Duke wins North Carolina approval for Piedmont Natural Gas takeover

The North Carolina Utilities Commission on Sept. 29 approved Duke Energy‘s (NYSE: DUK) takeover of Piedmont Natural Gas, ruling in part that arguments that this will only feed Duke’s development of new gas-fired power projects are irrelevant to the question at hand.

On Jan. 15 Duke Energy and Piedmont Natural Gas applied for approval of a business combination transaction and for a revision of certain matters related to Duke’s two electric utilities in the state: Duke Energy Carolinas (DEC) and Duke Energy Progress (DEP). Petitions to intervene were filed by parties including the North Carolina Waste Awareness and Reduction Network, the Climate Times and the North Carolina Housing Coalition (collectively referred to as NC WARN).

On Aug. 25, NC WARN filed a post-hearing brief contending that the purchase of Piedmont by Duke Energy will result in the use of more natural gas by DEC and DEP for the generation of electricity. NC WARN cited the Integrated Resource Plans (IRPs) filed by DEC and DEP in 2015, stating that the IRPs show DEC’s and DEP’s plans to significantly increase the number of natural gas-fired plants they use to serve retail electric customers in North Carolina. Therefore, NC WARN argued that evidence concerning methane emissions from natural gas, potential additional safety costs related to natural gas, gas price volatility and potential shortages of natural gas are relevant to the commission’s decision in this proceeding.

On the other hand, the applicants contended that the evidence elicited by NC WARN on cross-examination of the applicants’ witnesses concerns the same subjects addressed by NC WARN’s testimony that was struck by the commission as irrelevant, and, therefore, should be found to be irrelevant and struck from the record.

Said the commission in its Sept. 29 merger approval: “Duke Energy’s acquisition of Piedmont may facilitate Duke Energy’s ability to acquire natural gas with added reliability and at marginally lower costs from the interstate pipeline system produced at the widespread sources of gas supply through its platform as owner of Piedmont. This should benefit Duke Energy’s consumers through lower prices. However, there is no indication that Duke Energy will build more gas-fired generating facilities or burn more natural gas to generate electricity after its acquisition of Piedmont than it would have without the acquisition.

As for complaints about the environmental impacts of gas production, the commission added: “Neither Duke Energy nor Piedmont engages in natural gas extraction through hydro fracturing or other extraction methods. Further, there is no indication that natural gas extracted through hydro fracturing and horizontal directional drilling will be materially affected as a result of Duke Energy’s acquisition of Piedmont. Many markets both domestic and foreign exist for the acquisition of low-priced natural gas. Moreover, in the event production of natural gas from shale plays does not materialize as the overwhelming majority of experts in the field expect, Piedmont will bear the responsibility of providing service to its ratepayers just as it did before gas extraction from shale became widespread.”

The risks cited by NC WARN – such as methane emissions, potential natural gas supply shortages and possible cost increases – are risks that DEC, DEP and Piedmont face today and will continue to face irrespective of whether the merger is consummated, the commission added.

For example, Duke Energy acquired a 40% interest in the proposed Atlantic Coast Pipeline, a risk that it decided to undertake even before it applied for approval to purchase Piedmont. In addition, as NC WARN noted, DEC’s and DEP’s 2015 IRPs, filed prior to the merger application, forecast an increased reliance on natural gas-fired generation. However, in order to build such a plant DEC or DEP would have to acquire a certificate of public convenience and necessity (CPCN) from the commission. There is no application for a CPCN to build gas-fired electric generation in this docket. Likewise, there is no application to pass along increased rates in this docket. In addition, if DEC or DEP files an application for a CPCN to build a new natural gas-fired plant, that will be the docket in which relevant testimony regarding an increased use of natural gas by DEC or DEP will be appropriate, the commission said.

With respect to Piedmont, a primary reason that it would increase its use of natural gas is to expand its services to new customers. Economic expansion of natural gas service to unserved areas is a public policy of the State of North Carolina, the commission wrote. However, there is no evidence in the record that the merger, in itself, will increase Piedmont’s expansion of natural gas services.

DEC is engaged in the business of generating, transmitting, distributing, and selling electricity to approximately 2.5 million retail customers in a service area that covers more than 24,000 square miles in portions of central and western North Carolina and western South Carolina. DEC also sells electricity in the wholesale market to various municipal, cooperative, and investor-owned electric utilities.

DEP is engaged in the business of generating, transmitting, distributing, and selling electricity to approximately 1.5 million retail customers in a service area that covers more than 34,000 square miles in portions of eastern, central, and western North Carolina and eastern South Carolina. DEP also sells electricity in the wholesale market to various municipal, cooperative and investor-owned electric utilities.

Piedmont is engaged in the business of transporting, distributing, and selling natural gas in North Carolina, South Carolina and Tennessee, serving approximately one million retail customers throughout a service territory comprising approximately 39,000 square miles in portions of eastern, central, and western North Carolina, western South Carolina, and the greater Nashville metropolitan area in Tennessee.

Following the closing of the merger, Piedmont’s shareholders will no longer own any interest in Piedmont, and Piedmont will be a wholly-owned subsidiary of Duke Energy. Duke Energy will add one member from Piedmont’s Board of Directors to the Duke Energy Board of Directors, Thomas E. Skains, Piedmont’s current Chairman, President, and Chief Executive Officer.

Following the closing of the merger, Piedmont will be managed predominantly by members of Piedmont’s existing executive management team and will be led by Frank Yoho, Piedmont’s current Senior Vice President and Chief Commercial Officer. Following the closing of the merger, management of Duke Energy’s existing natural gas properties and investments will be consolidated under the leadership of Yoho. Piedmont will continue to operate under its existing name, will continue to maintain its headquarters in Charlotte at its existing offices, and will retain most of its current operational employees.

Said the Sept. 29 approval: “[T[he Commission concludes that the proposed business combination between Duke Energy and Piedmont is justified by the public convenience and necessity and serves the public interest. Accordingly, the Commission finds good cause to approve the proposed merger between Duke Energy and Piedmont subject to all of the terms, conditions, and provisions of this Order, and, further, provided that Duke Energy and Piedmont file a statement in these dockets notifying the Commission that they accept and agree to all the terms, conditions and provisions of this Order, as well as the Regulatory Conditions and Code of Conduct.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.