Duke Energy Tries Again For Federal Approval Of Progress Merger -CEO
02/16/2012 | 11:05am
By Cassandra Sweet
Of
Duke Energy Corp. (>> Duke Energy Corporation) will soon file its third request for federal approval it needs to complete its merger with Progress Energy Inc. (>> Progress Energy, Inc.), Duke's top executive said Thursday.
Duke, of Charlotte, N.C., has proposed acquiring Raleigh, N.C.-based Progress in an all-stock deal valued at about $13.7 billion that would create the nation's largest utility.
The companies need the approval of the Federal Energy Regulatory Commission and regulators in North Carolina and South Carolina.
In December, the FERC rejected the companies' second proposal to give up control of some of their electricity pricing as a way to ensure that the combined company wouldn't exercise undue influence over the power markets in the Carolinas.
"No one likes rejection," Duke Chief Executive Jim Rogers said in an interview. "What we've tried to do is craft something that works for FERC as well as our state commissions."
Rogers said the company plans to file its new federal proposal with state regulators this month, then file it with FERC.
After Duke's first proposal in April, FERC expressed concerns that the merger could concentrate power and give the combined company a huge advantage over rivals in the regional electricity market. The agency granted conditional approval in September, but said the companies would have to propose a way to ensure that the combined company wouldn't be able to raise wholesale electricity prices.
FERC suggested various means, including having the combined company join a regional transmission organization; selling power plants; building transmission lines to allow more competitors to participate in the market; or ease its potential grip on the market through a "virtual divestiture."
Rather than selling power plants, the companies proposed selling small amounts of electricity at low prices during times of high demand when prices usually rise, such as on hot summer days.
FERC commissioners rejected the proposal, saying it wasn't enough to ensure that company activities wouldn't raise prices.
Duke's new proposal will include both a "virtual divestiture" that would entail selling power at certain terms on the wholesale market, and plans to build new transmission facilities and upgrade existing transmission to allow more power deliveries by other generators into the region, Rogers said.
Trying to figure out what FERC will approve has been difficult, as the commission's philosophy about mergers and power markets has changed from prior years, Rogers said.
"FERC is evolving their position on mergers," Rogers said. "We're shooting in the dark because we don't quite know what they want."
Duke also needs approval from regulators in North Carolina and South Carolina.
State regulators favor utilities such as Duke owning as much power generation as possible, which is at odds with federal regulators' desire to see the combined company shed some of its power resources.
As a result of the regulatory delays, Duke and Progress extended the deadline for closing their merger to July, Rogers said.
Duke reported a fourth-quarter profit Thursday of $288 million, or 22 cents a share, down 33% from $427 million, or 32 cents a share, a year earlier. Excluding mark-to-market impacts and prior-year asset-sale gains and other items, earnings were up at 24 cents a share from 21 cents.
Revenue fell 2.2% to $3.37 billion. Analysts polled by Thomson Reuters most recently forecast earnings of 21 cents a share on revenue of $3.37 billion.
Shares of Duke were recently trading 1.6% higher at about $21.21.
--By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com
