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Progress Energy finalizes deal to merge with N.C.-based Duke Energy

Duke and Progress finally merged on Tuesday, but the man tapped months ago to run the massive energy company won't be along for the ride.

Surprising analysts and investors, Progress Energy president and CEO Bill Johnson resigned at the eleventh hour, giving no reason for the move.

Duke CEO Jim Rogers will lead the combined company, which will be called Duke Energy and be headquartered in Charlotte, N.C.

The merger, valued at as much as $31 billion, formed the largest utility in the nation with 7.1 million customers across six states.

The Rogers for Johnson swap could mean a more drastic shift in corporate culture for Progress' employees and a different perspective on how to generate power for its 1.6 million Florida customers.

Arnie Gunderson, a nuclear engineer and consultant on utility issues, said Duke is tough managerially and politically. He expects Duke executives to be running much of Progress' operations in the future.

"Duke is better than Progress," he said. "They fired the captain (Johnson) but they kept the anchor (Progress)."

Susan Glickman, a lobbyist for the environmental group Southern Alliance for Clean Energy, said Rogers taking the helm was "great news for Florida."

"He has been more forward-thinking about clean technologies and efficiency," she said.

Opponents of the merger took a more ominous view.

"Creation of the nation's largest electric utility will require enhanced vigilance … to protect our economy, our environment and our democracy from a giant corporation well-known for its use of political muscle to pursue profits and expansion," said Jim Warren, executive director of the watchdog group N.C. WARN.

At the top of Duke's to-do list is a decision about the Crystal River nuclear plant in Citrus County, which broke on Johnson's watch during a botched maintenance and upgrade project. The 42-inch-thick concrete reactor containment building cracked during the project, and subsequent repair attempts resulted in more cracks.

The projected cost for repairs and the purchase of replacement power while the plant sits idle exceeds $2 billion. The growing price tag and concern that the troubles at Crystal River were worse than Progress portrayed could be part of the reason that Johnson did not get the top job at the merged company, analysts and experts said.

"It could be the recognition that the cost of the Crystal River plant could be a larger concern than perhaps Duke had realized when they first had undertaken" the merger, said Peter Schwarz, an economic professor at the University of North Carolina at Charlotte.

Duke will have to decide whether to repair the 36-year-old Crystal River plant, which Johnson wanted to do, or decommission it. The company is scheduled to give a status update on the project to the Florida Public Service Commission on Aug. 13.

J.R. Kelly, the state public counsel who advocates for consumers, said that without Crystal River, Duke would need to develop an alternative source of energy. Environmentalists would like to focus on efficiency measures, but Kelly said the company would likely build a natural gas plant — which customers would pay for.

Duke also will have to make a decision on whether to move forward with a $24 billion project to build two Westinghouse AP1000 nuclear reactors in Levy County.

Customers already are paying $1.1 billion for the project that experts believe will never get built because of the high cost and the current low price of natural gas.

Mark Cooper, senior fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School, put it this way: "The Levy plant is not going to happen."

Duke officials would not comment about its plans for the Crystal River and Levy County plants.

Duke also has its own troubles.

Before the merger, Duke had constructed an advanced coal-fired plant in Indiana. The project ran $1 billion over budget. A top Duke executive and Indiana's utility regulator lost their jobs after an email exchange about it.

Managing the challenges rests on Rogers, who was named one of Newsweek's "50 Most Powerful People in the World" in 2009.

After Progress and Duke announced the merger 18 months ago, 30 lenders promised $6 billion in credit when the deal closed. Rogers could tap those credit lines to help build new power plants.

"The new Duke Energy will be better able to serve our 7.1 million customers' energy needs in a safe, reliable, affordable and increasingly clean manner," Rogers said.

The merger is expected to result in more than 1,800 job cuts, many of which have already taken place. More than 1,100 come from voluntary severance, 368 from vacancies and about 350 through cuts, including some potentially in Florida.

Combining the operations of the two companies is likely to take years to complete. For now, the Florida arm will remain headquartered in St. Petersburg and still be called Progress Energy Florida. Customers will pay their bills and access customer service in the same way they were before the merger.

Why did Duke Energy's stock price
triple on Tuesday?

Because of what's called a 1-for-3 reverse stock split, in which stockholders received one share for every three they held. As a result, the company's stock price soared almost 200 percent from $23.28 at Monday's close to $68.69 Tuesday.

There was no change in the actual value of Duke stock. The company's market value remained close to $30.6 billion, the same as it was before the merger closed.

Call him the merger master.

In his 23 years as a utility executive, Jim Rogers, 64, has helped broker three utility deals that now have resulted in the largest utility in the country.

Rogers' merger deals began when he served as chairman, president and chief executive officer of PSI Energy in Indiana, a company he joined in 1988.

When PSI merged in 1994 with Kentucky-based Union Light, Heat & Power, Rogers became the chairman and CEO of the new company, called Cinergy. He led Cinergy until it merged with Duke Energy in April 2006.

Rogers then became the president and CEO of Duke Energy. He is known as a business and political operator.

In an effort to bolster Charlotte and North Carolina economic development goals, Rogers, a prominent Democratic supporter and fundraiser, led the bi-partisan effort to host the 2012 Democratic National Convention.

Rogers currently co-chairs the Charlotte Host Committee for the convention with Charlotte Mayor Anthony Foxx.

Rogers' career includes work as a reporter for the Lexington Herald-Leader in Kentucky for three years before making law and utilities his focus. He served as deputy general counsel for litigation and enforcement for the Federal Energy Regulatory Commission and executive vice president of interstate pipelines for the Enron Gas Pipeline Group.

After studying at Emory University, Rogers earned his bachelor's of business administration and juris doctorate degrees from the University of Kentucky. He was a law clerk for the Supreme Court of Kentucky, an assistant attorney general for the Commonwealth of Kentucky and later a partner in the Washington, D.C., law firm of Akin Gump Strauss Hauer & Feld.

Progress Energy finalizes deal to merge with N.C.-based Duke Energy 07/03/12 [Last modified: Saturday, July 21, 2012 10:41am]
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