Largest U.S. utilities
The Duke Energy-Progress Energy merger would create the largest U.S. utility by market capitalization ($36.5 billion), number of customers (7.1 million) and energy generation capacity (shown below).
|NextEra (parent of Florida Power & Light)||42.7|
|AEP (American Electric Power)||37|
* Based on energy capacity owned as of Sept. 30 for Duke and Progress and as of Dec. 31, 2009, for all others on the list.
Source: Company filings
Residential customer service
Duke Energy delivered the best customer satisfaction to residents in the southeastern United States, the latest J.D. Power survey said. Progress Energy Florida was last. The rankings included 14 utilities that serve the Southeast.
|1. Duke Energy (Carolinas)||656|
|4. Progress Energy Carolinas||651|
|7. Florida Power & Light||645|
|13. Tampa Electric||610|
|14. Progress Energy Florida||598|
Source: J.D. Power and Associates
At first glance, Duke Energy's proposed acquisition of Progress Energy sounds straightforward for Florida customers: They're switching out one North Carolina-based utility for an even bigger one.
But their new power company, Duke Energy, isn't quite like the old one.
Though a big proponent of using nuclear energy and wind power, Duke is currently much more reliant on coal than Progress Energy. It has deeper financial pockets. And, perhaps most importantly, it has a reputation of treating customers better than Progress.
In the latest J.D. Power and Associates survey, Duke was the highest-rated utility for customer service in the Southeast; Progress Energy Florida came in last among 14.
"If this deal goes through, and I think there's a reasonable chance it does, the customers of Progress Energy in Florida would basically be inheriting a very worthy parent," said Paul Franzen, utilities analyst with Edward Jones.
"Duke Energy is known as a good operator of utility assets. They generally work very well with regulators. They make an emphasis on customer service and reliability … basically everything you would want from a local utility."
With one notable exception: Duke can't promise lower rates. In fact, the company is seeking higher rates in the Carolinas.
As the merged companies invest in expensive new technology, particularly nuclear energy, rates are widely expected to rise in Florida as well.
"Rates are definitely going to go up just because of capital spending," said Roger Conrad, editor of the Utility Forecaster, an investment newsletter. "By getting bigger … you can limit the risk and the rate shock, but electric rates are going to go up."
In some ways, Progress and Duke are cut from the same cloth. Both rely on nuclear power for about a third of their generated power and want to increase capacity. Both have strong, core service areas that they dominate.
Founded in 1904, Duke Energy has no direct connection to academic-basketball powerhouse Duke University, though both have roots with industrialist James Buchanan (Buck) Duke, founder of American Tobacco Co.
Duke Energy has swelled through mergers into an enterprise with $58 billion in assets, 4 million electric customers, 500,000 gas customers and 18,500 workers. Its primary service area is in the Carolinas, Indiana, Ohio and Kentucky. The Midwest concentration, with its abundance of coal mines, is one reason it has relied more on coal for power than Progress Energy; in turn, Progress uses more natural gas because of its Florida footprint.
“Solid operations, reliable earnings and steady dividends" is how one recent investor report from RBC Capital Markets describes Duke's operation.
Conrad said Duke has a particularly strong reputation in engineering. "Their rep is that they're really good at running stuff," he said. "That's always been their expertise: to go in and run plants well."
Duke has its share of detractors over its rates and operation of its coal plants. But under CEO Jim Rogers, the utility has moved to shut down some older units and replace them with more efficient energy generators to reduce acid rain gases.
Rogers, in fact, has been one of the most vocal coal industry leaders contending the country needs to reduce carbon emissions because of climate change.
In a profile of Rogers last summer, Bloomberg Businessweek noted how the Duke CEO often starts speeches by remarking that his company is the 12th-largest emitter of CO2 in the world. "I share these numbers with you not to brag," he would say, "but to give you a sense of my special responsibility, the daunting job in front of me. And for you to understand why I have such passion about confronting the climate issue."
But some environmentalists question Rogers' sincerity, noting the company has marched forward with building another coal plant. Duke plans to file rate cases in North Carolina this year to recover costs of building the new coal-fired power plant, called Cliffside, along with natural gas-fired plants at two other sites.
In recent months, the company dodged ethical issues, as well. A top executive, Jim Turner, resigned in December over e-mails indicating cozy relationships with Indiana regulators. Turner was the heir apparent to Rogers who, at 63, faced retirement in two years. (Monday's merger announcement clarified the succession question: Rogers will become chairman and Progress chief Bill Johnson will become CEO.)
Franzen, the Edward Jones' analyst, doesn't see the Turner controversy as a large negative. Rather, he said, the way Duke handled the episode told a lot about its character.
"Duke took immediate and significant action to correct ethical lapses that were potentially happening. If they find areas of difficulty … they don't try to brush it under the rug," Franzen said.
"They took the No. 2 guy and all of a sudden, he's out the door. I think that's a long-term positive."