State to review Duke-Progress merger after CEO's ouster
Posted July 6, 2012 10:59 a.m. EDT
Updated July 6, 2012 9:12 p.m. EDT
Raleigh, N.C. — The North Carolina Utilities Commission has scheduled a meeting next Tuesday to review the merger of Duke Energy Corp. and Progress Energy Inc. in the wake of the sudden ouster of the combined utility's chief executive.
Separately, North Carolina Attorney General Roy Cooper demanded late Friday that Duke turn over all communications among top executives and board members during the days leading up to and following the merger.
Cooper said the his office wants to investigate Duke's dealings in light of a potential credit downgrade, which he says puts consumers at risk.
The Utilities Commission approved the Duke-Progress merger, which created the nation's largest utility, a week ago. The merger was completed Monday, after South Carolina regulators similarly gave their approval, but within hours, there was a management shake-up.
Progress Energy Chief Executive Bill Johnson, who had been slated to be CEO of the new company, was forced to resign, and he was replaced by Duke Energy Chief Executive Jim Rogers, who was to have been chairman.
The Utilities Commission has the power under state law to revisit its approval, and it could "rescind, alter or amend" the merger.
Part of Statute 62-80 reads as follows:
"The Commission may at any time upon notice to the public utility and to the other parties of record affected, and after opportunity to be heard as provided in the case of complaints, rescind, alter or amend any order or decision made by it. Any order rescinding, altering or amending a prior order or decision shall, when served upon the public utility affected, have the same effect as is herein provided for original orders or decisions."
Robert Gruber, director of the commission's Public Staff, which represents consumers in utility cases, said the commission plans to discuss the merger again next week, although a time for the meeting hasn't been set.
Commission Chairman Ed Finley said Tuesday that he was surprised by Johnson's departure.
"My understanding, based on Duke and Progress representations in our hearing, was that Johnson would be CEO of the combined company. His departure on the same day the merger is closed and three days after our order may raise questions in the minds of some as to the timing of the decision by those involved in it," Finley said in a statement.
"While management structure and succession are important, a more significant emphasis will be on ensuring that the benefits to the ratepayers will materialize as forecast," he said. "There is significant management talent within the two companies, and we hope the best lineup will fall quickly into place."
Standard & Poor's Financial Services said Wednesday it has put Duke on a watch list for a potential credit downgrade because Johnson was removed.
Duke Energy spokesman Tom Williams said the utility looks forward to resolving those concerns soon.
Cooper said Duke officials argued for a rate increase last fall, saying they needed to protect the company's credit rating. Now, consumers could be harmed by a credit downgrade prompted by the management shake-up, he said, so he wants to determine if anything was misrepresented to state regulators.
"Despite our objection, Duke Energy said it needed a rate increase in order to protect its credit. Now, this significant management change within hours after the merger has put the company on credit watch, so we need to get to the bottom of this to make sure we protect consumers," he said in a statement.
The state Attorney General's Office has appealed the 7 percent rate increase that the Utilities Commission approved to the North Carolina Supreme Court.
Duke officials are reviewing Cooper's demand for internal communications, Williams said.
Former Progress board members upset
Former board members of Progress Energy are upset that Johnson was pushed out.
"In my opinion, this can only be described as an incredible act of bad faith with regard to the undertakings of the Merger Agreement. I think it was a clearly premeditated contravention of one of the most central tenets of our Agreement," John Mullin III wrote in a letter to The Wall Street Journal.
Mullin, who lives in Virginia, was lead director on the Progress board, a position that he said left him "in charge" of board meetings at which Johnson, who was chairman, did not attend.
He wasn't named to the 18-member board for the combined Duke Energy and therefore wasn't at the meeting where the decision was made to remove Johnson.
"In my opinion this is the most blatant example of corporate deceit that I have witnessed during a long career on Wall Street and as a director of ten publicly traded companies," he wrote in his letter to the Journal.
Mullin said Johnson called him Monday night.
"He told me there was a change in direction," he said Thursday. "I was very surprised."
Asked for comment about the Mullin letter, Tom Williams, a Duke spokesman, said: “We do not comment on our board’s deliberations.”
Another former Progress director, Alfred Tollison Jr., said he felt he was misled about the plans for Johnson to head the newly combined company.
Bloomberg News on Friday spelled out details of the severance and compensation package Johnson would receive. It could total more than $44 million.
A May supplemental filing by the Utilities Commission stipulates that any severance agreement must be covered by shareholders, not ratepayers.