Business

Duke board lost confidence in Progress chief weeks before merger

Posted July 10, 2012
Updated July 11, 2012

— The board of directors of Duke Energy Corp. lost confidence in the ability of Progress Energy Inc. Chief Executive Bill Johnson weeks before the two utilities merged, Duke Chief Executive Jim Rogers told state regulators Tuesday.

The North Carolina Utilities Commission held an unusual hearing to review the week-old merger after Johnson was unexpectedly forced out as president and chief executive of the combined company less than an hour after the $17.8 billion merged closed.

The commission, which approved the merger on June 29, has the power under state law to rescind or alter its decision.

Rogers, who had been slated to become chairman of the combined Duke Energy, was selected to continue in his roles as president and chief executive immediately after Johnson was asked to resign.

Testifying under oath Tuesday, he said that Duke directors informed him on June 23 that the board had been having doubts for more than a month about Johnson's ability to lead the company after the merger, and they asked him if he would be interested in staying on in an executive role if needed.

Board members were concerned about problems at Progress' nuclear power plants, Rogers said, including an estimated $2.5 billion price tag for repairing damage to the Crystal River plant in Florida, which has been out of commission since 2009. He said they also didn't like Johnson's leadership style, which he described as "autocratic," and were less than enthused about Progress' recent financial results.

"It isn't one single thing that led them to this view," he said.

Late Tuesday, Raleigh attorney Wade Smith released a statement defending Johnson, who has remained mum since leaving the company.

"Bill Johnson has a distinguished record of leadership at Progress Energy and was looking forward to the opportunity to lead the nation's largest utility," Smith said. "The fact that he is held in the highest regard by his peers in the utility industry and in the North Carolina business community speaks volumes about his leadership and business capabilities."

Duke Energy CEO Jim Rogers Duke CEO asks Progress employees to trust him

Johnson is due to receive up to almost $44.7 million in severance, pension benefits, deferred compensation and stock awards following his departure. The commission has ordered that Duke shareholders, not customers, pick up the tab.

Commission Chairman Ed Finley repeatedly questioned Rogers about what he and others knew and when, noting that regulators were still considering whether to approve the merger at the time when board members were looking to oust Johnson.

"The decision was made when it was made," Rogers said, noting that Duke was bound by the merger agreement to appoint Johnson as CEO after the deal closed and couldn't make any move before that.

"The board thought this was the best way forward for shareholders and customers," he said, insisting that neither he nor anyone else misled regulators.

Some commission members appeared irked that they didn't learn of Johnson's departure until media reports circulated the next day.

Calling himself a "no surprises guy," Rogers said he would have notified the panel about the move under normal circumstances.

"It was just not possible to give that kind of heads-up because of the nature of the timing of the closing," he said.

When Finley asked whether anyone discussed whether publicizing the management shake-up before July 2 would have derailed the merger, Rogers said officials tried to uphold their contractual and fiduciary duties to complete the merger by July 8. If the merger wasn't complete by then, either side could have walked away from the deal without penalty.

"The benefits of the closing are now flowing to customers," Rogers said, noting the high demand for electricity during the recent heat wave.

Commission members questioned Rogers about why he didn't work with Johnson ahead of time or talk to the board about giving Johnson at least a brief trial as CEO.

"There was no way I could change their minds," he said of his board. "All (waiting) does is create more disruption in the process. ... It's much better to deal with this in the beginning than three months later, six months later."

Following Johnson's departure, three other Progress executives have turned in their resignations – John McArthur, executive vice president of regulated utilities; Mark Mulhern, executive vice president and chief administrative officer; and Paula Sims, chief integration and innovation officer – Rogers told the panel.

Commissioners Bryan Beatty and ToNola Brown-Bland questioned Rogers about Duke's commitment to maintaining a presence in Raleigh, which had been Progress' home base for decades. The commission made keeping an office in Raleigh and continuing Progress' support of local groups a condition of approving the merger.

Duke and Progress have estimated the merger would cost at least 700 jobs in Raleigh, but Rogers said he was committed to maintaining the promises to employees and others in Raleigh. He said he planned to meet with Progress employees on Wednesday.

"Raleigh is very important to us," he said. "We've always had a deep commitment to Raleigh. ... There will not be a sucking sound of jobs leaving this community."

Commissioner Susan Rabon said that, given what has happened in recent days, she doesn't trust Rogers to keep his promises.

