Duke/Progress Marriage Raises Charlotte’s Status
In a stock deal worth $13.7 billion, Duke Energy will buy Raleigh-based Progress Energy and become the largest utility company in the nation. A merger of this size always causes some anxiety. "The first question is, Where is the headquarters to be located?" says Bob Morgan of the Charlotte Chamber of Commerce, and he wasn't the only one wondering. When Duke Energy made it clear Charlotte would still be home, Mayor Anthony Foxx said the confirmation was "tremendous" and "a big deal." Combined, Duke and Progress Energy would be the largest utility in the country. Suddenly the years of talk about turning Charlotte into an energy hub have new merit, says the Chamber's Bob Morgan. "What it means is that we are no longer just a banking center," says Morgan. "We are a banking and an energy sector." Morgan says the more powerful Duke Energy becomes in energy industry, the stronger its draw will be to other companies in the industry who will look to open offices in Charlotte. But there will also be layoffs as a result of the merger. On a conference call with analysts, Duke CEO Jim Rogers wouldn't say how many jobs would be cut. "We're very conscious of how to go about this in a way to do it in a way that's fair to our employees but allows us to also achieve our merger savings objectives," said Rogers. He added the company will start with offering voluntary buyouts to employees and eliminating jobs through attrition. Layoffs won't begin until the merger is approved by regulators, which the company expects to take about a year. "Duke and Progress must show that there will be no adverse consequences to the ratepayers from a service and rates perspective," says Ed Finley, the chairman of the North Carolina Utilities Commission which will have to approve the merger. South Carolina utility regulators and the Federal Energy Regulatory Commission will also have to approve. Before they do, the public will get a chance to weigh in. Environmental groups and consumer watchdogs are already raising some concerns about the size of the new company. "The utility companies individually have a great deal of power in the North Carolina Legislature, as well as the NC Utilities Commission," says June Blotnick of Clean Air Carolina. "Merging both utility companies into one would only increase the impact of their control." Critics point to Indiana where Duke Energy is under investigation for having cozy relationships with state regulators and even hiring one of them. Duke and Progress say their merger will keep rates down because they'll be able to save hundreds of millions of dollars buying fuel and operating power plants jointly. Progress CEO Bill Johnson says merging will make the business less risky. "(It) will help minimize the volatility we could experience from individual customer classes or economic events or from regulatory actions in specific jurisdictions," said Johnson on the conference call with analysts. The merged company will have seven million customers in six states. Although the headquarters will stay in Charlotte, but Duke will keep a major presence in Raleigh where Progress is based. And Jim Rogers will no longer be Duke's CEO. He'll be executive chairman of the board and oversee strategy. Progress' Bill Johnson will be CEO. The arrangement led analyst Paul Patterson to ask Rogers on the conference call what will happen if he and Johnson disagree. "How does that work out?" asked Patterson. "Well, basically we're gonna arm wrestle," quipped Rogers with a laugh. "I would simply say that Bill is gonna be the CEO and he's gonna be making the calls." Duke is paying nearly $14 billion in stock to buy Progress. It's a good deal for Progress shareholders, since Duke is paying about 6.4 percent more than the average trading price for Progress stock over the last 20 days. This marriage is not a rescue. Both Duke and Progress are healthy, but they are facing a pressure shared by utilities across the country: Decades-old power plants need to be updated or replaced to meet new energy demands and environmental rules. The costs are so high that analyst Dave Parker of Baird says Duke and Progress are wise to pool their resources. "I think in order to be able to keep energy at a reasonable price in the next decade or so, consolidation's really sorely needed to try to help that to happen," says Parker. He says it'll be up to regulators to make sure these emerging mega-utilities don't take advantage of customers.