Duke Energy and Progress Energy will announce a merger Monday that will base the combined N.C. power companies in Charlotte and make it the nation’s biggest electric utility with 7.1 million customers, a person familiar with the situation said Sunday.
Charlotte-based Duke’s all-stock purchase of the smaller utility would leave Progress with a significant presence in its Raleigh base while accelerating Charlotte’s efforts to build an energy hub in the region.
The merger would need approval of shareholders and regulators, including the N.C. Utilities Commission and the Federal Energy Regulatory Commission. The regulators would review the effect on consumers, such as through cost savings because of reduced staffs.
The companies believe they’ll gain the approvals by the end of the year and that the deal will result in “huge benefits for customers in terms of savings,” the person said.
The (Raleigh) News & Observer also confirmed the deal with two sources familiar with the negotiations. Spokesmen for both companies declined comment.
The deal would offer a “modest premium” to Progress’ share price, which closed Friday at $44.72 and set a market value of $13.1 billion. The combined company would have a market value of $36 billion and be capable of generating 56,000 megawatts of power.
It would be called Duke Energy, though it was not clear who would be the leader. Duke chairman and chief executive Jim Rogers and Progress CEO William Johnson started talking about a strategic combination in July, the person said.
The combined company would serve territories stretching from Ohio and Indiana to Florida.
Job cuts would be likely as the utilities eliminate jobs with duplicate functions. Duke trimmed about 1,500 jobs when it merged with Cincinnati-based Cinergy in 2006. Last year Duke announced that about 900 employees had agreed to take buyouts as part of cost-cutting moves.
Duke has 18,500 workers, including about 7,600 in North Carolina.
Raleigh would lose a Fortune 500 corporate headquarters, and the potential loss of hundreds of employees locally, as Charlotte gets a boost in prestige as the state’s business capital. The acquisition would spell the end of Progress Energy’s 102-year run as an independent company.
The deal would further expand Duke’s business footprint, which already extends from Argentina to New England and ranges from nuclear power plants to wind farms. The combined company would sell electricity in six states, including the Carolinas, Florida and the Midwest.
“It’s a huge deal,” said Dukes Scott, executive director of the S.C. Office of Regulatory staff, a state consumer advocate who said he didn’t know about the negotiations. “The size — it’ll be a huge company.”
Merging neighboring service areas and power generating facilities will result in lower costs, and officials expect the deal to produce fuel savings of $600 million to $800 million with five years after the deal closes, the person familiar with the situation said.
For electricity customers in North Carolina and in other states, the agreement would initially bring rate cuts as a condition of regulatory approval. A typical Progress household pays $102 a month for electricity; it’s about $89 a month for a Duke customer.
In approving the Duke-Cinergy merger, state utility commissions awarded Duke’s N.C. customers $117.5 million in rate reductions and those in South Carolina $40 million.
Federal and state regulators would seek assurances that Duke’s growing market dominance does not result in anticompetitive practices that drive up power costs for Duke’s wholesale customers, especially neighboring power companies and municipal governments.
“It provides an opportunity for consumer advocates to get concessions that they might not otherwise be able to accomplish,” said Edward Finley Jr., chairman of the North Carolina commission.
The companies are expected to provide details today on how Progress would be incorporated into Duke’s global empire, and which executives would run the company.
The respective ages of the two current chief executives suggest that Duke CEO Rogers, 63, would be the presumptive head of the organization. Some analysts suggested that Progress CEO Johnson, 56, could be groomed to take over upon Rogers’ retirement, but others expect top Progress executives to leave.
Wall Street analysts said the merger of the two companies makes sense, because either operating alone would have difficulty financing the construction of a nuclear plant that’s expected to cost $10 billion or more. The two N.C. companies have applied for federal licenses to build a total of six reactors.
Duke wants changes to N.C. law that it insists are needed to build a new nuclear plant. Duke wants legislators to allow it to recover financing costs while a plant is being built — without making them part of a general rate case.
Nuclear critic Jim Warren of the Durham-based N.C. Waste Awareness and Reduction Network said Sunday such a change would shift risks to consumers. “A key thing will be, assuming this were to make them financially stronger, is whether they would be strong enough to forego efforts to transfer all the risk without regulatory review,” he said.
The electric industry is in the midst of a wave of consolidations, with eight mergers and acquisitions announced or completed last year.
Progress has been the subject of takeover speculation for years. Several years ago it was nearly acquired by Atlanta-based Southern Co., but those talks broke off at the 11th hour over the purchase price, control of board seats and other issues.
In 2007, Peter Scott, then-chief financial officer at Progress, told Wall Street analysts that a Duke-Progress marriage would be a good thing for customers.
Analysts say that both companies could benefit from a merger, but it’s less pressing for Progress.
Duke is fighting a potential rate cut in Ohio resulting from falling energy prices. A rate cut in that state would significantly impair the company’s earnings. In Indiana, Duke has experienced more than $500 million in cost overruns on a power plant using coal gasification technology.
As a regulated electric utility lacking far-flung subsidiaries, Progress would dilute Duke’s risks and uncertainties, said Macquarie Capital analyst Angie Storozynski in New York.
“Progress doesn’t need this merger,” she said. “Duke needs this way more than Progress does.”
Observer staff writers Bruce Henderson and David Perlmutt contributed.
David Perlmutt and the (Raleigh) News & Observer contributed.
