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Commission wants to know why Duke ousted ex-Progress CEO, who was to run merged firm
By Bruce Henderson, email@example.com
He’s shared stages with presidents, testified before Congress and mingled at economic forums in tony Davos, Switzerland. But Jim Rogers’ appearance Tuesday in a basement hearing room in Raleigh may be his most important.
The Duke Energy chief executive will testify under oath about the abrupt resignation of former Progress CEO Bill Johnson shortly after the companies merged last week. His responses to the N.C. Utilities Commission, which had been told Johnson would co-lead the new Duke, could be only the beginning of an investigation if regulators sense a bait-and-switch.
The commission will want to know who made the decision to replace Johnson, why and when it happened and why the panel wasn’t notified before approving the merger June 29, according to a filing by its chairman Monday.
“I’m pretty sure, knowing this commission, that they’ll be asking some tough questions,” said Christopher Ayers, who practices utilities law in Raleigh. State law allows the commission to modify or even rescind its approval of the $32 billion merger.
After a week of revelations about Johnson’s quick exit, with a package worth up to $44.7 million, the corporate world has its own questions. How could the nation’s biggest electric utility stub its toe so quickly after crossing the finish line of an 18-month marathon?
“If compliance professionals want to know why regulators and the public distrust Corporate America so much, and why they put corporations through so many regulatory contortions – this is why,” the corporate governance journal Compliance Week thundered Monday. “Because corporations keep giving the country reasons not to trust them.”
Editor Matt Kelly, who wrote the blog post, speculated that Duke’s board stumbled unawares into a last-minute crisis that prompted Johnson’s departure.
“Have they damaged themselves reputation-wise? Yes. I don’t think on the face of it anybody would deny that they appear to have made a bone-headed move,” Kelly said in an interview. “You have to wonder sometimes, what were they thinking?”
The CEO flap is the latest in a series of problems.
Duke and Progress twice misjudged the Federal Energy Regulatory Commission’s view of their merger. They won approval only on their third try, after agreeing to concessions that will cost the company tens of millions more than expected.
The merger also brings Duke a billion-dollar wild card, Progress’ Crystal River nuclear plant. The plant has been shut down since 2009, when the concrete in its thick reactor dome began failing, and could be retired.
Progress and Florida regulators settled some of the financial issues around Crystal River in March. But the company was seeking new cost estimates and had not publicly disclosed them when the merger closed, an official there says.
On another front, Duke lost its second-ranking executive, Jim Turner, in late 2010 after his chummy email exchanges with Indiana’s top utilities regulator were disclosed.
Indiana’s utilities commission will hold hearings next week aimed at settling the more than $1 billion in construction overruns at the Edwardsport power plant. Indiana’s consumer-advocacy agency criticized Duke for mismanaging the project.
An Indiana consumer group that has fought Duke over the plant said the CEO flap helps underscore the ethical issues Duke faced there.
“I don’t see how it can’t and why it shouldn’t factor in,” said Kerwin Olson, executive director of the Citizens Action Coalition.
‘A complex business’
Duke spokesman Tom Williams notes that the company successfully settled an N.C. rate case in January – although it came after a bitter outcry from customers – and closed the merger this month. It has hit earnings targets in recent years and expects to finish three new Carolinas power plants on time and on budget.
“We’re in a complex business. We’re pleased with where we are and with the merger,” Williams said. “A business as large and complex as ours is going to have an issue from time to time, but we’ve been able to deal with them effectively.”
The 64-year-old Rogers has been a CEO for more than 20 years and is a veteran of three mergers. He likens the process to “kind of a legal holdup” as companies negotiate concessions to win support for the deals.
Michael Smith, CEO of Charlotte Center City Partners, an uptown economic development agency, calls Rogers a visionary who’s gifted at explaining complexity in simple terms.
He credits Rogers with helping draw thousands of new energy jobs.
“Knowing Jim and having worked with him, I’m not surprised in the slightest that the board of directors of Duke decided they had an incredible leader who would be the right person to bring these two companies together,” Smith said.
Since coming to Charlotte in 2006, Rogers has taken a civic role that compares to that of the banking chiefs of the past, including co-chairing the host committee for the Democratic National Convention.
He was to become the new Duke’s executive chairman, focused on strategy and big-picture issues, while Johnson ran the company as CEO.
Johnson himself predicted last month that he and Rogers “will work well together and closely together. … I think this is going to work out fine.”
Seeking rate increases
Rogers has plenty of incentive for fence-mending with the N.C. commission. Both of Duke’s operating companies in the Carolinas plan to seek rate increases this year to pay for new power plants, and they’ll need approval later to combine those companies.
“They certainly have some public relations work to do, and regulators probably in the near future will take a tough look at anything Duke does, especially merger-related,” said Ayers, the Raleigh lawyer.
When Wake Forest University business professor Daniel Fogel teaches graduate students about how companies develop businesses strategies, he often invites senior Duke Energy executives to speak.
“They’re smart guys and they’ve got a lot of well-trained people,” Fogel said. “This has been baffling.”
Fogel suspects the Duke board simply felt Rogers would be the better leader of a company facing a full plate of challenges. His prescription for recovery:
“Come clean, say ‘This is what happened.’ Second, they should very quickly say, ‘Here’s what we’re going to do in the future,’ so they won’t seem to be in disarray.
“The third thing is to get Jim Rogers out there doing what he does best, talk to as many people as he can … and say, ‘We screwed up, but we’re going to handle it.’ ”