FERC approved Duke Energy’s request to reorganize its utilities in the Carolinas, eliminating a subsidiary of old Progress Energy utilities so the firm will just have Duke Energy Carolinas serving customers in the two states (EC25-128).

Duke Energy Carolinas has been a vertically integrated utility serving 2.9 million retail customers in central and western North Carolina and western South Carolina. Progress Energy serves 1.6 million retail customers in eastern North Carolina, the area around Asheville, and northeastern South Carolina. Duke Energy and Progress merged in 2011, and it has had the two subsidiaries in the Carolinas since then.

Duke asked to combine them because it would make resource planning and operations more efficient and simpler. Over time, Duke claims the efficiencies will unlock between $1.6-3.2 billion in savings, said the FERC order released Jan. 30.

FERC found the impact on horizontal and vertical competition would be acceptable under its rules. The only aspect of the filing that was protested was its impact on rates, by a group of wholesale customers including several municipalities and a couple of universities.

Duke’s “hold harmless” commitment to customers said it would ensure that any transaction and transition costs that exceed savings from the combination would have no impact on wholesale or transmission customers for five years.

The protest from the customer group argued that some of the Duke-Progress merger costs were misallocated to customers, which came out after FERC staff did an audit of the deal after it happened. They wanted to see recoverable costs and costs from combining the firm to be clearly labeled so they can ensure the hold-harmless commitment is upheld.

The current system with two subsidiaries means that sometimes Duke Carolinas’ transmission system is needed to serve Duke Progress customers and that involves Duke paying some of its transmission customers, the order said.

“Customer group argues that, in contrast, the point-to-point revenues, for which Duke Carolinas’ transmission customers receive credit, will disappear, Duke Progress customers will no longer have to pay for the use of the Duke Carolinas transmission system, and the costs that were previously borne by Duke Progress transmission customers will be socialized among all of Duke Carolinas and Duke Progress customers,” the order documented.

FERC was not convinced by those arguments, finding the combination of the subsidiaries will not have an adverse effect on rates.

“Under the Share the Benefits Plan, Duke Carolinas’ customers will be protected from an immediate rate increase at the cost of deferred benefits by Duke Progress’ customers,” FERC said in the order. “The separate OATT Mitigation Plan addresses cost shifts impacting transmission customers of Duke Carolinas and Duke Progress, providing a credit to Duke Carolinas’ transmission customers over a five-year period, and adopts the lower rate between the two companies when setting ancillary services rates in the future.”

The customer group acknowledges Duke’s plan will resolve up to 91% of the impact on their rates. FERC declined to eliminate the phase-out of the charges because indemnifying customers in perpetuity goes beyond its merger policies.

“Five-year hold-harmless period is considered ‘standard’ as the majority of costs incurred as a result of a transaction are in the first five years after the closing of the transaction, particularly in this instance as the merger is between public utilities in the same holding company, and extending a hold-harmless commitment into perpetuity would risk becoming administratively unmanageable,” the order said.