The coal burn of the combined Duke Energy Carolinas Inc. and Progress Energy Carolinas will range between 23 million and 28 million tons per year, with the combined companies able to wring fuel cost savings due to the fact they will buy more coal in total than each of them does currently.
That is one of the points made by these Duke Energy Corp. (NYSER:DUK) and Progress Energy Inc. (NYSE:PGN) subsidiaries in an ongoing merger review being conducted by the North Carolina Utilities Commission. The merger application was filed on April 4 and the commission since then has been taking arguments from various parties about different aspects of the merger agreement.
On Nov. 23, the commission’s public staff submitted a proposed order that generally supports the merger as proposed, including the points that the companies had previously made about fuel cost savings through company witness Alexander “Sasha” Weintraub. Weintraub is Vice President-Fuels and Power Optimization at Progress Energy Carolinas.
In May 20 testimony in the merger cause, Weintraub laid out the arguments for fuel cost savings. Joint dispatch of the current Duke and Progress plants is expected to reduce the combined company’s fuel and related dispatch costs by about $364 million in the 2012-2016 period. That is because the lowest cost generation for the system at any one time will be the first to be dispatched. Weintraub noted that the fuel cost savings will flow through to customers in the annual fuel cost review case for the combined companies.
Over the past five years, Progress Energy Carolinas has invested more than $60 million in its coal units equipped with SO2 scrubbers to increase fuel flexibility and coal blending options. That allows the company to shop for coal between coal-producing basins, thus driving down offered prices, Weintraub noted. Duke is looking at adding that kind of coal flexibility at Cliffside Unit 5, as well, and Duke will be aided by the coal blending skills that Progress staff has developed over the years, Weintraub said. Another key savings will be through the combination of existing contracts to transport coal, Weintraub noted.
During the course of this case, environmental groups, including the Sierra Club, have attacked the figures about projected fuel cost savings. In Sept. 15 rebuttal testimony, Weintraub said those savings will happen and that joint dispatch of the generating units of the combined companies is possible. He also explained how the fuel cost savings will be apportioned between current Duke and Progress ratepayers.
The Nov. 23 proposed approval order from the commission’s public staff summarized Weintraub’s response to environmental group criticism. “On cross-examination, Dr. Weintraub explained that the effect of PEC’s ability to burn a wider range of coal types on the amount of coal burned would depend on the characteristics of the coal burned. He agreed, however, that different coal characteristics affect the price of coal and could affect the emissions produced by the coal. He further agreed that no analysis of NOx, SOx, or SO2 was performed as part of the joint dispatch analysis and stated that no analysis had yet been conducted of post-Merger emissions as a result of the proposed fuel synergies.”
The proposed order said the commission finds that the company arguments about fuel costs savings are reasonable and that there is no evidence that the joint dispatch plan or the fuel blending program planned for the Duke plants will increase emissions from the affected power plants.
Subject to shareholder and regulatory approval, the merger of Duke Energy and Progress Energy will create the nation’s largest utility, with more than 7 million customers in six regulated service territories – North Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio. The two companies’ mix of coal, nuclear, natural gas, oil and renewable resources will total about 57 GW of U.S. generating capacity. The combined company will be called Duke Energy and will be headquartered in Charlotte, N.C.