The combined company, which will be called Duke Energy, will be based in Charlotte but will "maintain substantial operations in Raleigh," the companies said in a statement.
Regulators must still approve the transaction. If approved, it would result in the formation of the largest utility in the U.S. with about 7 million customers.
Bill Johnson, chairman and chief executive officer of Progress Energy, will lead the combined company, the companies said. James Rogers, chairman and CEO of Duke, will be the executive chairman.
“This combination of two outstanding companies is a natural fit,” Johnson said in the statement. “It makes clear strategic sense and creates exceptional value for our shareholders.
"Together, we can leverage our best practices to achieve even higher levels of safety, operational excellence and customer satisfaction and save money for customers by combining our fuel purchasing power and the dispatch of our generating plants," he said.
Raleigh Mayor Charles Meeker lamented the loss of Progress Energy's headquarters – the company is the only Fortune 500 firm based in Raleigh – and the expected outflow of executives.
"It's never a good day when you have a major corporate headquarters leave," Meeker said.
Johnson said the companies would stress attrition and retirements first to reduce its payroll, but the overall job impact won't be known for many months.
"There would be some overlap of positions, and we would expect some positions to be eliminated, but again, that won't start until the merger is completed in about a year," Progress Energy spokesman Mike Hughes said.
The deal for the naming rights to the Progress Energy Center for the Performing Arts remains intact, and Meeker said the company's move could open up chunks of office space in downtown Raleigh for other companies.
"For the most part, it's going to be a modest impact," said Harvey Schmitt, president and chief executive of the Greater Raleigh Chamber of Commerce. "We'll be working hard to try to get the best deal for Raleigh and the region."
"I know what's gold for some is not for others immediately. I think, at the end of the day, it will benefit both communities," Gov. Beverly Perdue said.
Combined, Duke Energy and Progress Energy would have customers across North and South Carolina, Florida, Indiana, Kentucky and Ohio.
“Our industry is entering a building phase, where we must invest in an array of new technologies to reduce our environmental footprints and become more efficient,” Rogers said in the statement. “By merging our companies, we can do that more economically for our customers, improve shareholder value and continue to grow.
“Combining Duke Energy and Progress Energy creates a utility with greater financial strength and enhanced ability to meet our challenges head-on,” Rogers added.
North Carolina State University economist Mike Walden said the larger utility would be better positioned to meet the growing need for electricity across the Southeast by building more efficient and environmentally friendly power plants.
"I think that will all be easier with a bigger company, and I think the customer will benefit from that," Walden said.
"Long term, we would expect for the rate prognosis to be better as a larger company," Hughes said.
Duke Energy will pay Progress Energy shareholders 2.6125 shares of Duke stock for each share of Progress Energy, with a value of $46.48 per share. That price would value Progress Energy at $13.7 billion.
Duke Energy also will assume $12.2 billion in Progress Energy debt.
After the merger is complete, Duke Energy shareholders would own 63 percent of the combined company. The new Duke Energy would have an 18-member board of directors – 11 designated by Duke Energy and seven by Progress Energy.