Utilities Commission, AG approve settlements in Duke Energy probe
Posted December 3, 2012
RALEIGH, N.C. — North Carolina's utilities regulators and Attorney General Roy Cooper on Monday endorsed settlements ending their separate investigations into whether Duke Energy Corp. misled officials before its takeover of its largest rival.
The North Carolina Utilities Commission had the power to reverse or change its earlier approval allowing the merger with Progress Energy Inc. to create the country's largest electric company. A unanimous vote by the six commission members ends that risk.
The vote also puts in the past embarrassing revelations about how Duke board members soured on Progress Chief Executive Bill Johnson and plotted to sack him despite public statements he would lead the combined company. The CEO switch hours after the merger closed July 2 shocked investors and consumers, prompted shareholder lawsuits and sparked investigations by the utilities commission and Cooper.
"It's very important for us to move forward," Duke spokesman Mike Hughes said. "We've got a lot of important things coming up in the Carolinas in terms of rates and regulatory issues. So, it's important to re-establish that trusting relationship."
Cooper's office wasn't party to the deal between Duke and the Utilities Commission, so they struck their own deal. It calls for the Charlotte-based utility to hire an outside firm – at no cost to ratepayers – to survey customers and employees over the coming year to find ways to improve service and internal operations and to devise action plans to address the surveys' findings.
Duke also must meet periodically with Attorney General's Office representatives to discuss electric rates, customer service and environmental issues and must pay $250,000 to offset the cost of Cooper's investigation.
“These settlements are positive for consumers and help to set right the problems surrounding the merger," Cooper said in a statement. "As we continue our fight for lower rates in the Supreme Court and before the commission, these settlements will provide a framework for ensuring more complete and accurate information from Duke Energy in the future."
Financial analysts hailed the settlements negotiated by the company as good for Charlotte-based Duke, the utilities commission's staff and its division responsible for protecting consumers. Investors bid shares in the company 2.3 percent higher Friday to $63.85; the stock price had been down more than 8 percent since the day before the deal closed.
Energy watchdog Jim Warren called the Utilities Commission's settlement "a huge gift to Duke Energy" that will clear the way to higher electric rates.
"We're really concerned regulators sold out the public on this," Warren said after Monday's commission hearing/ "They are ignoring billions of charges Duke Energy is apparently planning to levy on ratepayers of North Carolina and other states.
Progress requested a 14 percent rate increase in October, and the Utilities Commission is expected to vote on that in February. Duke won commission approval for a 7 percent increase at the beginning of this year – Cooper is fighting that in the courts – and will likely file for another rate increase next March.
"The regulators here are acting like they’re working for Duke Energy instead of people of the state who pay their salaries," Warren said.
Dwight Allen, an attorney for Duke, said the deal is fair to all parties and helps rebuild the working relationship between the company and the Utilities Commission.
"There is no doubt the mutual trust and relationship has been damaged. We know that needed to be repaired. This will help us move in that direction. I can assure you this company – its leadership, its board – are committed to do that," Allen said.
Duke didn't act unlawfully or unethically during the Progress takeover, he said.
"The settlement resolves one of the major regulatory issues facing the company at a low financial cost and introduces a path for resolution of management succession issues," Deutsche Bank Securities Inc. research analyst Jonathan Arnold wrote in a note to investors. "Settlement talks had taken longer than originally expected, and outcomes were wide-ranging and potentially more financially painful."
As part of the settlement, Duke must come up with another $30 million for ratepayers and low-income assistance and maintain at least 1,000 jobs in Raleigh for at least five years.
Also, CEO Jim Rogers will have to retire by the end of next year, and a board committee that includes representatives of the former Progress board will search for his successor. Other former Progress executives also will take senior management posts at Duke.
Rogers headed the pre-merger Duke, then stepped back into the CEO role when the company's board ousted Johnson, who had been promised as the new boss throughout the 18-month process of combining the two Fortune 500 energy companies headquartered in North Carolina.
"The price of peace for Duke Energy in North Carolina is, among other things, the retirement of CEO Jim Rogers," said Phil Adams, a senior bond analyst at Gimme Credit LLC, which provides the financial industry with independent research into corporate bond borrowing.
Johnson said he believed he paid the price because he insisted Duke live up to the terms when company officials had second thoughts and tried to back out last year. Duke's board members said they acted because of what they perceived as Johnson's authoritarian leadership style, his communication practices and dissatisfaction over his handling of the troubled Crystal River nuclear power plant in central Florida.
Johnson was hired earlier this month as chief executive of the Tennessee Valley Authority, the nation's largest public utility.