Duke/Progress opt for virtual divestiture over transmission solution

Duke Energy (NYSE:DUK) and Progress Energy (NYSE:PGN) on Oct. 17 opted to address FERC’s antitrust concerns with their proposed merger through a virtual divestiture. 

A virtual divestiture mitigates competitive concerns while allowing the companies to retain the ability to use capacity to serve native load wholesale and retail customers when needed, they said. 

Through a “must-offer” obligation, the pro forma company will offer 300 MWh of available economic capacity (AEC) energy in the Duke Energy Carolinas balancing authority area (BAA) in each hour of the summer and 225 MWh of AEC energy in each hour of the winter. Similarly, they will make 500 MWh of AEC energy available for sale in each hour in the Progress Energy Carolinas East BAA in summer. 

This proposal would stand for eight years after completion of the merger, which is “more than adequate” time for competing generation to enter the market, the companies said. 

“The only limit on the obligation to offer AEC Energy is that the applicants must have generation resources available and not needed to serve retail and wholesale native load or existing (as of the date the merger closes) firm sales (including operating reserves),” the companies said. “When no such generation resources are available, the applicants will not have any available economic capacity, and thus will have no ability or incentive to exercise market power in the available economic capacity market.” 

In conditionally approving the proposed merger on Sept. 30, FERC said the companies needed to mitigate market power concerns through 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.  

This approach best satisfies the twin goals of addressing the commission’s market power concerns regarding available economic capacity and keeping the companies in a position to reliably serve their native load customers, they said. 

Duke and Progress allowed that they may file with FERC to reduce their must-offer obligation into a BAA in the event that there are transmission expansions into that BAA in excess of currently planned projects, they said. 

FERC can review any such filing and approve the reduction in their must-offer obligation equal to the increase in import capability resulting from the transmission expansion, they said.  

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.