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Progress Energy to merge with North Carolina-based Duke Energy

A proposed merger between Progress Energy and its larger North Carolina counterpart Duke Energy will form the nation's largest power company — with little relief for customers' pocketbooks.

The $13.7 billion deal will create a base of 7.1 million customers in six states — Florida, North Carolina, South Carolina, Kentucky, Ohio and Indiana.

Duke Energy, based in Charlotte, and Progress Energy, in Raleigh, first began merger talks in July and expect to complete the transition to the new company within a year.

For now, Progress Energy Florida will retain its name and its St. Petersburg headquarters, but name changes and operation decisions will be part of company discussions.

"We're going to spend the next year getting organized," said Progress Energy chairman and chief executive Bill Johnson, who will serve as CEO of the new Duke Energy. "This combination allows us to do something unique."

The utilities plan to use their increased heft to garner resources that will allow them to modernize their plants and further develop smart and other technologies.

That will likely cost customers.

To realize its plans, the new Charlotte-based company, whose parent name will be Duke Energy, will require substantial financial capital that executives say customers will pay for with rate hikes. For current Progress Energy Florida customers that likely means higher bills starting Jan. 1, 2013.

"We are in a period where energy costs are going to go up," said Vinny Dolan, president and chief executive officer of Progress Energy Florida. "We are seeing aging infrastructure that needs to be replaced. As load grows and aging infrastructure is replaced … that is going to increase costs."

Progress Energy Florida customers are benefiting from a settlement agreement the utility entered with the state's Public Service Commission to freeze the base rate through 2012. And bills are running 6 percent lower this year due in large part to a decrease in fuel costs.

The merger will make it the largest utility based on customers and energy generation capacity, among other measures. Duke Energy has annual revenues of $12.7 billion and 4 million customers. Progress Energy's annual revenue stands at $10 billion, and the company has 3.1 million customers.

The merger will give the new company increased influence in Tallahassee and in Washington, as well as with creditors.

"When you have that size and scale it opens up more doors," Dolan said.

The merger will result in job cuts, though executives say they hope to rely heavily on retirements and attrition. Many of the cuts will come from the executive ranks as the two North Carolina headquarters merge. After Duke's last large merger, with Cinergy Corp. in 2006, it laid off 1,500 people.

There are no immediate plans to change operations during the next year in Florida, where Progress Energy has 1.6 million customers. Dolan says he expects the 4,000 Florida jobs to remain because employees here work on the front lines.

Executives expect to focus renewed attention on new gas and nuclear energy, already 31 percent of Duke Energy's generated power.

"Nuclear provides 70 percent of the carbon-free electricity in the United States," said Jim Rogers, who runs Duke Energy and will remain chairman of the new company. "That becomes, to me, the preferred technology."

Roger Conrad, editor of investment newsletter Utility Forecaster, said the larger, better-capitalized Duke would be more likely to spend the $16 billion to $17 billion it takes to build a nuclear plant.

"Utilities have tremendous capital needs, and it's easier to finance them if you're larger," he said. "These nuclear plans are pretty heavy financial risks."

Though rates may go up short-term, he said the cost-savings should help improve efficiencies and make the merger a good deal for Florida customers over the long haul.

"I think over a very long period of time — five or 15 years — it'll be a plus," Conrad said.

Customers in the Carolinas are expected to benefit from streamlining of the Duke Energy and Progress systems, as much as $600 million to $800 million over the next five years, executives said. Even those savings are expected to be offset by capital improvements.

It is a departure from the past when these kinds of mergers usually resulted in significant customer savings.

Paul Franzen, an analyst with Edward Jones, said after Duke's past acquisitions, there were typically rate reductions for customers.

"That's a good thing at the end of the day when you can combine utilities and take costs out of the system," he said. "That's hard to achieve, but Duke has done it in the past."

Former Florida Public Service Commission chairwoman Nancy Argenziano is not a fan of the deal. She said Duke Energy was attracted by Gov. Rick Scott's pledge to cut business regulation.

"People in Florida will have to rely on batteries and oil lamps because electric rates will go sky-high,'' said Argenziano, who resigned her job to speak out against Scott and the Republican-led Legislature.

State Sen. Michael Fasano, R-New Port Richey, hopes Duke Energy will eliminate the fee customers pay each month in advance for Progress Energy's delayed nuclear plant in Levy County.

"I'm a big believer those costs should be paid by shareholders, not ratepayers,'' he said.

If the new Duke Energy does not drop the fee, consumer advocates say they'll continue to press for lawmakers or the courts to eliminate it.

Suzan Franks, one of the plaintiffs in a lawsuit over the nuclear plant fees, said the new larger utility should find less expensive ways to provide electricity instead of continuing to charge customers who fear the plant might not ever materialize.

"We are in the Sunshine State," Franks said. "We should be concentrating on solar. It's going to be the future. The (nuclear) costs are astronomical."

Times staff writers Steve Huettel and Mark Puente contributed to this report. Ivan Penn can be reached at ipenn@sptimes.com or (727) 892-2332. Follow him on Twitter at www.twitter.com/Consumers_Edge and find the Consumer's Edge on Facebook.

Progress Energy to merge with North Carolina-based Duke Energy 01/10/11 [Last modified: Saturday, July 21, 2012 10:39am]
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