FERC Flunks Duke Energy-Progress Energy Merger Proposal, Again

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Fresh from its latest payoff of environoia groups in exchange for their support of their merger, Duke Energy and Progress Energy must return to the drawing board after the second rejection of their proposal by the Federal Energy Regulatory Commission.

It’s a story of two Davids against a Goliath, and no, it’s not the utilities against the big bad government regulator. Rather, two small eastern North Carolina cities – Rocky (“Gonna Fly Now”) Mount and New Bern – convinced FERC that the merger plan would harm their ability to purchase electricity in a competitive environment. Both municipalities deliver power to their residents through a cooperative of cities and towns in eastern North Carolina, but dissented from their fellow members’ approval of the merger. Coastal New Bern has been led by Mayor Lee Bettis Jr., a former New York Mafiosi defense lawyer, who has vowed to “go it alone the rest of the way.”

“We’re not easily intimidated,” Bettis told The News & Observer of Raleigh in October, after FERC’s first rejection of the merger.

Meanwhile Duke/Progress have been busy trying to pacify (in other words, buy off) various environmental pressure groups, in addition to the utilities regulators and consumer advocates in both North Carolina and South Carolina, which both companies serve. The merger, which would make Duke Energy the largest public utility in the nation, had already been approved in both states until FERC demanded changes that would make the new utility less monopolistic. Potential solutions suggested by FERC after its first denial included the sale of power plants, additional transmission lines, or having Duke give up control of existing transmission lines.

But any significant changes to the deal could upset the approval already won from the two states’ regulators, consumer advocates and environmental groups. So Duke and Progress took a minimalist approach to try and win FERC approval, by offering to sell some wholesale power (called a “virtual divestiture”) at a discount. But according to The News & Observer, “The agency said the companies’ proposals to address monopoly concerns are vague, lack support, are riddled with flaws, and would not work.” Sounds like a lot of Duke CEO James Rogers’s failures lately. 

“The proposal did not adequately remedy the negative effects on competition previously identified by the Commission…,” said FERC Commissioner Cheryl LaFleur in a statement. “The proposal failed to transfer control over divested generation from the merged firm, restricted the pool of eligible buyers, and created a product that potential buyers are unlikely to be interested in purchasing.” 

Duke and Progress had hoped the merger would be complete by the end of the year, and had already initiated buyout offers of more than 1,000 employees of the two companies. Plans to combine operations at Duke’s Charlotte headquarters were initiated, but will likely be delayed until March at the earliest. 

“The combination of Duke Energy and Progress Energy will provide clear benefits for our customers,” the companies stated in a joint press release, “including overall lower corporate costs and $650 million in guaranteed benefits to customers in the Carolinas from the joint dispatch of the utilities' generation fleets and from power plant fuel savings.” 

Unfortunately that’s not enough to overcome the massive increases in electricity costs to their average customers, thanks to Rogers’s pursuit of renewable energy scams, which replace efficient, inexpensive power generation such as coal with undependable and expensive wind and solar. FERC obviously thinks the proposed merger – as presently structured – will not produce the benefits the two utilities say it will, unless Duke/Progress make more power available for purchase on the wholesale market. The News & Observer says the amount needed to satisfy FERC could equal the amount produced by the Shearon Harris nuclear power plant outside of Raleigh.

“[FERC doesn’t] want Duke and Progress to manipulate market prices of electricity for large wholesale customers,” the newspaper reported. “As safeguards, the Federal Energy Regulatory Commission wants the companies to give up control of power plants, electrical output or transmission lines.”

In a less regulatory, true free-market world, one public policy change would improve the situation for electricity consumers: Deregulate the power industry so utilities have to compete for their customers. Failing that, the power industry would be much better if electric companies hired executives with the guts to fight back against the demands of excessive environmentalists, and the government regulators who do their bidding.

Paul Chesser is an associate fellow for the National Legal and Policy Center.