On September 30, 2011, FERC conditionally approved the proposed merger between Duke Energy Corporation (“Duke”) and Progress Energy, Inc. (“Progress”) (together, “Applicants”).  FERC “conditionally approved” the proposed merger, imposing conditions on the Applicants related to horizontal market power.  
 
In its examination of the Proposed Merger, FERC found the transaction results in “significant screen failures” in the horizontal market power analysis, and as such, FERC is requiring the Applicants to develop a mitigation plan which could include any of the following measures: (1) joining or forming a Regional Transmission Organization ; (2) implementation of an independent coordinator of transmission arrangement; (3) generation divestiture; (4) virtual divestiture; and (5) proposals to build new transmission to provide greater access to third party suppliers.

FERC’s September 30, 2011 Order granted the Applicants 60 days to make a compliance filing detailing their proposed mitigation measures.  FERC also will allow interested parties 30 days to comment on the Applicants’ proposed mitigation measures before issuing a subsequent order on whether the proposed mitigation is sufficient.

On Friday, October 7, 2011, the Applicants presented the North Carolina Utilities Commission (“NCUC”) with a draft term sheet describing the proposal it intends to make to FERC to mitigate the market concentration screen failures noted in the recent FERC order. (The term sheet was presented to the NCUC in accordance with a merger commitment to offer the NCUC advance notice of FERC filings.)  The Applicants are preparing to offer an auction-based “virtual divestiture” to cure the screen failures.  Under the proposed divestiture, Duke Energy Carolinas and Progress Energy Carolinas will offer to sell up to 500 MW of “Available Economic Capacity” in each hour in the their home balancing authority areas in certain seasons of the year.  Sales will be made pursuant to the Applicants’ existing cost-based tariffs.  The mitigation proposal has not yet been filed with FERC.

A copy of the Commission’s Order is available here.