NEW YORK ( TheStreet) -- Progress Energy ( PGN) shareholders are in the dark, at least for the moment, when it comes to the utility's proposed $13.7 billion mega-merger with Duke Energy ( DUK). Warmer than expected weather has hit utility earnings, and key regulatory approvals remain for the deal with Duke to close, in spite of progress. Progress Energy investors should remain cautious. The value of the all-stock deal increased with Duke Energy's over 20% stock gain in 2011. Amid falling earnings for both North Carolina-based utilities, management commentary and recent media reports still signal confidence that the merger will close ahead of a July 2012 termination date, with state regulatory approvals imminent. However, an approval by the Federal Energy Regulatory Commission, a roadblock that pushed the deal closure into 2012, remains a key risk, and for Progress Energy, there's still prospect its shares could fall if the utilities mega deal is cut off by the federal government.
On Thursday, Bloomberg reported that Duke Energy has reached a key "agreement in principle" with the North Carolina Utilities Commission on the merger, mirroring recent comments by Progress Energy CEO Bill Johnson, who said that the approval would come "pretty soon." Potential approval by North Carolina regulators would remove one of the biggest lingering risks to the deal. "Progress Energy's confidence in finding a deal with the states is clearly tightening the spread to Duke Energy and will be an important step in building confidence that the deal will close," wrote Credit Suisse analyst Dan Eggers, in a Friday note to clients. "We appreciate the appeal of capturing the arbitrage spread to Duke Energy but given FERC's actions so far we are still more cautious considering the downside risk if the deal were to fail based on the significant premium price-to-earnings multiple for Progress Energy shares today." Both companies have told investors they are working to close the merger by July 1, but nearly a year and a half has passed since the deal was first announced in January 2011 when Duke Energy first offered $13.7 billion in an all-stock deal for Progress Energy, a tie-up that would create a regional utility behemoth in the Carolinas, serving 7.1 million customers in Southeastern states. The prospective May agreement with North Carolina regulators would offer $650 million in customer savings and an assurance that energy users won't bear regulatory costs from the deal, Bloomberg reported.