Duke Energy merger to affect IU students

Duke Energy, the company that off-campus students receive their monthly energy bills from, is about to become the largest utility company in the country.

Duke Energy and Progress Energy announced their pending merger Jan. 10 after both companies’ boards of directors unanimously approved the move.

Spokesperson for Duke Energy Paige Sheehan confirmed that the companies began working on the deal several months ago.

The deal will be finalized “after we receive various regulatory approvals,” Sheehan said. “We expect it will be approximately a year.”

In order to finalize the deal, the potentially combined company will provide information to regulatory boards in each state they operate.

Duke Energy operates in central and southern Indiana, northern Kentucky, southern Ohio, South Carolina and North Carolina.

Progress operates in North Carolina, South Carolina and Florida.

The Indiana Utility Regulatory Commission monitors utility companies in Indiana and will review the merger.

But Duke Energy is currently under fire in Indiana. Governor Mitch Daniels dismissed Administrative Law Judge Scott Storms from the IURC after e-mails revealed he was negotiating employment with Duke Energy.

At the same time, Storms was overseeing the approval of Duke’s Edwardsport Station. The station is currently exceeding its budget, behind schedule and the promised coal gasification technology is no longer being constructed according to the Citizens Action Coalition of Indiana.

There are potential benefits and drawbacks of the proposed merger for Duke and Progress customers, said professor Charles Trzcinka, Kelley School of Business’s James W. & Virginia E. Cozad Chair in Finance.

Trzcinka said one possible benefit is eliminating inefficiencies within the two companies.

“Energy is one of these things where they really save money by being big,” Trzcinka said.

Money saved can be money set aside to invest in new technologies, build new power facilities and improve existing ones, said Scott Sutton, Progress Energy communications specialist.

“Combining Duke and Progress Energy will create a utility with greater financial strength to take on challenges such as climate change,” Sutton said.
“We’ll be able to better finance our large projects.”

Duke is also a potential leader in coal gasification technology.

Coal gasification turns coal into steam, which removes sulfur, mercury and particulates before fueling a generator to produce electricity.

According to the U.S. Department of Energy’s website, coal gasification is one of the most versatile and clean ways to convert coal into valuable energy products.

One possible reason for the merger is Duke officials said they could use savings from the merger to help develop coal gasification technology, Trzcinka said.

“Duke made a bet that they can be a leader in this,” Trzcinka said.

However, as demonstrated by the Edwardsport plant, Duke has so far been unable to successfully use this technology in Indiana.

One potential drawback is that a bigger company has more power against regulating committees, which could mean higher energy prices, Trzcinka said.

“These big, bad companies can beat up the regulatory committees,” Trzcinka said.

Trzcinka said layoffs are possible in the combined company, although Sheehan said they might not need to lay off employees.

“We will work with employees and try to reduce the workforce through retirement, attrition and perhaps leaving certain positions open,” Sheehan said.

However, layoffs might be part of the cost-saving and inefficiency-reducing measures of merging, Trzcinka said.

There might be pros and cons of the merger for customers, but the stock market has so far been in favor of the announcement.

On the day the merger was announced, stock prices for both companies dropped.

Shortly after, both stock prices recovered and are on the rise, something that usually doesn’t happen in mergers, Trzcinka said.

“What usually happens is the acquired will go up, and the acquiring will go down,” said Professor Trzcinka.

“What happened here is that they both went up so shareholders believe it’s good for both of them.”

Progress stockholders will also do well from the merger, if it goes through.

Their quarterly dividends, checks they receive for holding the stock, would increase by about 3 percent, according to a Duke Energy press release.

When stockholders cash in their Progress stock for Duke stock, they’ll be making a profit, Trzcinka said.

“You have to pay people to give up their shares,” Trzcinka said. “What Duke is paying is roughly two dollars more than the actual value of the stock.”

If the merger is approved, in about one year off-campus IU students and Bloomington residents will be part of a company with 7.1 million customers that has the largest market share and customer base in the United States.

While there is always the potential for higher rates and monopoly abuses, Trzcinka predicts Duke customers will emerge relatively unscathed.

“If I was a Progress customer, I’d be nervous,” Trzcinka said. “As a Duke customer, I’m not.”