Duke merger filing reflects "changed circumstances"

The $650 million in fuel and operation savings that Duke Energy and Progress Energy have guaranteed to Carolinas retail customers might take longer than five years to achieve, the utilities say in a new settlement agreement with N.C. consumer advocates filed late Tuesday.

The agreement with the Public Staff, which represents utility customers, cements some consumer aspects of the $26 billion merger but allows Duke and Progress wiggle room on others. The N.C. Utilities Commission would have to approve the settlement after the Federal Energy Regulatory Commission rules on the merger, likely by early June.

Among the changes to September's settlement: An 18-month extension of the five-year cost-saving guarantee, based on whether the falling price of natural gas means that three Duke plants burn less coal than previously expected.

But the companies agree to swallow rate reductions and cost increases related to their efforts to assuage FERC's concerns about decreased market competition from the merger. Analysts at Bernstein Research peg those costs at about $875 million, or 27 cents per post-merger shares. Duke projects the total will be far smaller.

"We see the settlement therefore as a further evidence of Duke's commitment to consummate the merger," Bernstein senior analyst Hugh Wynne wrote Wednesday. "It is also evidence, however, of the merger's high cost, and the incentive that Duke will face, if the merger does not close by (the termination date of) July 8, not to renew the commitment."

Duke CEO Jim Rogers last week predicted the merger is "more likely than not" to be approved, but added that Duke will remain financially strong if it does not.

In Tuesday's agreement, the utilities say they won't try to recover from N.C. customers $220 million to $230 million in severance cost or the $40 million to $50 million in estimated losses from short-term power sales over three years. They also agree to reduce Carolinas retail rates by about $70 million over that period. The utilities won't try to recover $110 million in costs for transmission upgrades for five years after the merger.