Tuesday, October 11, 2011

Big utility CEOs take heat on merger - Charlotte Observer

Posted: Wednesday, Sep. 21, 2011

RALEIGH A larger new Duke Energy will benefit its 7.1 million customers through fuel savings and cheaper financing for building projects, the chief executives of Duke and Progress Energy told the N.C. Utilities Commission on Tuesday.

The CEOs began presenting their case in hopes of limiting insistence by merger critics that the combined companies increase spending on energy efficiency and renewable energy. Both now rely heavily on nuclear and fossil-fuel plants.

The merger would create the nation's largest utility. But other parties to the proceeding had questions about the impact of the 2,000 jobs the companies estimate will be lost.

The N.C. commission's approval is key to sealing the $26 billion deal, which Duke and Progress hope to close by year's end. Federal authorities also have to approve the merger.

Duke's Jim Rogers and Progress' Bill Johnson sought to avoid certain issues - rates, new power plants, renewable energy - that they consider unrelated to the merger.

Attorneys for environmental and clean-energy groups pressed the CEOs on their commitment to energy efficiency and alternatives to nuclear, coal- and gas-fueled power. The hearing is conducted much like a trial, with lawyers able to cross-examine witnesses.

"We've been very aggressive (on energy efficiency) as well as on renewables," Rogers testified under cross-examination. The initiatives "haven't always been well received, but we've been aggressive in pushing them forward."

Energy efficiency programs, Johnson added, rely on customers' willingness to take advantage of them. And the expense of increased spending on renewable energy, he said, is added to the bills of low-income customers.

"One of the problems I have is that the two move in opposite directions," he said.

Energy alternatives an issue

Under further questioning, Rogers refused to commit Duke to creating more green energy than the 12.5 percent of their total electric generation by 2021 that state law requires. Duke has become a leader in solar and wind power, he noted, but many of those projects are located in other states.

"It seems to make sense to put wind turbines where the wind blows," he said. "And the reason you don't put them in North Carolina is that the wind doesn't blow here" hard enough, except on mountain ridges and coastal waters.

Commission chairman Edward Finley Jr. later challenged the statement, noting two wind-energy applications are before the panel.

The International Brotherhood of Electrical Workers, which has about 5,200 members at Duke and Progress, pressed Rogers on where the company would cut redundant jobs. They're more likely to be in corporate offices than power plants, Rogers said, and the companies hope to get most of the savings through voluntary departures. Buyouts will probably be offered to targeted work groups in November.

Asked if Duke expects the merger to create jobs in renewable energy and energy efficiency, Rogers offered a noncommittal: "That would be our aspiration."

Raising rates

The CEOs also said their companies will have to raise electricity rates to cover severance payments that will be paid to employees who lose their jobs in the merger.

It's not clear how much the severance would cost Duke and Progress customers, but the electric utilities could end up paying out several hundred million dollars.

The state's consumer advocate, the Public Staff, argues that the companies and their shareholders should eat costs associated with the merger, rather than pass them on to customers.

The executives said making customers pay for the severance is justified because customers are the ones who will ultimately benefit from the merger.

"The severance cost is the cost I would describe to achieve the savings," Rogers told the commission.

"In the longer term, those savings will benefit the customers," he added.

Parade of critics

A parade of merger critics opened the hearing, pleading for clean-energy alternatives and bashing the utilities' political might. Rogers and Johnson initially had to stand at the fringe of a packed hearing room.

"Unlike Jim Rogers, I live next to the generator of the power I sell," said Jim Senter of Potluck Power Co., which sells solar energy in Rougemont. "And unlike Jim Rogers, I look in the eyes of the people I sell power to."

Savings from the merger, the companies say, will help offset expected rate increases to pay for new power plants. But citizen speakers focused on what the proposed merger terms don't do.

Charlottean Beth Henry waved a pie chart showing Duke's projected energy efficiency and renewable energy measures by 2030, equivalent to 4 percent and 3 percent of its energy mix, according to recent filings.

"This is a joke," Henry said.

Duke and Progress have promised to share with customers $650 million in savings over five years, most of it from lower fuel costs. Henry called that "peanuts compared to creating a company that's so large its political power will be overwhelming."

She decried the "real travesty" of jobs not created from larger utility investments in energy efficiency and insulating homes of low-income residents.

The utilities have pledged to spend $15 million to make low-income housing weather-tight and pay for technical training at community colleges.

Worries about utility's size

Critics say approval of the merger will enlarge a business-as-usual power company that is likely to continue relying on nuclear plants and fossil fuels to produce energy. They fear the new Duke will ignore alternatives such as the mechanism called "decoupling" that allows utilities to profit by helping customers save energy, not just by selling it.

"As long as we're going to create the largest utility in the country, we ought to have a chance to make sure they move the paradigm," said Thomas Henkel, an energy expert from Chapel Hill.

Two speakers brought up litigation and fines involving Duke's energy trading and unregulated power plants on the West coast several years ago. And several returned to the theme of increasing its political power in a state where, critics claim, Duke already usually gets its way.

"Once (the merger) is allowed, it will be difficult to go back, and Duke's combined political and economic power will block the way," said Sherri Zann Rosenthal, an assistant city attorney and developer in Durham.

Responded Duke spokesman Tom Williams: "We're very active in Raleigh and we're expected to be because we're one of the state's largest companies."

The hearing is expected to continue through at least Thursday. The commission will not immediately issue a ruling at its conclusion. John Murawski of the (Raleigh) News & Observer contributed.

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