Jim Rogers and Duke Energy Face Music Over Merger Power Grab
The tempest that followed the “boardroom coup” after Duke Energy’s merger with Progress Energy, in which former Progress CEO Bill Johnson was dismissed in favor of Duke CEO James Rogers, has only worsened since the North Carolina Utilities Commission approved the deal last week.
Rogers testified before the NCUC on Tuesday, after the directors of the newly combined Duke jettisoned Johnson just hours after the regulatory approval, even though both companies asserted beforehand – ever since the expected deal was announced last year – that he would lead the united company, while Rogers moved up to chairman. Utilities commissioners, former Progress directors who approved the merger, and the public were deceived into believing Johnson would oversee day-to-day operations.
“Have we as the commission been misled or, as others have said, duped in this process to get approval of this merger?” Commissioner Susan Rabon asked. “I hope you can understand that I may not find your commitment as reassuring as I would have several weeks ago.”
As The News & Observer of Raleigh reported, Rogers pleaded ignorance that he had foreknowledge – or at least, very much of it – that the plan was to dump Johnson. Instead he portrayed it as a board decision, that they were concerned about Johnson’s alleged “autocratic” management, “cultural differences,” and cost overruns at a downed nuclear facility in Florida.
“When I boil all this down, it was a loss of confidence in Bill, and each director had different reasons,” Rogers told the Utilities Commission. “It became clear – and this was troubling to the board – that Progress viewed this as a takeover of Duke, based on behaviors, actions, treatment of people.
“ ... The behavior of the Progress executives, the behavior and comments of Bill Johnson, had a chilling impact on many of the top executives at Duke in terms of whether they were free to speak out about their concerns or if there would be retaliation,” Rogers said.
According to news reports, Rogers said he only became aware of the Duke board’s feelings about Johnson on June 23rd, when lead director Ann Maynard Gray asked him if he’d be willing to stay on as CEO. Rogers told the commission that the directors began discussing their apprehension about Johnson in mid-May, giving the impression that Rogers was in the dark beforehand. If you believe that, then Rogers has a $3.3 billion, scandal-ridden carbon dioxide-capturing power plant in Edwardsport, Ind. that I’m sure he’d love to sell you.
The switcheroo that followed NCUC’s approval – Progress director John H. Mullin III said Johnson was in his new post for only 20 minutes – was an amazing demonstration of dishonest gall. Rogers told the commission there was nothing the carried-over Duke board members could do to remove Johnson until after the merger was complete, when they would then have legal oversight over management of the newly combined companies. According to Rogers, Duke fulfilled its legal obligations.
“We had a contractual commitment to appoint Bill as CEO upon closing,” he said, “and we did.”
But obviously laziness and deceit – as is often the case with Duke and Rogers, who would often rather run to government to seek regulatory favor and taxpayer-funded financial help – trumped integrity once again. Why couldn’t the concerned Duke directors instead return to the NCUC before the completed merger and articulate their plan to move forward with Rogers as CEO rather than Johnson?
“The decision wasn’t made until it was made,” Rogers told the commission. He also said, “My board made it crystal clear to me that they didn’t want my opinion on what to do.”
Hard to believe the source of many of the “concerns” about Johnson didn’t come from Rogers in the first place. The Edwardsport scandal certainly illustrated the short tether he has with his board.
“This is the most blatant example of corporate deceit I have witnessed during a long career on Wall Street and as a director of ten publicly traded companies and as a former trustee of Putnam’s numerous mutual funds,” Mullin wrote to the Wall Street Journal.
And after Rogers’s testimony before the NCUC, both Mullin and fellow former Progress director Alfred Tollison, Jr. defended Johnson to The News & Observer. Mullin said Rogers’s characterization of Johnson’s leadership was “completely bogus.”
“I would not describe him … as an autocratic leader,” Tollison said. “He really was beloved by employees of Progress Energy.”
Perhaps Rogers and the board were discomfited by Johnson’s outspokenness about excessive government regulations, which Duke has embraced as a revenue stream rather than a problem. Not long after the merger proposal was announced, Johnson did a mini-media tour in February 2011 to call attention to a pending disaster if the burdensome intrusiveness of government wasn’t restrained.
“Call this regulatory picture what you will – ‘a train wreck’ ... ‘a tsunami’ ... or an overdue change that’s ultimately do-able,” Johnson said. “It’s not hard to imagine the customer pushback that will occur because of the resulting increase in the price of electricity. This pushback will come from industrial customers struggling to be competitive, and from residential customers and small businesses struggling to make ends meet. As indicated, I’m especially sensitive to the households of modest means, where energy represents a disproportionately large share of disposable income.”
In contrast, Rogers and Duke have shown no such sensitivities, as they’ve supported costly and regulatory-intensive schemes like cap-and-trade and state-level renewable energy mandates. Such a contrast in philosophy between the two top leaders on the same utility team, if again articulated to the public, would make both Rogers and Duke look extremely bad.
As for the former Progress employees who will now work for Duke, they heard from Rogers yesterday at a meeting in downtown Raleigh. According to The News & Observer, most employees sought out for comment after the meeting refused to speak for fear of their jobs. And Raleigh television station WRAL reported, “One Progress employee told Rogers that Duke’s board of directors is unethical, prompting applause from other workers.”
Also illustrative was the resignation of three former Progress executives who were supposed to take similar roles at the new Duke. Even Vice President for Regulated Utilities John McArthur, who worked until 2001 for scandal-ridden previous North Carolina Gov. Mike Easley, couldn’t stand to stay aboard with Duke.
While most expect the merger to survive (NCUC legally has the power to rescind its approval), the distrust between Duke, regulators and the public could linger for a long time. NCUC could impose fines, delay or disapprove requests for rate increases, and/or otherwise make life miserable for Duke and Rogers as they seek to continue their dependence on government for profit-making schemes and coverage of their costs.
It’s the price crony corporatists sometimes have to pay for their lack of integrity.
Paul Chesser is an associate fellow for the National Legal and Policy Center.