Duke and Progress Energy to Submit New Merger Filing This Month

We earlier discussed the Federal Energy Regulatory Commission’s (FERC) objection to the proposed $26 billion Duke Energy (NYSE:DUK) and Progress Energy merger. The companies have decided to update the merger filing by the end of this month. The new filing will detail the steps the companies would take to sustain competition in the region and to counter FERC’s objections to the merger. Below we take a look at what possible updates the companies may propose. ^[1] Duke Energy is one of the largest electric utilities in the U.S., with approximately 35,000 megawatts of electric generating capacity in the Carolinas and the Midwest. Its competitors include companies like Allegheny Energy (NYSE:AYE).

Our price estimate for Duke is about $21, which is roughly in line with the current market price.

See our complete analysis for Duke Energy here

Progress Energy’s Chief Executive Bill Johnson said that he expects that the companies and FERC will be able to come up with solutions to ensure that the merged entity will not stifle competition in the region. Duke-Progress will look to transfer control of several hundred megawatts of electricity during the peak summer and winter seasons. However the company will not sell plants to other operators, which means that the power will be transferred to wholesalers on long-term contracts. ^[1]

The earlier proposal that the companies put forward also considered selling energy to a regulated wholesaler, but such contracts were to be short-term and would have been put in place only a day ahead of the actual delivery of power. According to the FERC, this would defeat the purpose of utilizing a regulated power grid. The companies are hopeful that they will fulfill FERC’s requirements and will receive a go ahead on the merger.

Duke and Progress look forward to saving $600 million every year by merging their operations, the benefits of which are expected to be passed on to commercial and domestic customers in the region. Duke and Progress had initially planned to close the deal and streamline their operations by March 2012, and so they are pushing for an updated filing before the end of this month. Normally regulators have to be informed of a filing a month in advance, so Duke will have to get a waiver in order to make sure that they stay on schedule.

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1. Progress Energy and Duke Energy plan new merger filing this month, Charlotte Business Journal [↩] [↩]