(Reuters) - Duke Energy's proposed purchase of Progress Energy was put on hold, after U.S. energy regulators rejected a proposal by the power companies that sought to mitigate market-power concerns.
The Federal Energy Regulatory Commission (FERC) said it could not unconditionally approve the $13.7 billion deal, according to a statement published on Thursday.
Duke had submitted a proposal last month to the FERC to address fears that the planned merger would give the combined company too much market power.
Progress Energy told Reuters on Thursday that its merger with Duke Energy would not occur by the year-end, as the two companies had previously expected.
"Obviously we were surprised by it," Progress Energy spokesman Mike Hughes said. "We're still evaluating the order to understand what it means. We clearly are not going to meet our goal of a year-end close."
Duke would not immediately comment on the FERC ruling.
"Today's (Thursday's) order does not reject the merger. It remains conditionally authorized by FERC. The companies may offer another mitigation proposal that addresses FERC's concerns," the FERC said.
FERC has raised concerns about the merger's impact on power markets in North and South Carolina. The worry is that the companies have too much market control over wholesale power supplies to local utilities in the Carolinas where both companies are based.
The companies submitted a virtual divestiture plan to the FERC in October under which Duke and Progress utilities in the Carolinas will sell 800 megawatt (MW) of wholesale power during the summer and 225 MW in the winter months to local load-serving entities at cost-based rates.
"Although Duke and Progress describe the proposal as a virtual divestiture, it would not transfer control of the energy the applicants propose to sell from the merged company," FERC said.
The combined company will rank as the largest U.S. electric utility with 7.1 million electric customers in six states -- North and South Carolina, Florida, Indiana, Ohio and Kentucky.
Duke Energy's shares closed at $20.85 on Wednesday on the New York Stock Exchange. Progress Energy shares closed at $54.43.
(Reporting by Swetha Gopinath in Bangalore and Matt Daily in New York; Editing by Supriya Kurane)