By Ray Gronberg
DURHAM — Duke Energy and Progress Energy, the two power companies that serve the Triangle, intend to merge late this year if their shareholders and regulators from state and federal governments approve.
The deal, worth an estimated $26 billion, would bring Progress under the Duke Energy umbrella to create the single largest electric utility in the United States.
The chief executives of Duke and Progress said Monday the main reason for the move is that the post-merger company would be better able to raise and invest money in new facilities, such as power-generation plants or distribution-grid upgrades.
Thanks to regulations and improving technology, “there’s a tsunami of capital expenditures heading our way,” Duke CEO Jim Rogers said during a conference call with reporters. “Combined, with a strong balance sheet and a diversified earnings stream, we were really well-positioned to handle what’s in front of us.”
Rogers is slated to become executive chairman of the post-merger Duke Energy. The CEO of Progress, Bill Johnson, will become CEO and president of the combined companies.
The deal will need approval from two federal agencies and the utilities commissions of North Carolina and South Carolina. Regulators here say they’re already gearing for the review process.
There likely will be several public hearings this fall, held in locations scattered across the state, said Robert Gruber, executive director of the public staff of the N.C. Utilities Commission.
One hearing is expected to be in the Triangle. An investigation by the public staff will prepare the ground by, among other things, requiring Duke and Progress “to give us all the studies they have regarding any benefits or detriments to the ratepayers and the stockholders,” Gruber said.
Gruber is expecting electric rates to be a key issue in the review.
The public staff “will be seeking possible rate reductions,” given the likelihood that the post-merger Duke Energy would be able to eliminate duplicated spending on back-office functions, Gruber said.
He added, though, that Duke so far has not “offered any rate reductions as a carrot for this merger.”
Duke and Progress serve about 7.1 million customer accounts, all told. Between them, they dominate the market in North Carolina. They also hold big shares of the customer bases of South Carolina, Florida and Indiana, along with small shares in Ohio and Kentucky.
Both companies have been investing heavily in new power plants. They’ve either announced or are thinking about retiring some older, coal-burning plants that account for 11 percent of their generation capacity, replacing them with newer facilities that burn gas or that are equipped with modern pollution controls allowing continued use of coal.
The two are also looking into expanding their use of nuclear power. Each has license applications pending that, if approved, would set the stage for decisions about building new reactors.
One such application, pending since 2008, targets Progress Energy’s Shearon Harris nuclear plant, near Holly Springs.
The companies’ capital spending and the possibility that customers will be asked to pay for it drew criticism Monday from a local advocacy group, the N.C. Waste Awareness and Reduction Network.
Its leader, Jim Warren, said customers “will not allow big utilities to ruin our economies with annual rate hikes to build power plants that aren’t even needed.”
Rogers and Johnson said the companies, by joining forces, expect to save $600 million to $800 million in fuel costs in the five years from 2012 to 2016.
“That will not appear on [customers’] bills, and that’s a good thing,” Johnson said.
But long-term, the CEOs are expecting electric rates to rise. The efficiencies promised by the merger would help Duke “moderate customer impacts” as cost pressure increases, Johnson said.
The companies’ most recent annual reports showed that in 2009, Duke recorded net income of $1.1 billion and Progress $761 million.
Duke approached the deal, which has been under negotiation since July, from a less heavily indebted position than Progress.
Its balance sheet listed $16.1 billion in long-term debt, a ratio of about 28.2 percent compared to the Charlotte-based company’s $57.0 billion in assets.
Progress, based in Raleigh, listed $31.2 billion in assets and $11.8 billion in long-term debt, a ratio of about 37.7 percent.
Had the two companies been one as of Dec. 31, 2009, their ratio of long-term debt to assets would have been about 31.6 percent.
The companies estimated they’d spend $8 billion on capital projects in 2010 and 2011, and $7 billion more in 2012.
The merger plan calls for Duke to assume Progress’ debts and give Progress shareholders roughly 2.6 shares of Duke stock for every share of Progress they own.