Duke Energy’s (NYSE:DUK) merger with Progress Energy (NYSE:PGN) could open up the Southeast to a regional transmission organization, industry sources told TransmissionHub.
FERC on Sept. 30 conditionally approved the merger, saying it failed horizontal market power screens. FERC’s suggested remedies include a membership in a regional transmission organization, the implementation of an independent coordinator of transmission arrangement, a generation divestiture, a virtual divestiture and/or transmission upgrades.
Duke Energy is headquartered in Charlotte, N.C., and Progress Energy is headquartered in Raleigh, N.C. Their pro forma service territory, spanning North Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio, would serve more than 7 million customers.
The companies have not made a determination yet as to how they’ll address FERC’s concerns, a spokesperson for Progress Energy said. “We’ll be evaluating those (FERC’s suggestions) and other projects,” he added.
The order came as a bit of a surprise, according to an industry lawyer following the situation. FERC’s suggestion of joining an RTO was not expected, he said.
“I don’t think anybody asked for an RTO. This is something FERC came up with on its own.”
“People had raised other kinds of issues, asked for other kinds of relief,” the lawyer said. “I don’t think anybody asked for an RTO. This is something FERC came up with on its own.”
There isn’t much of an open market in the Carolinas, where the companies’ service territories overlap the most, an industry banker said. “The utilities hold all the cards and can decide when transmission gets upgraded,” he said. “I think FERC would love to open that market up and this is their opportunity.”
FERC did not return a call for comment as of press time.
Duke Energy and Progress Energy could either join the Midwest ISO or PJM, the lawyer said, or potentially resuscitate the idea of creating an RTO in the Southeast. In the early 2000s, several Southeast utilities, including SCANA (NYSE:SCG), Duke Energy and Carolina Power & Light, which later merged into Progress Energy, agreed to form an RTO, but the initiative was ultimately abandoned in 2005.
Establishing a new Southeast RTO may be a possibility, but it would be too early to say that anyone has talked about doing so, the lawyer said. “FERC’s order surprised everybody,” he said.
A second industry lawyer following the situation noted that FERC approved Florida Power’s merger with Carolina Power & Light in 2000, forming Progress Energy, on the condition of a regional transmission organization. FERC ultimately terminated a proposal to create GridFlorida, a collaboration between Florida Power & Light Company (FP&L), Florida Power and Tampa Electric Company, in 2006.
Another failed Southeast RTO effort, called SeTrans RTO, would have combined the grids of Entergy (NYSE:ETR), Southern Company (NYSE:SO), City of Dalton Utilities, MEAG Power, South Mississippi Electric Power Association, City of Tallahassee, Jacksonville Electric Authority, Santee Cooper and the Georgia Transmission Corporation. That effort was suspended in late 2003.
Duke subsidiary Duke Energy Ohio as of June 30 was in “advanced planning stages” to transfer control of its transmission assets from the Midwest ISO to PJM, effective January 1, 2012, according to the company’s 10-Q.
FERC has given the companies 60 days to address its order, but the companies have said they expect to respond to FERC within two weeks and keep the merger on track for an end-of-year close. Interveners will have 30 days to respond to the companies’ mitigation measures, according to the order.
The first lawyer cautioned that the North Carolina Utilities Commission could prove to be a point of resistance. “They’ve been very concerned about any transactions that could federally preempt their jurisdiction,” he said.