As the North Carolina Utilities Commission tries to make sense of the farcical events that surround its approval of the merger of Duke Energy and Progress Energy into the largest public electricity company in the nation, the deeper they dig, the dumber Duke looks.
Yesterday the 6-member panel (one seat is unfilled due to political wrangling) heard from former Progress CEO Bill Johnson (pictured). Throughout the 18-month merger process the two companies proclaimed to anyone who cared – including federal regulators, utilities commissions in at least six states, and Wall Street – that Johnson would carry that role over to the combined company, while former Duke CEO James Rogers would elevate to chairman.
Instead, according to Johnson’s testimony, within two hours after directors from both companies offered “handshakes, pats on the back, congratulations all around,” he was jettisoned and replaced by Rogers. The hearings were covered by most of North Carolina’s major media, including Raleigh television station WRAL.
“Two hours later, I’m gone,” he told the commission. “This was a special day. It ended in a way that was a surprise.”
It was premeditated. According to Rogers’s statements to the NCUC on July 10, Duke’s board discussed the reservations they had about Johnson months earlier and asked Rogers if he’d be willing to remain as CEO after the merger was finalized. He said he would. And as far as he and the board were concerned, they complied with the letter of the agreement by appointing Johnson chairman, but failed to comply with the spirit by dumping him immediately.
“We had a contractual commitment to appoint Bill as CEO upon closing,” Rogers told the commission, “and we did.” He later added, “The decision wasn’t made until it was made.”
It was all matter of fact to Rogers and the members of Duke’s board, but to a watching world that thinks ethics and integrity mean something, it smelled. Former Progress director John Mullin III, who voted for the merger believing Johnson would be boss, still has the money quote: “This is the most blatant example of corporate deceit I have witnessed…” – and he’s been around a long time.
The shenanigans continued yesterday in Raleigh, N.C. As the NCUC hearings began, Duke’s arsenal of high-powered lawyers – including a former state Supreme Court justice hired just for the proceedings – made their presence known. According to the Triangle Business Journal, Duke attorney James Cooney III, who represented former presidential candidate John Edwards in the federal lawsuit against him in which he was acquitted earlier this year, sought permission to cross-examine Johnson after his testimony. NCUC Chairman Edward Finley extinguished that idea.
”You don’t have that right,” he told Cooney, “and we’re not going to hear you on that, so sit down please.”
That set the tone for everyone else watching, but it’s hard to tell whether tone-deaf Duke and its legal team caught on. Nevertheless Johnson told his side of the story, explaining how the merger process was hunky-dory throughout 2011 until the Federal Energy Regulatory Commission dropped a Baby Ruth in the punchbowl and forced the companies to address concerns that the new Duke would wield too much power over the state’s electricity market, and that municipal utilities would be forced to buy power from them without an alternative option. The need to mitigate those problems caused Rogers and Duke heartburn, and in hindsight Johnson said it became clear that Duke wanted to back out.
“It was very apparent to me,” Johnson testified, “that the Duke management had a change of heart, when they started looking at what the mitigation plan (for) FERC costs, about whether they wanted to do this deal.
“And I believed then and I believe now that they explored every avenue to get out of this merger, short of violating the merger agreement.”
An escape would have cost Duke $675 million, certainly a lot of money, but when you spend far more than that on useless projects like wind and solar plants that provide no meaningful electricity, why not just pay to get out of a deal you don’t like? Rogers also dropped $3.3 billion on the stupid Edwardsport, Ind. coal-gasification/carbon dioxide capture power plant, and backed a $10-million loan for the Democrats to put their convention in Charlotte this year, so a few hundred million would seem like a comparatively small cost to get out – especially when Duke has shown it has the ability to throw money around carelessly. The company also would have saved much more in employee severance costs, buying off environmental groups, and financial concessions to customers had it not gone through with the merger.
So when Rogers told NCUC there were also concerns about how Johnson handled big cost overruns at its Florida Crystal River nuclear power plant that has been idled since 2009 – when those problems were well-known in advance of the proposed merger – it’s a red herring.
“None of those concerns were expressed to me,” Johnson told the commission. “It seems odd to me that, if these issues were such burning issues, I never heard about them.”
Instead Duke will now have to pay millions of dollars more to lawyers to try to not make the company look so bad, and who-knows-how-much more because now regulators won’t trust them when they ask for things like rate hikes.
But again, forget that Duke and its directors make sense or behave with integrity, as Johnson detailed further yesterday. As the company began to have doubts, and allegedly had reservations about Johnson as a leader, they kept that information to themselves. Instead they waited until after he was ousted, and sent Rogers to tell the media and the NCUC they had problems with an “autocratic” style of management that Johnson supposedly practiced.
“If there was a signal,” he told the commission, “I missed it.”
According to Johnson’s former employees, who have set up a special Web site to show their loyalty and appreciation for him, he is anything but dictatorial. And Progress Energy’s directors didn’t pick up on any indications that Duke had problems with the way Johnson did his job either, because certainly they didn’t, as he had received nothing but “outstanding performance reviews” during his career.
Two former Progress directors, who joined Duke’s board post-merger, also explained yesterday how within hours of his appointment as CEO of the new company, a meeting of the new combined board was held in which he was asked to leave. The Progress carryovers, which constituted a minority, opposed his removal but the legacy Duke directors voted unanimously for his departure. Former Progress director Marie McKee told how Duke Board Chairman Ann Maynard Gray announced the motion to remove Johnson without explanation other than that he was “not a good fit.”
“She never elaborated…for an hour,” McKee told the NCUC, adding that the Progress directors tried to salvage his job. “I didn’t know whether to cry or throw up,” she also said.
As for Duke’s lawyers, Burley Mitchell, the former NC Supreme Court justice, called it “a disappointing hearing.” “Some of the facts that were presented as facts are in dispute,” he told Reuters.
After watching this drama play out, it will be hard for North Carolina’s electricity customers to shed tears over the loss of a mammoth utility or its CEO who is walking away with $44 million. But it certainly is sickening that just about the whole Tar Heel state now has to buy its power from a company capable of such creepy behavior.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.