Duke Energy Corp is near $13 billion-plus deal to buy Progress Energy Inc

, a move that would create the largest U.S. power company, sources familiar with the matter said.

The U.S. power industry has seen a resurgence of deal activity in the past year -- despite high regulatory barriers -- as utility companies consolidate to cut costs and pool funds for investing in new projects, such as nuclear power plants.

Duke, which has a market value of $23.6 billion, wants to buy Progress in a stock-based deal priced at a low premium to its $13.1 billion market value, one source said. The companies hope to announce a deal on Monday, according to another source, but the talks could still be delayed or even derailed.

U.S. state regulators often oppose large mergers on fears that prices could rise for consumers, or services could decline.

Currently the third-largest U.S. utility, Duke would leap to the top spot in both market value and generating capacity if the deal is completed, based on the companies' current totals.

The fact that they'll be so dominant would create some regulatory problems in my opinion, said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. The regulatory hurdle is probably going to be daunting, he said.

Both Duke and Progress are based in North Carolina and serve clients in North and South Carolina. Duke serves some markets in the Midwestern United States and Progress also supplies customers in Florida.

Duke would be adding Progress' more than 22,000 megawatts of generation capacity to its fleet of power plants, which have a capacity of 35,000 megawatts. One megawatt can power an average of 1,000 U.S. homes.

Florida's NextEra Energy previously held the top spot, with just under 49,000 megawatts, according to an October report from industry group Edison Electric Institute.

Gordon Howald, an analyst with East Shore Partners, said diversified utilities like Duke are searching for acquisitions to fuel cash flow at a time when power prices are expected to be low over the next few years.

This deal would help them ride through a very difficult market for the next couple of years, he said of Duke.

Progress has shed non-regulated businesses in recent years. The acquisition would add stable cash flow for Duke, which has a portfolio of both regulated and unregulated power assets.

REGULATORY HURDLES?

Power deals in the past year include FirstEnergy's $4.7 billion deal for Allegheny Energy , E.ON's $6.7 billion sale of its U.S. unit to PPL Corp

and Carl Icahn's recent bid to buy power producer Dynegy .

Howald said he would expect other large diversified utilities like Exelon Corp and NextEra to be on the hunt for acquisitions as well.

Diversified utilities have been relying on unregulated operations -- where they can sell power at market rates -- for growth. But in a weak power price environment, they are going to have to find cash flow somewhere else, he said.

State regulators have sought drastic concessions from companies planning to merge, such as in the form of rate reductions. In a previous wave of consolidation during the middle of the last decade, planned mergers of FPL Group and Constellation Energy Group , as well as Exelon and Public Service Enterprise Group

fell apart after regulatory problems arose.

Even deals that do succeed can drag on for very long periods before closing. FirstEnergy has yet to complete its deal for Allegheny, which was agreed to eleven months ago.

Duke last year lost out on a bid for the U.S. assets of German utility E.ON but its chief executive, Jim Rogers, an industry veteran who has led various utilities in the past 21 years, has widely been seen as hungry to make acquisitions. Duke bought rival Cinergy for $9 billion in 2006, bringing Rogers onboard, who was then serving as CEO of the smaller company.

Progress shares closed at $44.72 on Friday, and have risen more than 4 percent since Thursday morning, when rumors of the deal first surfaced. The company also saw a spike in options activity on Thursday on January calls between $42 and $45.

Duke and Progress were not immediately available for a comment.

(Reporting by Michael Erman; Editing by Maureen Bavdek and Tim Dobbyn)

Energy