Jim Rogers, chief executive of Duke Energy Corp., has long wanted his utility to get bigger. Now it will be the biggest of all.
Duke is buying its North Carolina rival Progress Energy Inc. for $13.7 billion in stock, a deal that will give it the most customers, power capacity and market value in the U.S.
Utilities across the U.S. have been consolidating over the past year as a way to blunt the effects of new costly environmental rules. Consolidation is also being driven by low power prices, which have constrained profits and forced the companies to seek cost savings.
Rogers said the combined company will require a smaller work force and will be able to save $600 million to $800 million in fuel costs over the first five years. This should limit rate increases that are anticipated as a result of building new power plants and transmission wires.
The deal appears to favor Duke. Usually the shares of the target of an acquisition rise. But shares in Progress fell 73 cents, or 1.6 percent, to $43.99. It's a sign that investors were disappointed with the price Progress received.
Progress operates in heavily regulated states and has been more protected from the recent decrease in wholesale power prices than Duke, which operates in deregulated states like Ohio.
Duke earnings are expected to fall this year as the company's operations in Ohio and Indiana struggle.
Duke's purchase is one of a string of recent deals in the industry inspired by low electricity prices and looming costly environmental regulations.
Utilities have been unable to significantly boost prices because wholesale power prices are low. That and looming environmental regulations have spurred companies to link up to help reduce costs and spread the high cost of power plant upgrades more widely.
In November, PPL Corp. bought Louisville Gas and Electric and Kentucky Utilities from Germany's E.On. Also last year, First Energy Corp. agreed to acquire Allegheny Energy Inc., while Northeast Utilities agreed to buy NStar, though those deals have yet to be completed.