RALEIGH, N.C. — Progress Energy Inc.'s chief executive mishandled too many issues in recent months for Duke Energy Corp.'s liking, and he couldn't be trusted to lead the combined utility after their merger, one of Duke's board members said Friday.
Ann Maynard Gray was the first of two long-time Duke directors to testify to the North Carolina Utilities Commission about why they deposed Bill Johnson as chief executive less than an hour after the company merged with Progress.
The board, which is controlled by previous Duke directors, forced Johnson to resign on July 2. Directors then named Jim Rogers, who had been Duke's president and CEO and was supposed to serve as chairman of the combined company, to replace Johnson.
"Duke paid about $32 billion for Progress, so for us to have a CEO in whom we don't have confidence because of certain leadership styles was just not the right choice," Gray said.
Gray sent a statement to the commission on Tuesday, calling the agency's inquiry into the management change "unwarranted." She maintained that stance Friday.
"We anguished over this. ... This was an enormously difficult step for us to take," she said. "We've got $650 million (in customer savings) guaranteed to be delivered, and I think getting on with it would be preferable."
Commission Chairman Edward Finley said, however, that enough questions have been raised in recent days to warrant more review. Unless that review, which includes an examination of Duke emails and other documents involving the merger, determines nothing was wrong in how Johnson's role in the new company was handled, an evidentiary hearing will be scheduled later, he said.
Under state law, the commission has the power to rescind or alter its June 29 approval of the merger.
Commissioners have said that they feel misled by Duke officials because the company had assured regulators that Johnson would be in charge after the merger, but board members were secretly discussing removing him as CEO before the deal was even approved.
Both Rogers and Gray insisted that they weren't trying to hide anything from regulators, saying they couldn't legally say anything until the board voted on the matter.
North Carolina Attorney General Roy Cooper has launched a separate investigation into the merger, demanding copies of communication between Duke board members and executives.
Doubts came early
A red flag about Johnson went up for some Duke board members even before Duke and Progress agreed in January 2011 to merge, Gray said. He met with the company's directors in late 2010 while the two sides negotiated a deal that would put him in charge of what would be the nation's largest utility.
"He did describe himself as an individual who liked to learn but not be taught. That was an expression that stayed with the board," she said.
Finley pointed out that the quote has been attributed to former British Prime Minister Winston Churchill, who's widely respected for his leadership skills.
Duke board members grew increasingly concerned this year, Gray said, as some of Progress' nuclear power plants continued to have problems and the company's financial performance didn't show improvement. She said she was particularly troubled when the board had to wait nine weeks for information after asking Rogers and Johnson to meet with an insurer about damage to Progress' Crystal River plant in Florida, which has been offline since 2009.
"That is an extraordinary outlier to how a Duke board member requesting information of a Duke person (would be handled)," she said. "You'd never go radio-silent for nine weeks like that."
Progress didn't meet several deadlines with Crystal River, she said, which reinforced board members' feelings that Johnson wasn't up to the task of leading the combined utility.
"We kept hitting these gates, and none of these things was, in fact, happening," she said. "Crystal River was a tipping point for me."
Duke executives also complained to the board during this period that Johnson was putting together a management team for the new company that was not inclusive of people who presented contrary ideas, she said.
Duke board member Michael Browning, who is a longtime friend of Rogers, testified that there were "bumps in the road" through the merger process, but he found it disconcerting that Progress repeatedly missed targets for upgrading the performance of its nuclear plants.
Commissioner ToNola Brown-Bland noted that Duke had serious issues at a plant in Indiana – it has dealt with significant cost overruns and an influence-peddling scandal – yet the board didn't hold Rogers to the same standard it applied to Johnson.
No direct discussion
Commissioner Bryan Beatty questioned why the board relied on Rogers to relay information about issues in the company instead of questioning Johnson directly and expressing directors' concerns.
Gray said previous meetings between the Duke board and Johnson were only "moderately successful," and they didn't feel asking him for another meeting would be of any benefit.
"Our board felt that, when you have a vote of no confidence, it's not the type of shortfall that can be remediated. You can't say, 'Bill, maybe you should do X or don't do Y,'" she said.
"The toothpaste was out of the tube," Browning said, "and I couldn't figure out how to get it back in if I talked to him or not."
Commissioner William Culpepper III noted that no one on the Duke board conferred with Progress directors to alert them to their concerns and seek a resolution that would benefit everyone.
"We were comfortable in our evaluation of the situation not improving," she replied.
Former Progress board members who joined the Duke board after the merger said Thursday that they felt ambushed by Gray's unannounced motion to remove Johnson. The five Progress representatives on the board pleaded for explanation, but they said that Gray never budged from her position that Johnson was not "a good fit" for the new company.
Johnson told commissioners Thursday that Gray told him his leadership style was the sole reason for his dismissal. He said issues at Crystal River or a culture clash between Duke and Progress were never mentioned.
"It seems odd to me that, if these issues were such burning issues, I never heard about them," he said.
Browning said some issues were "communicated very clearly" to Johnson in spring 2011 about how Progress and Duke should be integrated to produce a "best in class" corporate culture.
"We weren't looking for Progress to assume Duke and make it a bigger Progress. We weren't looking for Duke to absorb Progress and just make it a bigger Duke," he said. "We want a company with a different vision."
Feedback from Duke executives throughout the merger process indicated that wasn't happening and that it didn't appear that Johnson had a plan to accomplish it, he said.
Backing off 'autocratic'
Johnson angrily responded to criticism of his management style, which had been described as autocratic.
"I'm not autocratic. I'm adamant about several things," he said, listing a priority on safety and managing with honesty and integrity. "If you're in the nuclear (power) business, you can't afford to be close-minded."
Gray told commissioners that she regrets characterizing Johnson as autocratic.
"What I really meant was controlling, not only controlling of the flow of information but the content of information and the options with regard to decisions," she said.
Johnson said the only concerns he had been aware of involved Duke's growing reluctance to go through with the merger because of the rising cost associated with gaining all regulatory approvals. Progress went so far as to hire a New York law firm to ensure the deal was completed.
"(The merger) is really good for everybody if it works out right, and I hope it does," he said.
Browning denied that Duke ever wanted out of the deal, although he said Johnson might have viewed certain actions differently.
"The successful closing is good in very many ways," he said. "The customers of North Carolina did very well."