Duke Energy CEO Jim Rogers and Progress Energy CEO Bill Johnson talked with Observer reporter Bruce Henderson about the tasks that await them as they complete the Duke-Progress Energy merger: melding two cultures, resolving the issues around Progress damaged Crystal River nuclear plant in Florida, and absorbing cost overruns at Dukes Edwardsport coal-fired plant in Indiana. Rogers, 64, had been Dukes chief executive, and Johnson, 58, Progress CEO. Their responses have been edited for space and clarity.
Q. What are the biggest challenges going to be in the first couple of years?
Rogers: Weve got to resolve Crystal River, thats No. 1. The other two things, we learned through the integration process that the cultures are different and so we have to work to bring the two cultures together to become one culture. Duke is a company thats much bigger, a company that has diversity and talent in terms of earnings. Theyre an all-regulated company; were a company that has commercial operations that last year were 25 percent of our earnings.
Q. Is this the same deal you envisioned 18 months ago?
Johnson: Yes. I think the fundamentals are the same or even stronger than they were. We do have more clarity on (cost overruns at) Edwardsport. We have a better view of the options on Crystal River. But if you think about the underlying reasons for the merger I think theyre stronger a bigger balance sheet, stronger credit, more diversity in your business.
Q. How much more likely is it now that Duke will build new nuclear plants?
Rogers: We are strong believers in having regional ownership. By combining, it gives us greater capability because the goal line of building a nuclear plant is to have different shareholders share the risks but also to spread it over a bigger customer base, although the investment as a percent of the total will be much less.
Q. What do your customers get out of this merger?
Johnson: The impact will be to keep their rates lower than they otherwise would have been not a reduction from where they were, but the increases will be smaller and slower. The rate cases are a function of building new facilities or complying with environmental regulations. In the merger what we get to do is reduce fuel costs by the $650 million, and hopefully reduce operations and maintenance costs by eliminating duplicate positions and doing things in the best possible way. A couple of years ago, Duke would have to build a plant and we would have to build a plant. Maybe in the future we can build one together, achieve the purpose we need and not have it cost as much.
Q. Does Duke have to rebuild trust with the public, in light of protests over Edwardsport, ethics and this years N.C. rate hike?
Rogers: I dont think we have a problem. Any business has got to be continually working to do good things to get positive support in the community, because youre going to have things go wrong. Nobody likes a rate increase, but let me tell you, every environmentalist is going to like the fact that were going to shut down thousands of megawatts of coal plants because were building these new gas plants.
Q. Is the decision on Crystal River whether to repair it or abandon it?
Johnson: Its a little more nuanced than that. You have to have an engineering plan and a construction plan for a repair. Weve picked a vendor, so we have a plan if we choose to do the repair. You have to have a clear path with how your state regulators are going to treat this, and we have that in Florida. Then we have to conclude how much insurance coverage we have from our insurer. Im hoping to be in a position to tee all this up and get a decision by the end of the third quarter.
Q. What difference does being the biggest utility make?
Rogers: First and foremost is about being large and having a strong balance sheet, being able to attract capital thats cheaper, and that will translate into lower rates for consumers. So as we modernize our generation, transmission and distribution, as we invest in energy-efficiency on behalf of our customers, well be able to do that at a lower cost. The reason well be stronger is that well have diversity in our earnings streams, geographic diversity and diversity in generation. They have a lot of natural gas in Florida, and Progress has more gas than we do. Were about 96 percent coal and nuclear. So this will give us more exposure to natural gas pricing, and today that pricing is very favorable for consumers.
Q. How long will Progress remain a standalone company?
Johnson: Thats a really hard question to answer. The way you would put the two utilities together into one, youd have to get very close to price parity for the customer. Duke today has lower rates I think in all categories in the Carolinas. They have been on a significant capital plan as they build new coal and gas plants, so the difference will close up a little here. But when is it close enough to combine the companies? I think its not in the short term.