Duke Energy and Progress Energy announced on January 10 their intention to merge into the nation’s biggest electric utility corporation. N.C . State currently gets a portion of its electricity from Progress Energy and should experience some minor effects of this merger, at least on paper.
N.C . State Director of Facilities Jack Colby said given the information available at this time, there are not many tangible effects to be expected for N.C . State.
Unlike the University, Duke and Progress Energy, two of the area’s biggest employers, will change quite a bit.
This is the second time in the past decade that Duke Energy has participated in a merger. In 2005, Duke Energy merged with Cinergy to create Duke Energy’s Midwest service sourced from both coal and gas.
According to Michael Walden, agricultural and resource economics professor, this merger allowed Duke Energy to grow into a bigger and more profitable company.
However, there are also concerns specific to public utility mergers. According to Walden, the public utilities industry has become much more challenging.
“Public utilities are under pressure from various sources,” Walden said.
According to Walden, these pressures are not simple, but there are three chief concerns.
“One [source of pressure is], the basic question of where they’re going to get their energy; whether it’s going to be from coal, oil, nuclear or hydro,” Walden said. “There are various issues with all of those.”
The second of Walden’s outlined issues deals with expansion—building new plants to meet a growing demand for energy.
“Those plants have to get approval. Often residents don’t want these plants in their area,” Walden said.
The third issue concerns the environment. Walden said public utilities are under pressure to use alternative fuels that are cleaner, which is a challenge.
“Using traditional methods, their plants are already geared up to use that,” Walden said. “Anything that’s an alternative would oftentimes involve retrofitting existing plants or building new plants, and these methods may not be as cost effective.”
The merger seems like a response to at least two of these issues, according to Walden.
As Progress Energy media contact Mike Hughes confirmed, the real cost of providing energy is growing. Duke and Progress Energy are planning on building new plants as well as updating some existing plants.
These changes have great fixed costs and are clearly concerns for James Rogers, CEO of Duke Energy, and William Johnson, CEO of Progress Energy.
“Our industry is entering a building phase where we must invest in an array of new technologies to reduce our environmental footprints and become more efficient,” Rogers said in a press release statement. “By merging our companies, we can do that more economically for our customers, improve shareholder value and continue to grow.”
Rogers was unable to comment directly for this story.
Since the January announcement, Duke and Progress Energy have accomplished several steps on the way to completing the merger. As detailed on their website, these include the completion of their merger forms, called the S-4, for the Securities and Exchange Commission.
The next step for the two companies is a shareholders meeting scheduled for August 23 in which shareholders will vote to give their approval for the merger. In this meeting, shareholders will evaluate their expected profit should the merger occur.
If everything goes according to schedule, the two companies hope to complete the merger by the end of this year.
The details of what will happen to the companies are still ambiguous, since it is difficult to assess the challenges that the companies may face in the future, according to Rogers.
If the shareholders do not approve of the merger, it may not happen at all.
However, Walden said common challenges include the combining of two different business cultures, the combining of two different markets and reductions in personnel. These are challenges for many Duke Energy and Progress Energy employees, as a voluntary severance plan has already been announced, although no details have been offered.
One additional challenge specific in this merger is the fact that there are no plans to reduce the power bills of customers despite savings due to greater efficiency after the merger, according to Hughes. However, this is also in consideration of the expected costs of building new power plants and retrofitting older plants to make them more efficient.
According to Walden, more information regarding the effects of the merger is sure to become apparent in the upcoming months.