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News State / Region FERC orders revamp of Duke/Progress merger

Cites concerns over possible monopoly in utility market.

The Federal Energy Regulatory Commission (FERC) has conditionally authorized the proposed merger of Duke Energy and Progress Energy, after expressing reservations regarding the possibility of the merger having an adverse effect on competition in the Carolinas utility market.

On Sept. 30, the FERC issued an order which stated the companies have up to 60 days to propose measures to address the energy market concerns.

Duke Energy Chairman, President and CEO Jim Rogers, and Progress Energy Chairman, President and CEO Bill Johnson said in a joint statement:

“We believe our proposed merger will provide significant customer benefits and protections, and we are confident that we will meet the FERC’s standards for approval. We are still working toward closing the merger by year’s end.

“We plan to file detailed mitigation measures within about two weeks to address the FERC’s concerns about market power in the Carolinas.”

In order to assure federal regulators that the two power companies will not form a monopoly and be able to manipulate electrical prices in North Carolina, the proposed merger will have to be reevaluated and adjusted according to FERC standards.

According to information released from Duke Energy, if the merger is completed, it will create the nation’s largest electric utility, as measured by enterprise value, market capitalization, generation assets, customers and numerous other criteria. The combined company is expected to have more than 7.1 million electric customers in six states (North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky) and the largest regulated nuclear fleet in the country.

Companies establish mitigation plan to address FERC concerns

According to Thomas Williams of Duke Energy, Duke and Progress Energy presented its basic strategy on Monday, which addressed the merger market power concerns of the FERC - proposing a concept to offer power during peak times of the year at an incremental cost, plus 10 percent. Williams noted that the basics of the plan will be provided in a filing with the North Carolina Utilities Commission (NCUC). “The NCUC must see certain filings going to the FERC 30 days before those filings are sent,” said Williams. “We are asking the NCUC to waive its 30-day rule - and allow the companies to move forward. We will be prepared to file with the FERC immediately after the NCUC waives its notice requirement or the notice period ends.”

In compliance with the request of the FERC, the companies are exploring a “virtual divestiture” approach by drafting a mitigation plan which would remain current for eight years .

As of yet, the mitigation plan does not include the sale of physical assets; rather, it involves offering to sell a certain amount of power into the market. The mitigation plan will not impact the $650 million of guaranteed fuel and joint generation dispatch savings included in the proposed settlement between the companies and the NC Public Staff.

Under the revised plan, the merged company must offer to sell energy during each hour of the summer months (June-August) and winter months (December-February) in the relevant balancing areas. “In general, the balancing area is our transmission system area which we are responsible for operating,” explained Williams. “For summer hours 500 megawatt-hours will be offered in the Progress Energy Carolinas (PEC) East balancing area, and 300 MWh will be offered in the Duke Energy Carolinas (DEC) balancing area. For winter hours, 225 megawatt-hours will be offered within the balancing area of DEC.”

According to Williams, the only current limit on the obligation to offer the energy is that the merged company must have generation resources available, and not used to serve retail and wholesale native load or existing firm sales (including operating reserves).

To address the FERC’s reservations concerning the merger's potential control on electricity rates throughout the state, Williams explained that the mitigation plan outlines standards of price control. “The price of the offering will be the average incremental cost of producing the required amount of energy, plus 10 percent, forecasted on a day-ahead basis,” explained Williams. “The energy purchased during the offer process will be delivered subject to interruption only if necessary for reliability reasons.”

To ensure the mitigation plan is carried out according to FERC and NCUC standards, Williams noted that the monitoring of compliance will be provided after-the-fact by an independent market-monitoring entity.

On another note, Duke will host several public hearings for any citizen that wants to offer their input about Duke’s rate increase. One public hearing will be on Wednesday, October 26, in Franklin. The meeting will begin at 7:00p.m. in the Macon County Courthouse, Courtroom A, 5 West Main Street.

In total, Duke will host six public hearings, including Franklin’s. One meeting will be in Marion on Tuesday, October 25. High Point will host a meeting on Thursday, October 27. Durham will hold their public hearing on Wednesday, November 2. Raleigh will host Duke’s last public hearing on November 28. Duke held a public hearing in Charlotte on Tuesday, October 11.





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published: 10/18/2013
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