Appeals court weighs Duke Energy merger deal

The North Carolina Court of Appeals is being asked to decide whether the deal that made Charlotte-based Duke Energy Corp. the country's largest electric company should be revised to do more for consumers.

The court will hear arguments Wednesday challenging the state Utilities Commission's decision last year to approve the agreement combining Duke Energy with Raleigh-based Progress Energy.

Duke Energy serves 7.2 million customers in the Carolinas, Florida, Kentucky, Indiana and Ohio. It has about 800,000 customers in Indiana.

A three-judge panel is considering whether the North Carolina Utilities Commission did a full cost-benefit analysis before it approved a deal combining Duke Energy with Raleigh-based Progress Energy. The advocacy group NC WARN contends the commission didn't fully protect consumers from risks connected to the merger. The city of Orangeburg, S.C., is challenging some of the terms of the merger that brought together companies that each served customers in both Carolinas.

"What we're shooting for is not that they would unravel the merger," NC WARN director Jim Warren said. "But we do think there's a real chance that the terms could be modified. … We think that Duke very likely could be required to pass along more savings, especially to the smaller customers. We know they cut deals with some of their big customers in this rate case, but we think that it's likely that they owe the smaller customers more."

A decision isn't expected for several months and a ruling could be appealed to the state Supreme Court. The high court ruled earlier this year that the state Utilities Commission did not adequately consider the negative impact on consumers by allowing Duke Energy to raise rates by 7 percent.

Although the merger included the promise that Duke Energy would pass along to consumers at least $650 million in fuel savings, attorneys for NC WARN contend the commission wrongly accepted the utility's promises when it "submitted evidence that the merger will benefit only themselves but no evidence was submitted that the merger will further the public convenience and necessity."

Duke Energy counters that NC WARN ignores the fact that without the merger there would be no fuel savings at all.

"Extensive evidence concerning the proposed risks of the merger was presented to the commission, was analyzed by the commission, and appropriate regulatory conditions were imposed to meet these risks," Duke Energy attorneys wrote in court filings.

The lawsuit challenging the merger is the latest twist in a multi-billion-dollar deal and the boardroom intrigue behind it.

Days after the utilities commission blessed the merger of North Carolina's two Fortune 500 energy companies, Duke Energy closed the deal July 2, 2012. The company shocked investors and consumers by saying the completed merger including the hiring and firing hours later of Progress Energy CEO Bill Johnson, who for a year and a half had been promised the job heading the combined company. The surprise CEO switch prompted shareholder lawsuits, led consumers to suggest the state regulator was duped, pushed board members to resign and drove down Duke Energy's stock price.

The state's utilities commission and attorney general launched separate investigations into whether Duke Energy misled officials before its buyout. Both settled after the company agreed to greater oversight, management changes and another $30 million for ratepayers and low-income assistance.

Duke is the largest U.S. utility as measured by number of customers and market value. Like many of its peers, the utility is facing a future of almost no growth in electricity demand as homes, buildings, devices and appliances become more efficient.