On February 22, 2012, Duke Energy Carolinas, LLC (“DEC”) and Progress Energy Carolinas, Inc. (“PEC”) filed with the North Carolina Utilities Commission a description of the revised merger-related market power mitigation plan it aims to submit to FERC next month (the “Revised Mitigation Plan”). The Revised Mitigation Plan marks the second attempt to satisfy FERC’s concerns about the impact of the proposed merger on market concentration in the Carolinas. The Revised Mitigation Plan relies on building new transmission facilities in the Carolinas in the long term and power sales in the short term to mitigate merger-related increases in market concentration.
On April 4, 2011, Duke Energy Corporation (“Duke”) and Progress Energy, Inc. (“Progress”) (together, “Applicants”) filed for approval of a merger transaction through which Progress will become a wholly-owned subsidiary of Duke and the former shareholders of Progress will become shareholders of Duke. On September 30, 2011, FERC conditionally approved the proposed merger but imposed conditions on Duke and Progress related to horizontal market power concerns. (see October 7, 2011 edition of the WER) On October 17, 2011, the Applicants filed their Initial Mitigation Plan to address market power issues, which was based on a virtual divestiture. The proposed virtual divestiture would have involved making certain quantities of power available on a day-ahead basis. On December 14, 2011, FERC rejected the Initial Mitigation Plan over concerns about the short-term nature of the sales, limitations on eligible buyers, and the uncertainty of availability of the energy.
The Applicants’ Revised Mitigation Plan again attempts to address market power concerns, and contains two components: (1) an Interim Mitigation with virtual divestiture; and (2) Permanent Mitigation with transmission improvements and other commitments. Applicants argue that the transmission build out will increase access to the Carolinas for competing supply in the long run, while the virtual divestiture will mitigate any short term market concentration effects of the deal.
Under Interim Mitigation, DEC and PEC will undertake firm power sales during the Summer and Winter seasons. These power sales will take place pursuant to terms and conditions contained in term sheets attached to the Applicants’ Revised Mitigation Plan. According to the Applicants, Interim Mitigation will only take place until the permanent mitigation efforts can be completed, or around three years.
Permanent Mitigation consists of three transmission projects: (1) upgrading transformers on DEC’s Antioch 500/230 kV transmission line; (2) constructing a third 230 kV line among PEC’s existing Lilesville to Rockingham 230 kV line; and (3) adding a series reactor to one of PEC’s existing Roxboro to East Danville 230 kV line (“Group 1 Projects”). PEC also committed to working in connection with the series reactor on the Roxboro to East Danville 230 kV line. The Applicants indicate that these projects will increase transmission import capability on the DEC and PEC systems and increase the Simultaneous Import Limits of both systems, which is the amount of power that can be imported at one time.
In addition to the Group 1 Projects, the Applicants also state that they are evaluating other transmission projects that do not require acquisition of a new right-of-way or state certificate of environmental compatibility and public convenience and necessity. These “Group 2 Projects” include: (1) reconductoring the PEC Kinston Dupont-Wommack 230 kV line; (2) reconductoring the PEC Person-(DVP) Halifax 230 kV line; (3) installing 4000 amps wave traps and reworking protective relays on the PEC Wake-Carson 500 kV line; (4) uprating the PEC Durham-E. Durham 230 kV line; and (5) constructing a new PEC Greenville-Kinston Dupont 230 kV line. Currently, the Applicants are considering whether to offer both Group 1 and Group 2 Projects to FERC or whether to just offer Group 1 Projects.
DEC requested that the North Carolina Utilities Commission accept their advanced notice of filing so that the Revised Mitigation Plan may be filed at FERC after the expiration of a 30-day notice period required pursuant to a commitment the Applicants made to the North Carolina Commission.
A copy of DEC’s filing is available here.