Jim Rogers's Power Grab Underscores Politicization of Duke Energy

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Jim Rogers and windmill photoAfter a lengthy process that overcame a demanding review at the North Carolina Utilities Commission and two rejections by the Federal Energy Regulatory Commission, Duke Energy won approval to merge with the Tar Heel State’s other major investor-owned utility, Progress Energy.

Then Duke’s board immediately pulled a fast one and fired the man they said all along would be the joint entity’s CEO, Bill Johnson, who would have continued from the same role he had with Progress. Instead leading the new combined company will be Duke’s current CEO, James Rogers. Throughout the merger approval process everyone understood he would abdicate that role to Johnson while remaining as company chairman.

The NCUC and state attorney general, Roy Cooper, were shocked by the move and are not pleased. Even less happy are many (now) former directors for Progress, who told the media last week that they never would have voted to approve the merger had they known Johnson would not be in charge. According to John H. Mullin III, a director from Virginia who has served on boards of several other companies during a long career on Wall Street, Johnson’s tenure as new Duke CEO lasted 20 minutes (“as stipulated in the merger agreement”) before the new Duke board called for his resignation and restored Rogers to the position.

“In my opinion,” Mullin wrote in a letter to the Wall Street Journal, “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.”

Rogers has been ordered by the NCUC to appear in Raleigh for questioning. The commission has the power to rescind or alter any decision it has made, but the Charlotte Observer says it is unlikely to do so because of the unexpected length of time it took to gain approvals and complete the deal. Additional conditions for its approval could be required, however.

“I think they want to know when Rogers and the board knew that Johnson was going to be asked to resign, so they could determine if it was still while the merger was under consideration,” said Robert Gruber, executive director of the Utilities Commission Public Staff, which is supposed to advocate for consumers. “I think probably the main thing they’re looking for is when they knew and whether they deceived the commission.”

Of course they deceived the commission, and they misled everyone else involved with the two companies and the merger conclusion. It is nearly impossible for a group to decide collectively within the space of a few minutes to overturn a business plan upon which a multi-billion-dollar transaction is predicated, that requires federal and state governmental approvals, without premeditation. So Rogers and his rubber-stamp board pulled off their calculated plot, and they will almost certainly get away with it.

The sleazy move aligns with the historic rent-seeking and crony corporatism practices of Duke, now the largest public utility in the nation. Rogers has been one of the biggest proponents of government schemes to reduce emissions of carbon dioxide, primarily cap-and-tax. He led Duke into the U.S. Climate Action Partnership, which has lost the membership of top corporations like John Deere, Caterpillar, BP and ConocoPhillips, but Duke has remained. Through that entity Duke and others poured millions of dollars to lobbying for Enron-fashion regulatory favors, while the media lazily reported (and still do) that utilities like Duke push an anti-environmental agenda. Meanwhile as utility executives like Bill Johnson warned of a coming regulatory “train wreck,” Rogers has busily lobbied for policies that dramatically increase those regulations that Johnson criticized. That may be part of the reason Duke’s board (or Rogers convinced the board) that Johnson had to go.

The eager pursuit of carbon-free or –restrained power projects – and the government grants, incentives and tax breaks that go with them – led Rogers to develop the costly Edwardsport coal-gasification plant in Indiana, which was to all include a carbon-capture and storage component as well. The venture ran at least $1.4 billion over budget, which led him to seek a taxpayer bailout for the project. Instead Duke convinced the Indiana Utility Regulatory Commission to force ratepayers to cover $2.6 billion of the boondoggle’s cost. Edwardsport has been marred by an ethics scandal that implicated Rogers himself, has also cost three top Duke officials their jobs, and the head of the IURC was fired by Indiana Gov. Mitch Daniels as well.

Duke has also been on a wind and solar shopping spree, which helps fulfill the requirements of various state renewable energy mandates that they don’t seem to mind complying with. That’s because the company earns a bundle on them, thanks to taxpayers. Generous federal and state programs provide tax breaks, subsidies, and the ability to shelter profits from taxation. Rogers has said that Duke is able to earn a 17 to 22 percent return on equity for wind and solar projects.

Duke was also able to tap stimulus funds for projects like the $22 million grant from the Department of Energy for its Notrees Windpower Project in Texas, more than half the estimated $43.6 million cost for the 20-megawatt energy storage experiment. DOE also came through with $204 million under ARRA for Duke’s smart grid projects in the Midwest and in the Carolinas.

Duke has the propensity to jump into bed with whatever specialty group they believe can help them earn a quick buck. That’s why they catch the fleas from the environmental extremists so often. But their commitment to such relationships is shallow and short, as was illustrated when Duke angered eco-activists last year by getting wood classified as “biomass” under North Carolina’s renewable mandate law, thus enabling the utility to clear-cut forests to help meet the renewable target. Nevertheless they hooked up again as the utility pursued its merger with Progress, with green groups extracting millions of dollars of payoffs in exchange for their support of the deal.

Finally, Rogers is also a schmoozer of politicians, especially Democrats. He committed Duke to guarantee a $10 million loan to the Democratic National Committee to host its 2012 convention in Charlotte, NC, the utility’s hometown. He ingratiated himself with the Obama administration and Democrat Senate and House (when Nancy Pelosi was still in control), and would clearly love to turn the North Carolina General Assembly back into Democratic hands, who were so supportive of those lucrative renewable projects for Duke. Rogers and his wife Mary Ann have also each contributed the maximum-allowed $8,000 to the 2011 mayoral re-election campaign of his convention host co-chair, Anthony Foxx.

He has contributed to the highest-level national candidates of both major political parties in recent years, but records show he has greater enthusiasm for Democrats, with $99,000 given to the DNC and the party’s Senatorial Campaign Committee, versus just $20,800 donated by Rogers to the Republican counterpart committees.

It’s clear that Rogers and Duke’s board have an anti-free market, uncompetitive, pro-cronyism business philosophy: to concern themselves less with the sales of electricity at the lowest cost possible for their customers, while extracting as much favor and funding as possible from taxpayers for their schemes.

Even if Bill Johnson had stayed, Rogers would have continued as chairman. Maybe it was better that he found out immediately the depths of “bad faith” – as the Progress director Mullin characterized it – that Rogers and Duke were capable of. Instead he will walk away with a reported $44.7 million. He should consider himself blessed. Meanwhile most of North Carolina is pretty much monopolized with Duke as its singular electric utility, and an integrity-challenged one at that. 

Paul Chesser is an associate fellow for the National Legal and Policy Center.