Merging Duke Power and Progress Energy
Date posted: February 18, 2011
A blockbuster of a business marriage was recently announced: The power giants Duke Power and Progress Energy will become one large power generation and distribution company. This is a big deal for the nation but especially for North Carolina. Why is it happening and what will be the impact? N.C. State University economist Mike Walden explains.
“Well … one impact certainly will be that most of North Carolina’s energy will now come from electric energy. I should say will now come from this new merged company, if the merger is approved, which most people expect.
“I think there were two factors behind the merger. One is the concept of economies of scale. In the power generation business, there are tremendous economies of scale — simply meaning that the bigger the company, the cheaper that they can generate and distribute power. And that’s primarily because building power generation plants — whether they be nuclear or coal or hydro — is an extremely expensive proposition, and it has gotten more so over recent years. So I think that these two companies combined as one now feel as if building a new power generation capacity — which they will have to do as our nation expands — will be a little easier for them.
“I think the other reason behind it is uncertainty. There is a lot of uncertainty in the energy business. Where will we get our energy from? Mandates to produce energy from energy alternatives? Again, I think the notion is that his bigger company will be able to meet those energy uncertainties a little better.
“One big question, of course, is what is this going to mean for the rates that we pay for electricity? We can’t say, but I do think that if the economies of scale effect does kick in, it means that rates under the combined company will be somewhat smaller — somewhat lower — than they would be under the separate companies.”
Category: Economic Perspective