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Energy companies Duke, Progress lumber toward merger


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The creation of the nation's biggest electric utility company, successive rate hikes, new nukes and a virtual monopoly on the renewable energy market: These are some of the concerns about the merger of Progress Energy and Duke Energy for consumer advocates and proponents of green energy.

The loudest outcry during recent hearings on the merger before the North Carolina Utilities Commission focused on the audacity of company officials who want ratepayers, rather than stockholders, to cover severance pay for an estimated 1,600 to 2,000 employees who could lose their jobs.

But even opponents of the merger acknowledge it is all but a done deal.

"They're playing a game they've already rigged in their favor," said Jim Warren, a longtime foe of both companies and executive director of the North Carolina Waste Awareness and Reduction Network (NCWARN).

Duke Energy CEO Jim Rogers and Progress Energy CEO Bill Johnson have said that Dec. 31 is the target date for completing the $26 billion merger. The deal would create the nation's largest utility company, with operations stretching from Indiana to Florida, including a massive presence in North and South Carolina, where the two have competed for nearly a century.

The merger would start with an agreement to tap power from the combined company's array of generation facilities and fuel purchases. Analysts estimated this alone would save the new company, which will keep the Duke Energy name, nearly $700 million through 2013.

However, there was a hiccup in the proposal when, on Sept. 30, the Federal Energy Regulatory Commission granted only a conditional authorization of the merger. The FERC said Duke and Progress would need to submit a plan to satisfy concerns over competition in the Carolinas market, specifically in eastern North Carolina.

Last Friday, Duke formally notified the North Carolina Utilities Commission that it intends to file a plan with the feds. State rules require utilities to give 30-day notice of such filings, but Duke is asking the state to waive that requirement or grant an expedited review. An outline of the plan provided by the company includes an eight-year agreement to make relatively low-cost power available to the eastern North Carolina wholesale market during peak winter and summer months.

Gisele Rankin, staff attorney for the N.C. Utilities Commission Public Staff, said the utilities commission will consider Duke's request at a meeting Oct. 17. She said it's very possible that they'll allow Duke to file its proposal with the FERC. "The much more difficult question," Rankin said, "is what the commission does after that.

"This is the first time we've had one where they've required the applicant to come up with a solution," she added. "We don't really have much of a precedent. There are advantages and disadvantages to going ahead and to waiting," she said.

Once Duke files its modified plan there will be another opportunity for comment by consumer and green energy advocates, who have been trying to win further concessions.

Throughout the utility commission hearings, a coalition of environmental groups warned that the merger could stifle and even monopolize the renewable energy market. Consumer advocates blasted projected rate increases and said the lack of a plan to address the impact of the merger is a serious omission on the part of the utilities.

Gudrun Thompson, senior attorney with the Southern Environmental Law Center, said the center's clients—a coalition of national and state environmental groups including the Sierra Club and Environmental Defense Fund—don't object to the merger but want to see the new Duke more aggressively pursue alternative energy.

Warren, whose group is also an intervenor in the merger review case, said he's most worried that both companies are interested in expanding, not just the business but their nuclear capacity as well. This, he said, would come at the expense of tapping the Carolinas' renewable resources and pushing conservation.

Duke already has requested a rate increase; some of it would pay for coal and gas projects, but Warren expects the company will ask the General Assembly for an expansion of its ability to raise rates to cover the costs of nuclear plant construction. A so-called Super CWIP ("construction work in progress") bill could go before the General Assembly next year, Warren said, adding that the merger will mean higher, not lower, energy bills.

The economics of the merger have been fairly murky since it was announced. The companies have not fully disclosed the potential job losses and other economic impacts merging Raleigh-based Progress with Charlotte-based Duke would have on their respective hometowns. The prospect that a future rate increase might help fund the severance pay for employees who lost their jobs was poorly received during the September hearing.

Thomas Williams, Duke Energy's director of external relations, said of the estimated 2,000 jobs that could be eliminated, 300 to 400 are unfilled. The remaining positions would be reduced first through attrition and buyouts.

"Our intention is to avoid any kind of forced layoffs," he said.

Williams would not rule out that the cost of the severance packages, which he described as generous, could be rolled into a future request for a rate increase.

Al Ripley, director of consumer affairs for the North Carolina Justice Center, said rate increases driven by merger costs are among his many concerns. With 17 percent of the state's residents—close to 1 million people—living in poverty, he said, the largest utility in the country ought to do more. "We have people spending 10 to 15 percent of their income on electricity bills," Ripley said.

The Justice Center, among other groups, has called for more funding for weatherization programs for low-income homeowners and an appliance upgrade program. "It really seems like the rates are going to double," Ripley said. "That's really, really troubling."


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