The proposed merger of utility giants Duke Energy and Progress Energy is steadily advancing, after the two corporations reached a settlement with the Public Staff of the North Carolina Utilities Commission on Sept. 2.
The deal requires both power companies to share approximately $650 million in fuel savings with their customers— a deal that Public Staff officials say will benefit power consumers over the next five years should the merger be approved.
“They guaranteed the savings would be passed on to customers,” said Public Staff attorney Gisele Rankin. “Anything that saves the public over a billion dollars in savings is good.” The Public Staff acts as a consumer advocacy entity for the public by negotiating with utility companies for that which they seek approval for from the NCUC.
If approved, the $26 billion merger would create the country’s largest electric and nuclear utility provider, by serving approximately 7.1 million people.
Benefits promised, rate increase still likely
In a press release issued the same day as its Public Staff settlement, Duke promised several benefits for its customers, should the proposed settlement be approved by the NCUC, including:
• Continuing its current level of community financial support of approximately $16.5 million annually for a minimum of four years after the merger closes (based on each company’s average level of community support over the last five years – which is approximately $9.2 million for Duke Energy and approximately $7.28 million annually for Progress Energy);
• Providing $15 million for low-income household weatherization, community college programs that target technical and vocational training, or similar organizations and initiatives;
• Direct merger-related expenses will not be recovered from customers. Recovery of employee severance costs can be requested separately.
• The companies also agreed to maintain their current level of community support for the next four years, two years longer than proposed in the merger agreement announced in January.
“We are very pleased to have reached this proposed settlement agreement with the Public Staff,” said Bill Johnson, chairman, president and CEO of Progress Energy and the named CEO and president of the merged company. “The settlement will provide constructive and tangible benefits for our customers and communities.”
However, the proposed merger and consumer savings promised therein are a separate issue from the proposed rate hikes that Duke continues to push for.
On Tuesday, Aug. 9, the NCUC approved Duke’s petition for a 5 percent rate increase, effective beginning Sept. 1. The five percent increase follows on the heels of a much larger 17 percent that Duke applied for in July.
“In the long term, the increases could be offset over the first five years of the merger,” said Duke spokesman Tom Williams.
Other consumer advocacy parties will file testimony related to the merger application and the proposed settlement agreement by Sept. 7, after which Duke will have rebuttal before a final hearing on Sept. 20.
Sharing the wealth
Prior to the settlement, the merger was overwhelmingly supported by shareholders from both utility companies.
On Aug. 23, 90 percent of Duke Energy shareholders voted in support of the proposed merger, leaving the Sept. 2 Public Staff hearing the next obstacle for them to overcome in their pursuit.
“Our shareholders have voiced their strong support for the merger between these two companies,” said Jim Rogers, chairman, president and chief executive officer of Duke Energy. “The merger will increase our ability to more economically modernize our generation fleet and grid while providing significant savings to customers through improved fuel purchasing power and greater plant dispatch efficiency.
“At its core,” Rogers continued, “the merger enhances both companies’ abilities to ensure strong shareholder value, provide exceptional customer service and deliver affordable and reliable electricity in the face of current high levels of economic, regulatory, and industry uncertainty.”
Specifically, Duke Energy shareholders approved a 1-for- 3 reverse stock split and the issuance of Duke Energy common stock to Progress Energy shareholders upon closing of the merger transaction. The reverse stock split is designed to reduce the number of outstanding Duke Energy shares.
Progress Energy shareholders also approved the merger during a separate meeting in Raleigh on Sept. 2.
The merger is on track to close by the end of the year. The combined company will be the country’s largest utility, with:
• Approximately $65 billion in enterprise value and $37 billion in market capitalization (as of Dec. 31, 2010).
• The country’s largest regulated customer base, providing service to approximately 7.1 million electric customers in six regulated service territories — North Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio.
• Approximately 57 gigawatts of domestic generating capacity from a diversified mix of coal, nuclear, natural gas, oil and renewable resources.
• The largest regulated nuclear fleet in the country.
Bill Johnson, Progress Energy’s current chairman, president, and chief executive officer, will take the helm of the new company as the president and chief executive officer upon completion of the merger.
Rogers will serve as executive chairman for two years post-merger. He will advise Johnson and the board on strategic matters, play an active role in government relations and technology development, and serve as the company’s lead spokesperson on energy policy.
Integration planning is under way, with leaders from both companies assuming key management roles in the new organization.