The giant merger between the utilities Duke Energy Corp. and Progress Energy Inc. may have a telling impact on the congressional debate over U.S. energy policy during the new session.
The more than $13 billion utility merger announced earlier this week would provide electricity service to upward of 7 million customers in North Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio, if approved by federal and state regulators and the Justice Department. It would have the third largest fleet of nuclear plants. Both companies have made moves away from their coal generation to natural gas, although coal still provides more than half of the generation in the combined fleet.
The companies aim to complete the merger by the end of this year.
Leading the unified utility will be Jim Rogers, current CEO of Duke Energy and slated to be executive chairman of the new company, also to be called Duke Energy. Rogers has been a vocal leader on cutting greenhouse gas emissions and promoting energy efficiency as the "fifth fuel." Bill Johnson, Progress' chairman, president and CEO, will become president and CEO of the new company.
Rogers' sphere of influence will expand with the new company and on the level with other utility giants: Exelon Corp., Southern Co. and American Electric Power Co. Inc., utility lobbyists say.
"To the extent it is important [it's] because it gives Jim Rogers as big a platform as John Rowe," chairman and CEO of Exelon Corp., said Mike McKenna, a Republican energy lobbyist. Exelon has the most retail utility customers in the United States -- until this merger is completed -- and the largest fleet of nuclear power plants.
Rogers has similar views as Rowe on the need to cut greenhouse gas emissions -- both supported cap-and-trade legislation last year -- and both support energy efficiency and nuclear.
But the merger will give Rogers a new interest in the political conversation: Southern geography.
"Leadership in that region and those states will have a much more positive impact then anything outside the region," said Kateri Callahan, president of the Alliance to Save Energy.
"It's always been a tough sell in the Southeast to get them to look at California and New York [energy efficiency programs] and say, 'You should follow suit.' Those are seen [as] just shy of foreign countries," said Callahan, who is originally from the Southeast.
That perspective could prove vital in brewing conversations about a "clean energy standard" (CES) in Congress, a policy that would require utilities to meet a certain percentage of electricity generation through renewables, nuclear, carbon capture and sequestration and certain natural gas.
Southeastern utilities and lawmakers have been the greatest obstacles facing supporters of a mandate of certain electricity generation -- either a CES or its predecessor, the renewable electricity standard (RES), which would have excluded coal, nuclear, natural gas and some biomass.
Duke Energy has not supported a federal renewable electricity standard as introduced in prior forms, but the merger with Progress Energy changes its generation mix and may change the new company's position.
"It adds a lot of clean generation to the Duke mix, plus a new [relatively] high-growth geographic base in Florida," a utility lobbyist said. He added, however, "Bill Johnson is a deep strategic thinker who is much less likely than Rogers to throw around flavor-of-the-month ideas in an effort to appease some regulators and legislators."
It is still uncertain where energy efficiency may land in the debate over a CES, but its inclusion to meet any new standards may also sweeten a CES deal for the new company that emerges.
Duke's energy efficiency programs are held up as the high standard in utility programs by energy efficiency advocates, and Rogers has pushed for utilities to embrace it as part of its generation, arguing with regulators to pay utilities for the "negawatts" of energy.
Steven Nadel, executive director of American Council for an Energy Efficiency Economy (ACEEE), said Duke is likely to push Progress Energy's service territory to be more aggressive on energy efficiency as well.
"In general Duke has been a bit more aggressive than Progress on energy efficiency issues in recent years. I would expect the combined company to be a bit more advanced on energy efficiency than Progress has been," Nadel said. He added that he expects that influence to play out more on the state regulatory level than on the federal level. ACEEE supports a federal CES if it does not limit the amount of energy efficiency that could count towards the percentage.
Callahan says she sees a bigger platform for Rogers to influence energy efficiency issues across the nation.
"Clearly Duke Energy has emerged under Jim Rogers' leadership as a moving force for energy efficiency not only in Southeast but really in the U.S.," she said.
Rogers also reiterated his commitment and leadership to work on limiting greenhouse gas emissions in a teleconference with reporters yesterday.
"Bill [Johnson] and I are totally in sync with respect to climate change and the need to prepare our companies for the regulation of carbon," Rogers said. "The most effective way to do it is for Congress to act appropriately to put a carbon regime in place." He acknowledged that it would not happen in this Congress.
But the new company will be "well positioned for pending environmental regulations," including 23 percent of "non-emitting" generation and 35 percent natural gas and oil, according to the companies.
Nuclear, CCS, transmission
The larger company will also have better credit and more leverage to tackle some of the larger capital intensive projects, like transmission, carbon capture and storage, and new nuclear power plants. It will have $90.6 billion in assets and $22.7 billion in revenues annually.
"There's a tsunami of capital costs heading our way," Rogers said during a teleconference on the merger.
Having three new reactors in the pipeline may lend more urgency to appeals from the new Duke Energy for help from the government. Between the two companies this includes applications for three new nuclear power plants at the Nuclear Regulatory Commission and the accompanying loan guarantees and incentives from the federal government.
And nuclear energy is an area where there may be bipartisan interest in the air, along with carbon capture and sequestration.
The Obama administration has asked Congress to provide at least $9 billion more in new nuclear loan guarantee authority, which Republicans support as well. The nuclear industry would also like to see an extension of some tax incentives and a "clean energy bank" that could also provide loans but not be under the direct control of the Energy Department.
Duke has also shown considerable interest in coal-fired plants with carbon capture and storage. The company is building a 630-megawatt integrated gasification combined cycle (IGCC) power plant in Edwardsport, Ind. Duke is also working with China's largest electric utility, China Huaneng Group, to develop CCS technology and renewable energy technology (ClimateWire, Sept. 20, 2010).
But the Southern Alliance for Clean Energy said it was "hopeful" that the merger would also provide new scrutiny on both companies' actions.
"We are hopeful in this merger that Duke and Progress can work to solidify their coal-fired power plant retirement commitments and look for even more opportunities to decrease their reliance on coal," SACE said.
SACE noted the merger review by regulators and federal agencies may also shine a light on some of the issues at each company that the alliance does not support, including "the financial and environmental risks associated with Duke's insistence on new coal generation and both utilities' excessive pushes for nuclear energy over more cost effective and safer alternatives."
The merger may also ease Progress Energy's objection about federal transmission policy. Duke has invested $1 billion with American Electric Power to build and operate 240 miles of extra-high-voltage 765-kilovolt transmission lines and related facilities in Indiana. The project is currently under review at the Federal Energy Regulatory Commission.
Progress is a member of the Coalition for Fair Transmission Policy (CFTP), which is protesting new policies at FERC that would require the consideration of renewable energy -- and state RES policies -- when transmission operators considered the planning and passing costs on to consumers for new transmission.
FERC's proposed rule reflects transmission policies laid out by the Senate Energy and Natural Resources Committee last year as part of a comprehensive energy bill (E&ENews PM, May 13, 2009).
The 2009 committee bill could be influential in any new energy bills put forward in the 112th Congress, as Sen. Jeff Bingaman (D-N.M.) still maintains the gavel in the committee and Senate Majority Leader Sen. Harry Reid (D-Nev.) is a firm supporter of the need for new long-distance, high-voltage transmission.