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CHARLOTTE (MCT) -- The path to creating the nation's largest merger faces its toughest test this week as Duke Energy asks the N.C. Utilities Commission to bless its union with Raleigh-based Progress Energy.

Key players, including consumer advocacy agencies in both Carolinas, support the $26 billion merger. Critics will balk at the deal for the job losses it will cause and its effects on green-energy development.

The merger will create the largest U.S. utility by several measures, including its 7.1 million customers in the Carolinas, Ohio, Indiana, Kentucky and Florida. Charlotte will still be the base of the new Duke Energy.

The companies will seek approval in a commissioner hearing that starts Tuesday in Raleigh.

Shareholders from both companies overwhelmingly endorsed the deal. It still needs approval by the Federal Energy Regulatory Commission, and the S.C. utilities commission has to say yes to a joint operating agreement.

But experts say the utilities commission in the companies' home state will be most likely to define the merger's terms.

"The state level is really, at the end of the day, where you see these mergers succeed or fail," said a Washington energy lawyer not involved in the merger. "You see more of a give-and-take at the state level than at the federal level."

Duke and Progress say their combination will create a financially stouter company better able to build new power plants, update infrastructure and abide by tougher environmental rules. The N.C. utilities commission will use a different yardstick: whether their 3.1 million N.C. customers come out ahead.

"I think they will approve the merger, but they could impose conditions other than those we and others have agreed to," said Robert Gruber, executive director of the commission's Public Staff, which represents utility customers. "They have to determine it's in the public interest and that the benefits outweigh the costs."

The highlight of the agreement between the influential Public Staff and the companies is $650 million in guaranteed savings for consumers over five years. Most of the savings will come from lower fuel costs when the two power plant fleets are combined.

Unlike Duke's 2006 merger with Cincinnati-based Cinergy, which produced a one-year N.C. rate cut of $117 million, Duke and Progress haven't agreed to reduce rates. That's because Duke is seeking a 15-percent overall rate increase in a separate proceeding. "It didn't make sense to have a refund and then give it right back in a rate case," Gruber said.

Apart from fuel, more savings will come from streamlined operations -- including erasing duplicate jobs. The companies said Friday they expect to trim about 2,000 jobs over three years from a combined workforce of more than 29,000. Most losses are expected to be in North Carolina.

Progress has said it will trim or transfer 700 to 1,000 Raleigh jobs, but Duke has not estimated impacts in Charlotte. Both will offer employee buyouts in the coming weeks.
"The bottom line is, we're being asked to focus on customer savings," said Duke spokesman Tom Williams. "There's nothing in the statute that says we need to project jobs. There is something in the statute that speaks to protecting customers."

The Environmental Defense Fund and three other advocacy groups argue the commission could soften the impact of those lost jobs. Requiring the companies to invest more in energy efficiency and renewable energy would create new jobs, they say.

The groups say Duke and Progress haven't fully assessed the costs and benefits of the merger. Increasing reliance on coal-powered plants and blending of coal from different regions, a cost-saving move, would increase emissions, they say.

The N.C. Sustainable Energy Association says the merger, as proposed, misses a key opportunity for Duke and Progress to make greater use of wind, solar and other green energy. Both now make most of their electricity with nuclear, coal and natural gas-fueled power plants. "The merger sets the stage for a stagnant, business-as-usual strategy," the association's executive director, Ivan Urlaub, said in a commission filing.

Williams, the Duke spokesman, said the merger won't dictate the power-generation mix of the new Duke. Regulators have to approve new power plants. Legislators could require more green energy.

"We haven't been given approval to build a power plant," he said. "You could build a whole lot of solar, too, if it were cost-competitive."

Investors, meanwhile, appear to like a merger that has gone smoothly so far, said Paul Franzen, a utilities analyst with Edward Jones in St. Louis. The two utilities' stocks, which have both risen this year, show that "the market is saying this is a deal that is progressing and likely to go through.

"Do I expect a curve ball? No. But North Carolina is a big state, and if there's something challenging, it could be in North Carolina."