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Eastern NC Cities Lead Charge Against Duke, Progress Merger

Federal regulators have dashed any hopes Duke and Progress Energy had of getting their merger approved by the end of this year. The utility companies are scrambling to address concerns their marriage will be too much of a monopoly in the Carolinas , but say they're committed to the merger, even if it takes longer to tie the knot than they'd hoped. WFAE reporters Julie Rose and Lisa Miller explain in this segment. You can listen to it, or read the transcript below: Julie: The official documents on all of this are an alphabet soup of acronyms, but the only one you need to remember for this story is FERC - that's the federal energy regulatory commission. It's in Washington , and spokeswoman Mary O'Driscoll says FERC's job is "Ensuring that the wholesale markets are competitive." Lisa: we're talking about the wholesale market for power. And FERC had been scheduled to consider - and possibly even approve - the merger between Duke and Progress this week. The utilities were really hoping that would be the case. But at the last minute, FERC surprised just about everyone by rejecting it. Julie: Well, sort of. Here's Mary O'Driscoll again: ""We do not reject this merger - this merger remains conditionally authorized by FERC. On condition that they come in with a mitigation plan that assures the companies cannot act in an anti-competitive manner." Julie: She's talking really carefully here because the lawyers have her on a tight leash, but let's just break this down. FERC is worried that Duke and Progress will be too much of a monopoly in the wholesale power market for the Carolinas if they merge. Lisa: But I thought they came up with a solution to fix that? They said they'd set aside a certain amount of power for wholesale customers at a lower rate for the next 8 years. That was one of the options FERC gave them - they called it "virtual divestiture." Julie: Right. One option for Duke and Progress would have been to sell some of their power plants to competitors. But another option - the one they chose - was to set aside the electricity from some of their plants and make it available at a low rate for wholesale customers - this would be cities and electricity coops. But FERC says that plan isn't enough to guarantee the utilities won't start acting like a monopoly once they merge. FERC kind of suggests Duke and Progress used some fuzzy math in coming up with the plan. LISA: Obviously, Duke and Progress disagree. I spoke with Mike Hughes - a spokesman over at Progress Energy who says they don't really understand FERC's concerns, but they'll try to come up with a new plan that works. They'll have to if they want the merger to succeed - which, of course, Hughes says they do: "We have all intentions of going forward. The merger has too many benefits to ignore at this point and we believe going forward is the right thing to do for customers, for shareholders, the communities and the vast majority our employees. Lisa: So now attorneys for Duke and Progress are in a mad dash to win the FERC's approval - because remember they've been moving forward with other parts of the merger all year. They've even got 1000 employees in line for a voluntary buyout and Progress was getting ready to vacate its Raleigh headquarters. Julie: Meanwhile, there's a guy in New Bern - which is a city about 120 miles southeast of Raleigh who's proven a real thorn for Duke and Progress. He's New Bern 's mayor - Lee Bettis - and he has vowed to fight this merger to the end. He's a hard-charging attorney from New York with some pretty tough experience. Bettis: "I represented, I defended organized crime figures (in New York )." Julie: Really? Mob bosses? Are you serious? Bettis: Yeah, everybody had to make a living. Julie: Mayor Bettis moved to New Bern after 9-11 and now he's leading the charge against the Duke/Progress merger because he's convinced it'll leave small cities like his powerless to negotiate in the wholesale market. LISA: Nice pun. But strangely enough, Bettis says his days defending the mob prepared him for this fight: Bettis: "That kind of experience it gets you thinking in terms of complex systems." Lisa: Which the world of regulated utilities certainly is. So anyway, the situation for New Bern and about 20 other Eastern North Carolina cities is a bit different than others in the state. Years ago, they helped Progress energy build a handful of power plants for a minority stake and access to that electricity. But that's not enough electricity to meet the needs of those cities, so they have to buy excess power from Progress at a wholesale rate. Mayor Bettis says the result is that he and his voters in New Bern are paying about 30 percent more for electricity than other Progress customers in the state. Julie: So, he's not inclined to believe any assurances from Duke and Progress that they won't act like an unfair monopoly after the merger: Bettis: "Let's just put it like this. Progress energy is Godzilla. Duke Power is king kong. They're getting married. Now they want to say if they have a baby, their baby's gonna be Bambi. It's absolutely not gonna be Bambi." Julie: He says cities like New Bern won't have a chance of competing for good wholesale rates on the open market. Lisa: So do the interests of New Bern and those other cities run contrary to the rest of the state? Julie: Well that's kind of interesting. That's what the state's utility consumer advocate thinks. They're called the Public Staff. And I spoke with senior attorney Gisele Rankin who really liked the plan Duke and Progress came up with for selling-off some of their wholesale power. Rankin: "The way it was set up, it had no affect on us at all. That's what I liked about it." Julie: When she says "us," she's talking about retail customers in North Carolina . That means me and you, any household or company who gets a power bill directly from Duke or Progress. The rates we pay are set by the state utilities commission with input from Rankin's office at the Public Staff. And those state regulations allow Duke and Progress to monopolize the retail market in North Carolina , so long as they don't act like monopolies, says Rankin: "They have an obligation to provide them the lowest cost power at a reasonable quality. And provide adequate service. So market power in that context just isn't a big deal." Julie: But, Rankin says if Duke and Progress are forced to sell off some of their power plants - like New Bern is demanding - retail customers will end up having to pay higher bills for less reliable power. Lisa: So we've got retail customers who like the merger plan as it stands. And on the other hand we've got some wholesale customers and their main government advocate - which is FERC - saying the merger plan still needs a lot of fixing. Julie: Yep. To please both means walking a tightrope. Duke and Progress say they now think they can finalize the merger is March - but that all depends on how their next stab at addressing the monopoly puzzle is received.