"Your commitment, I may not find as reassuring as I would have three weeks ago," Rabon said.

Finley said the commission might have to formally order Duke to maintain a presence in Raleigh, saying he doesn't want to rely on the discretion of the company's board to fulfill the promises Rogers has made.

"We need to work on (the level of) our word is our bond," he told Rogers. "Both sides have got to go forward and maintain an element of trust."

There was no immediate word on when the commission would rule on the matter.

North Carolina Attorney General Roy Cooper has launched a separate investigation into the merger, demanding all communication between Duke board members and executives leading up to the merger. Cooper has appealed to the North Carolina Supreme Court the Utilities Commission's award of a 7 percent rate increase to Duke.

The combined utility serves more than 7 million customers in North Carolina, Kentucky, Ohio, Indiana, Florida and South Carolina. Duke Energy's more than $100 billion in assets include power plants in Central America and South America and a portfolio of wind and solar renewable energy projects in the U.S.

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  • RDcallsit Jul 12, 8:14 a.m.

    There's enough corruption here for everyone at DUKE and PROGRESS to share. The thing that strikes me the most now is understanding that none of us has any choice or influence regarding our power service provider, what they do, what they are paid, how we're billed and the fact that if you have the slightest problem getting your bill caught up they will cut your power in a heartbeat and then bill you a couple hundred dollars more on top of what you owe in case you have trouble paying your bill again! and then the CEO is receieving 44M? seriously? and Raleigh says it wants the office to stay in Raleigh? how much state tax are we losing with that deal? and why does to office need to be in Raleigh anyway? what's the difference. The Power Company has become just that. A POWER COMPANY. THEY PRACTICALLY RUN OUR WORLD simply because of the service they provide. it's not about customers at all. it's about POWER and CONTROL and obviously, MONEY.

  • Deep Thought Jul 11, 3:02 p.m.

    This stinks to high heaven, there is really something rotten about this.

  • MarcoPolo Jul 11, 1:35 p.m.

    If Johnson had one ounce of integrity and cared about the customers at all,he'd return most if not all of that 44 million dollar golden parachute money. Somebody tell me what he did to earn that? Is this on top of his regular salary of how many millions that he was earning while in contract negotiations?

    What a GREAT leader soaking the customers for as much as he possibly can? He had no intention of leading this merger because as long as this merger took and all the time that he spent in Charlotte (Progress customers paid for that too) on his private jet(?), don't you think he would have ALREADY had a house there?

    This is nonsense.

    Progress & Johnson don't give 2 flips about the customers. Price hike after price hike is all that has been given.

    A crook is a crook. Progress is led by Johnson who has shown to be less than a bad leader. I don't trust Progress to EVER do the right thing.

  • dshan10670 Jul 11, 12:39 p.m.

    Perhaps one way for consumers and investers to voice our displeasure with this big payout after no great job by the CEO would be to stop our monthly payments into the new Duke stock purchase plan. There must be a lot of Duke invester comments here. Some were PGN investers. I am hearing nothing from PGN about transfer of shares.

  • esprg Jul 11, 11:59 a.m.

    ..."$44.7 million in severance, pension benefits, deferred compensation and stock awards..."
    hmmm where can I sign up for this!

  • LovemyPirates Jul 11, 11:33 a.m.

    My point is that from the right we hear that unfettered business is good. The reality is that big business is hugely corrupt.

  • mindcrime Jul 11, 11:30 a.m.

    What a waste of time. The Public Utilities Commission needs to be disbanded; this is not something the State needs to be involved with to begin with.

  • Scubagirl Jul 11, 11:11 a.m.

    soooooooo, wonder when we'll hear what the UC decided after yesterdays questioning?
    I am hoping the merger will be rescinded but know it won't be; but if those UC members were as angry and frustrated as they looked I think the 'rescind' vote is the best one. EVERYONE was lied to from the beginning!

  • driverkid3 Jul 11, 10:43 a.m.

    Rebelyell55:::Hope Roy Cooper find something and reveals how crooked these folks are and the lies they told.

    Roy Cooper is just as bad as the rest.

  • Conservative Jul 11, 10:36 a.m.

    It is enough for a comfortable retirement, which is all that is called for.
    OpenM1nd

    Called for by whom? So you are get to tell us what people should earn, what they should spend, etc.?

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