CHARLOTTE and RALEIGH, N.C. – Duke Energy (NYSE: DUK) and Progress Energy (NYSE: PGN) have entered into a supplemental merger settlement agreement with the North Carolina Utilities Commission (NCUC) Public Staff.
The agreement was filed with the NCUC today. It is subject to approval by the NCUC after action by the Federal Energy Regulatory Commission (FERC) on various merger-related filings.
The filing is a supplement to a previous settlement agreement filed Sept. 2, 2011. It addresses state regulatory issues raised by the market power mitigation proposal filed with the FERC on March 26, as well as clarifying provisions included in the previous settlement agreement.
“This agreement is an important milestone to move the merger process forward,” said Jim Rogers, chairman, president and CEO of Duke Energy. “We look forward to hearing from the FERC on our mitigation plan so we can have this proposal and related issues considered by the NCUC as soon as possible.”
“The supplemental agreement was the result of extensive negotiations between the companies and the Public Staff,” said Bill Johnson, chairman, president and CEO of Progress Energy. “One thing has been clear in this process – we all look forward to getting the benefits of this merger started.” Specifically, the companies agreed to the following in the settlement agreement with the N.C. Public Staff:
- The companies will continue to guarantee $650 million in system savings for Carolinas retail customers. The savings will be achieved through fuel blending and purchases and jointly operating the Carolinas generation fleets. The settlement clarifies a number of issues related to the $650 million guarantee and provides up to 18 months beyond the original five-year timeframe in which the savings can be achieved if coal consumption at certain plants is less than originally forecast due to declines in natural gas prices.
- The companies will not seek recovery from North Carolina retail customers for the seven transmission projects in the mitigation proposal (estimated to cost approximately $110 million) for five years following merger close. After five years, the companies may seek to recover the costs of the transmission projects but must show that the projects are needed to provide adequate and reliable retail service regardless of the merger.
- To reflect the power plant capacity no longer available to retail customers during the interim mitigation period while the transmission projects are being built, the companies will reduce retail rates by approximately $70 million total over that two- to three-year period. The rate reduction will be achieved through a rider and will be apportioned between Duke Energy Carolinas and Progress Energy Carolinas retail customers.
- Duke Energy Carolinas and Progress Energy Carolinas will not seek recovery from North Carolina retail customers for any revenue shortfalls or fuel-related costs associated with the three-year interim mitigation power sales agreements (estimated at approximately $40-50 million over three years).
- The companies will not seek recovery from N.C. retail customers for any of their allocable shares of the merger severance costs (estimated to be approximately $220-230 million total).
Remaining schedule to approve the merger
To date, the companies have received merger-related approvals from, or met the requirements of, the U.S. Department of Justice under the Hart-Scott-Rodino Act, U.S. Nuclear Regulatory Commission, Kentucky Public Service Commission, and the shareholders of both companies.
The companies have requested that the FERC issue its orders on the mitigation plan, Joint Dispatch Agreement and joint Open Access Transmission Tariff by June 8.
The NCUC, which held hearings on the merger in September, is expected to wait until the FERC issues orders before determining whether additional state hearings are required. The Public Service Commission of South Carolina, which held a hearing in December, must also issue an order approving the Joint Dispatch Agreement.
The companies continue to target July 1 to close the merger.