CHARLOTTE, N.C. -- Duke Energy and Progress Energy won conditional federal approval Friday night for a $26 billion merger that would create the country’s largest utility, with 7.1 million customers in six states, based in Charlotte.
The ruling from the Federal Energy Regulatory Commission carries a dozen minor conditions, and the electricity companies have two weeks to decide whether to accept them. FERC ruled that the merger, which it had rejected twice previously, “will not have an adverse effect on competition.”
The deal would likely result in more than 1,800 job cuts, though the companies have said they expect the size of Charlotte’s workforce to remain the same or increase as the city absorbs Progress employees transferring from Raleigh. Duke employs more than 5,600 in Charlotte.
Duke spokesman Tom Williams said late Friday that the company was still reviewing the FERC ruling, which was issued just after 8 p.m.
“We are assessing the orders and will complete our analysis as quickly as possible,” Williams said. He said Duke is evaluating the FERC ruling “so that we can move forward with delivering on the significant benefits of the merger to our customers.”
A Progress spokesman said Friday night that his company is also analyzing the order.
The federal agency’s final conditions largely cover the latest round of revisions the companies proposed to address federal regulators’ monopoly concerns. The conditions cover specifics, notifications and monitoring related to the revisions.
FERC had imposed a number of conditions on the utilities’ latest plan to boost market competition for wholesale power. Most of those conditions dealt with sales of power to third parties during the two to three years it’s expected to take to complete transmission upgrades that would permanently ease competition concerns.
The ruling ends eight months of wrangling between the utilities and FERC, whose approval had been expected by last December. Duke and Progress were instead forced to extend their deadline for closing the deal to July 8, which leaves them a month to win approval from utilities commissions in the Carolinas.
Duke employees around Charlotte were learning the news late Friday. An employee who wished to remain anonymous because he was not authorized to speak publicly said he was relieved the cloud of uncertainty about the merger is beginning to lift.
In a message to Duke employees Friday night, Duke chief legal officer Marc Manly said the companies were pleased that FERC issued its ruling by their requested deadline – Friday. “The companies will communicate additional information to employees after evaluating the order,” Manly said.
1,860 jobs to be eliminated
But still in limbo are the 1,860 jobs the companies expect to eliminate over three years through buyouts, retirements and layoffs if needed. Progress already has agreed to vacate one of its two towers in downtown Raleigh.
Duke employs 18,250 in the Carolinas, Indiana, Kentucky and Ohio. Progress has 11,000 employees in the Carolinas and Florida.
Under the merger, Duke CEO Jim Rogers would become executive chairman of the combined company. Progress CEO Bill Johnson would be the new Duke’s chief executive. Of its top 13 officers, seven would come from Duke and six from Progress.
The first sign of trouble with the federal agency came Sept. 30. FERC approved the merger only if the companies addressed its “significant concerns” over a resulting loss of competition for wholesale power in the Carolinas. Wholesale power customers include city-owned electrical utilities, such as those in New Bern and Rocky Mount, which argued against the merger terms Duke and Progress offered.
In December, FERC again rejected the companies’ plan. They were going to boost competition by offering some power for sale. Duke and Progress tried a third time, submitting a new plan offering to upgrade transmission structures to funnel power from competitors into the Carolinas. They would sell power under contract to energy brokers until the upgrades are finished.
In trying to answer FERC’s concerns, Duke and Progress had to craft merger terms that wouldn’t shift costs to retail customers. They still need final approval of the merger from the N.C. Utilities Commission and of the joint operating agreement at its heart from South Carolina’s Public Service Commission.
The companies have estimated severance costs at $220 million to $230 million, and in May agreed not to recover the North Carolina share of those costs from customers in this state.
Of the 1,153 employees who applied for a buyout last November, 487 work for Duke and 666 for Progress.
About 368 positions are vacant, leaving 339 jobs to be cut. The companies believe most of those can be eliminated by retirements and voluntary departures.
Early on, the companies won support of consumer-advocacy agencies for both states by guaranteeing $650 million in savings, from lower fuel and operating costs, to be reflected in customer bills over five years.
Customers supposed to save
Recently, the companies said it might take more than five years to achieve those savings if they burn less coal than expected. An updated agreement with the Public Staff, North Carolina’s customer advocates, allows Duke and Progress an extra 18 months.
While the merger has the backing of consumer advocates and environmental organizations in both states, the utilities commissions can impose their own requirements, such as rate freezes, nonprofit donations and green energy commitments.
Past mergers in other states have gotten snagged at the state commission level after meeting the requirements of federal regulators, even though at this time there is little indication here that the merger is a divisive and controversial political issue.
The companies also agreed not to recover from N.C. retail customers for at least five years the $110 million it plans to spend on transmission upgrades as part of its answer to FERC competition concerns. They also wouldn’t bill customers for the expected $40 million to $50 million in costs over three years related to short-term power sales, and would reduce rates by $70 million over that period to compensate for lost power plant capacity from those sales.
South Carolina’s consumer agency, the Office of Regulatory Staff, supported the amended agreement.