merger could be a good thing," said Nancy Argenziano, a Citrus County Republican who chaired the PSC before she resigned in October, then railed against lawmakers and regulators for doing utilities' bidding. "But that doesn't mean you just give them whatever they ask for."

Direct merger authority could help commissioners who wanted to act in the public interest.

"I'm not saying anything derogatory about Progress or Duke, I'm just saying the environment in Florida is very accommodating," Argenziano said.

State Sen. Mike Fasano, a Pasco County Republican on the Senate's utilities committee, said he can see the benefits of having direct merger authority.

"When there's a merger, what happens? Does that company get stronger? Does it get weaker?" he said. "… The more you think about it, the more you think the Public Service Commission should have authority on the merger."

Becky Bowers can be reached at bbowers@sptimes.com or (727) 893-8859.

Florida gets no direct say in proposed power merger 01/15/11 [Last modified: Monday, January 24, 2011 10:46am]

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