On March 26, 2012, in an attempt to gain approval of their merger, Duke Energy Corp. (“Duke”) and Progress Energy, Inc. (“Progress”) (together, “Applicants”) filed a revised market power mitigation proposal (“Proposal”) with FERC.  The Commission conditionally approved the merger on September 30, 2011, but conditioned its approval on the mitigation of certain horizontal market power concerns (see October 7, 2011 edition of the WER).  The filing marks the Applicants’ second attempt to satisfy FERC’s September order. The Commission rejected Duke-Progress’ “virtual divestiture” proposal tendered in December 2011 (see December 19, 2011 edition of the WER).

The Applicants’ Proposal, in an attempt to alleviate FERC’s market power concerns, has discarded the first virtual divesture proposal and replaced it with a two-part approach: (1) Interim Mitigation based on power sales; and (2) Permanent Mitigation based on proposed transmission upgrades.
Under this approach, Applicants will build seven previously unplanned transmission projects to increase the amount of power that can be imported to the Carolinas.  The Applicants argue that these transmission projects will increase import capability enough to cure most of the competitive screen failures associated with the proposed merger.  While FERC stated that transmission expansion could mitigate competitive effects concerns in its September order on the merger, transmission is only considered an effective tool to mitigate market power after it is constructed.  It remains to be seen if Applicants have proposed enough mitigation for the screen failures.

While the transmission projects are being completed, Applicants have proposed to implement Interim Mitigation measures.  These measures include selling excess capacity to third parties during summer and winter peak and off-peak hours.  Applicants have further stated that they have entered into must-deliver, must-take agreements with Cargill Power Markets LLC, EDF Trading North America LLC and Morgan Stanley Capital Group, Inc.

Applicants further revised their Proposal to include a finalized agreement with an independent monitoring agency.  The previous proposal did not include a finalized agreement and was a point of contention with FERC.

Applicants have requested approval of the filing by June 8 in order to finalize the merger before the July 1 termination deadline.

A copy of the Proposal can be found here.