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N.C. regulators clear hurdle to Duke-Progress merger

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North Carolina utilities regulators on Friday approved the long-planned takeover of Progress Energy by Duke Energy, clearing the last major hurdle to creating the largest American electric company.

The combined company will serve about 3 million customers in North Carolina and 4 million more in Kentucky, Ohio, Indiana, Florida and South Carolina. South Carolina regulators still must approve the merged company's plan for operating its combined electrical generation system, but they are not weighing in on the merger. They have scheduled a meeting Monday.

The deal initially valued at $13.7 billion will give it the most customers, power capacity and market value in the U.S.

"This is a blockbuster. It creates a very large entity that should be pretty stable," said Steve Piper, an energy consultant at SNL Energy.

The company led by Charlotte-based Duke Energy will be able to borrow money more cheaply as it sheds more coal-burning power plants, builds facilities able to burn cheaper natural gas, and considers more investment in nuclear energy, Piper said. If the Southeast is able to return to heady economic growth rates that preceded the recession, the combined company can maintain stable and even declining power rates, he said.

Raleigh-based Progress also operates in heavily regulated states and has been more protected from the recent decrease in wholesale power prices than Duke, which operates in deregulated states like Ohio.

Regulators saw the deal as the best possible in an environment of energy industry consolidation, North Carolina Utilities Commission chairman Edward Finley Jr. said.

"It seems far preferable for Progress Energy to merge with North Carolina-headquartered Duke Energy than with a company in another state," he said.

Conditions North Carolina regulators placed on the deal include the combined company passing along at least $650 million in savings to state customers. The merger also is expected to result in operating efficiencies that will mean lower future rate increases, the commission said.

Any costs related to completing the merger can't be passed on to North Carolina utility customers, the commission said. That includes severance costs of about $230 million as Duke and Progress shed up to 1,900 jobs.

The combined company will depend on borrowing for its plant updates. The need for lower borrowing costs was also behind Exelon Corp.'s $7.9 billion takeover of Constellation Energy Group earlier this year, said Phil Adams, a senior bond analyst at Gimme Credit LLC, which provides the financial industry with independent research into corporate bond borrowing.

"We have a very fragmented utilities industry in this country and when you're making multi-billion-dollar capital decisions for assets that are expected to be used for the next 35 to 40 years, bigger is better. It helps your access to capital markets," Adams said.

There are significant challenges facing the combined company, Adams said. They include coping with the costs of a shutdown at Progress Energy's Crystal River nuclear plant in Florida, $1.3 billion in cost overruns at a Duke coal-gasification plant in Indiana, and Ohio's deregulated market, Adams said.

The merger announced in January 2011 has been approved by a series of state and federal agencies, the most significant coming earlier this month when the Federal Energy Regulatory Commission gave its blessing. The FERC twice rejected the merger because of concerns it would reduce competition for wholesale electricity in the Carolinas.

Duke Energy says it plans a reverse stock split once it completes its Progress purchase, giving shareholders one share in the expanded company for every three shares they now own. The stock price for each share will triple, so that the overall value of the shares remains the same.

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  1. Now if he'd just stay there...

  2. Daniel - what about the many US citizens who do NOT follow what the Bible teaches? The Hindus, Jews, Muslims and others who are all American citizens entitled to all rights as Americans?? This issue has NOTHING to do with "What the Bible says..." Keep all Churches separate from State! Pence's ongoing idiocy continues to make Indiana look like a backwards, homophobic state in the eyes of our nation. Can't we move on to bigger issues - like educating our kids?

  3. 1. IBJ should link to the referenced report. We are in the age of electronic media...not sharing information is lazy. Here is a link http://www.in.gov/gov/files/Blue_Ribbon_Panel_Report_July_9_2014.pdf 2. The article should provide more clarity about the make-up of this panel. The commenters are making this item out to be partisan, it does not appear the panel is partisan. Here is a list of the panel which appears to be balanced with different SME to add different perspectives http://www.in.gov/activecalendar/EventList.aspx?view=EventDetails&eventidn=138116?formation_id=189603 3. It suggests a by-pass, I do not see where this report suggests another "loop". 4. Henry, based on your kneejerk reaction, we would be better off if you moved to another state unless your post was meant as sarcasm in which case I say Well Done. 5. The article and report actually indicates need to improve rail and port infrastructure in direct contradiction to Shayla commentary. Specifically, recommendation is to consider passenger rail projects... 6. People have a voice with their elected officials. These are suggestions and do not represent "crony capitalism", etc. The report needs to be analyzed and the legislature can decide on priorities and spending. Don't like it, then vote in a new legislature but quit artificially creating issues where there are none! People need to sift through the politics and provide constructive criticism to the process rather than making uninformed comments in a public forum based on misinformation. IBJ should work harder to correct the record in these forums when blatant errors or misrepresentations are made.

  4. Joe ... Marriage is defined in the Bible ... it is mentioned in the Bible often. Marriage is not mentioned once in the US or Indiana Constitution ...

  5. Daniel - Educate me please: what does the Bible have to do with laws? If the government wasn't in the business of marriage to begin with, then it wouldn't have to "define" marriage at all. Marriage could be left as a personal, religious, or otherwise unregulated action, with no ties to taxes, legal status, etc. Then people could marry whomever they want, and all this silliness would go away. Remember to vote Libertarian in November.

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