Business

Duke board lost confidence in Progress chief weeks before merger

Posted July 10, 2012 1:49 p.m. EDT
Updated July 11, 2012 10:27 a.m. EDT

— 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."

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.