Up front: Giants among us
The day that Duke Energy Corp. agreed to buy Piedmont Natural Gas Co. for $4.9 billion, an analyst told company executives she was “scratching her head” over the price. Since then, I’ve scratched my own noggin, wondering how the merger benefits business or residential customers. Maybe a combined company will have a lower cost of capital. By that reasoning, the government should own everything because of its inexpensive debt. Maybe the deal blocks an out-of-state rival from taking over Piedmont’s network. Not sure why that matters to Joe Six-pack.
Starting this month, state regulators will ask Duke to explain how one utility controlling both gas lines and the electric grid can look out for customers more effectively than two aggressive, independent operators. I’m dubious. For most consumers, big rarely means better.
The Duke-Piedmont deal is the latest in a string of mergers that once seemed unbelievable, but now receive serious consideration — even when community benefits are elusive. Four of the five big health insurers have plans to consolidate. Banking gets more concentrated every week. Airline industry mergers have led to fewer flights to midsized towns and higher fares, prompting questions of collusion.
Fortunately, the proposed merger of U.S. cable companies Comcast and Time Warner Cable didn’t pass the antitrust smell test. Neither does the pending merger of Anheuser-Busch InBev and SAB Miller, which has sparked concern here as Miller closes its 500-worker brewery in Eden.
Concern over six-pack pricing may be frivolous. But most Tar Heels have no choice except Duke or Piedmont to keep offices lit or houses warm. In return, the state lets the two companies earn a 10%-or-so rate of return. Duke execs once considered that too little, so they bought unregulated businesses in other states and foreign lands. It didn’t work so well. Now CEO Lynn Good emphasizes that 90% of Duke profits will come from regulated enterprises.
The N.C. Utilities Commission could block
a Duke-Piedmont merger, but that is farfetched. Our governor worked for Duke for 28 years, while the commission chairman and the head of the so-called Public Staff formerly represented utilities. A former commission chairman is a Piedmont director. Veteran Public Staff lawyer Toni Wike promises a close vetting, while noting the commission has let electric companies gobble up smaller gas utilities based in Fayetteville and Gastonia.
The deal has obvious winners: Piedmont shareholders, dealmakers and management teams. Piedmont CEO Tom Skains gets a $14 million severance; Duke execs get a bigger sandbox. Only a cynic would suspect personal reward plays any role in the merger craze, right?
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