Jim Rogers to Leave Duke Energy After Merger Fiasco
The departure follows the saga that was the merger between Charlotte, NC-based Duke and Raleigh, NC-based Progress Energy, which was completed in June – sort of. After the North Carolina Utilities Commission delivered the final regulatory approval it needed, Duke’s board ousted former Progress head Bill Johnson. Throughout the nearly 18-month process the pending partner companies proclaimed Johnson would be the CEO of the new combined Duke, with Rogers moving up to chairman, but the directors schemed in the final months of negotiations and then sprung the firing on Johnson only hours after they congratulated him on his new position.
The NCUC was not happy about the deception, and launched an investigation and hearings with hints dropping all around that rate increases that Duke wanted approved might not receive such a friendly reception. So Rogers and the directors knew they had to do something to regain the regulators’ trust and return to their good graces.
“This settlement agreement is an important step forward for the company because it resolves one of our key near-term priorities: bringing closure to the NCUC merger review process,” Rogers said in a statement.
The resolution, expected to be formally approved by the NCUC on Monday, requires Duke to cough up roughly $30 million more (in addition to the payoffs they promised to shut up the environmental groups) for customer savings, job training and low-income assistance programs. The directors also must add two members who are not yes-men for Rogers, and do some shuffling to restore a couple former Progress executives. The other major concession is the assurance that Duke will maintain at least 1,000 employees in Raleigh for five years.
The $32-billion merger makes Duke the largest publicly-traded utility in the country, with customers in the Carolinas, Florida, Kentucky, Indiana and Ohio.
Duke admits no wrongdoing as part of the settlement, which aligns with its unapologetic track record, although The News & Observer of Raleigh reported that Duke will have to issue a “mea culpa” that acknowledges “its activities ‘have fallen short’ of the (NCUC)’s expectations.” Rogers’s and the directors’ heights of hypocrisy were reached when they strongly criticized Johnson earlier this year over Progress’s failure to contain damage and costs at a shut-down nuclear plant in Florida, and his alleged anti-woman bias, yet overlooked Rogers’s own bungling of an experimental carbon-capture and storage coal power plant in Edwardsport, Ind. That project has been the source of corruption and cost overruns ($3.5 billion for what was to be a $1.9 billion plant).
Also, a special committee must be created to find Rogers’s successor. It is to be comprised of four Duke directors, four from Progress’s old board, and one new director that will be chosen by next April. According to a report in the Charlotte Business Journal, corporate governance experts say it’s unusual for a government regulator to meddle so much in such decisions.
“Usually shareholders change boards, not public entities,” said Charles Elson, director of John L. Weinberg Center for Corporate Governance at the University of Delaware, who said he had never seen such a degree of intervention in a case that at least did not involve some illegal activity.
Another analyst of such matters said the NCUC’s involvement was inappropriate and could lead to shareholder lawsuits.
“If I were a shareholder, I would be pretty upset about this,” said Dan Fogel, associate director of the Wake Forest University Business School’s Center for Energy, the Environment and Sustainability, to the Business Journal. “I am uncomfortable that they are dipping into the governance structure of the company.”
That the NCUC exercised such influence over decisions normally made by an autonomous corporate board illustrates how much Duke’s directors and Rogers violated the trust of the regulators who oversee the largest chunk of their service territory. The way they treated the well-respected Johnson was Donald-Trumpishly farcical, with the switcheroo that followed NCUC’s approval an extremely disrespectful slap in the face.
In July testimony before the NCUC about the firing, 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 honor once again. Had the Duke directors been straightforward about their concerns, they could have returned to the NCUC before the completed merger and articulated their plan to move forward with Rogers as CEO rather than Johnson.
Yet Rogers tried to get the NCUC to believe that Johnson’s fate wasn’t determined until after its approval was delivered, saying, “The decision wasn’t made until it was made.”
Former Progress directors who had worked closely with Johnson, and who had approved the merger, were steamed also.
“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,” said John H. Mullin III in a letter to the Wall Street Journal.
In addition, post-firing, Duke began to selectively release internal emails to the public that suggested Johnson had an anti-women bias in his management style. But Johnson’s former employees at Progress (including women!) set up a special Web site to show their loyalty and appreciation for him, showing that he was anything but dictatorial, as Duke’s directors claimed. Progress’s directors, and Johnson himself, didn’t pick up on any indications that Duke’s leaders had problems with the way Johnson did his job even after 18 months spending time together to hammer out merger details. And according to Johnson, he had received nothing but “outstanding performance reviews” during his career.
As if even greater proof of Johnson’s strong leadership was needed, he was recently hired to head the Tennessee Valley Authority, the largest government-owned electric utility in the country. Meanwhile, despite the settlement, Duke continues its old ways in Indiana, trying to get its Indiana customers (rather than its shareholders) to pay for more than $1 billion for the cost overruns at Edwardsport.
It will take some strong wills from this settlement tinkering to change the culture at Duke.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.