FERC seems to finally be getting what it wants from Duke Energy (NYSE:DUK) and Progress Energy (NYSE:PGN).
Duke Energy CEO Jim Rogers and Progress Energy CEO Bill Johnson each said the companies will prominently feature a transmission solution in their efforts to address FERC’s concerns their proposed merger could have on competition.
FERC on Sept. 30, 2011, conditionally approved the companies’ merger but, to their surprise, on Dec. 14, rejected their competition mitigation plan, which focused on a virtual divestiture rather than on transmission solutions. The mitigation plan was filed on Oct. 17.
“This is a different mitigation approach than we had previously proposed to FERC,” a Duke spokesperson told TransmissionHub Feb. 17. The companies will file the mitigation plan this week with the North Carolina Utilities Commission.
The pro forma company would spend about $100m on transmission in a three-year period, Rogers said.
“Our longer-term solution will likely involve building new and upgrading existing transmission to improve the import capability of power into the control areas,” Rogers said during the company’s 4Q11 earnings call Feb. 16.
Though the Duke spokesperson acknowledged the companies have been in talks with FERC regarding the revised proposal, he declined to comment on the extent to which FERC was pressing for a transmission solution.
The decision is an about-face from the companies’ initial solution to address competition concerns through a virtual divestiture. Rogers and Johnson, however, said the final mitigation plan will include, on a short-term basis, firm capacity and energy sales into the wholesale markets.
Duke and Progress spent nearly two months trying to finalize their analysis of FERC’s order and the development of their revised mitigation plan, Rogers said.
After FERC rejected their virtual divestiture proposal, a Progress spokesperson told TransmissionHub a revision to their virtual divestiture proposal was not off the table. However, industry observers noted FERC seemed to pressing for a transmission solution.
“This has proved to be a very complex analysis and we have really worked to address the concerns of the FERC and, at the same time, address the concerns of our state commissions. In many senses of the word, we’re really trying to thread the needle between federal and state policy,” Rogers said.
Three out of the four measures FERC offered to mitigate the merger’s failed horizontal market power screens revolved around transmission: membership in a regional transmission organization (RTO), the implementation of an independent coordinator of transmission arrangement, and transmission upgrades. A physical or virtual divestiture of generation was the only non-transmission solution.
The companies initially expected the merger to close by year-end 2011. Rogers said merger approval could come by late May.