The Duke Energy (NYSE: DUK) regular quarterly earnings call with Wall Street analysts, scheduled Aug. 2, should draw more interest than usual.
In addition to being Duke’s first earnings report since the July 2 merger with Progress Energy, it’s also the first since the “new Duke” essentially dumped Bill Johnson as CEO of the combined company just hours into the merger and replaced him with incumbent Duke CEO Jim Rogers. Rogers had been set to retire from daily power company operations and become executive chairman of the combined company.
The sequence of events has ignited a furor at the North Carolina Utilities Commission (NCUC) which had approved the merger with the understanding that although Duke would dominate the combined company’s board and keep its headquarters in Charlotte, N.C., rather than Raleigh, N.C., where Progress is based, Johnson would become CEO of the blended company.
The North Carolina Waste Awareness and Reduction Network (NC WARN) has asked NCUC to hold an evidentiary hearing and issue a show cause order to Duke on why the merger should not be rescinded. Also the business press in North Carolina has openly speculated on whether the commission can realistically rescind the merger or force Rogers out as CEO.
In addition, two former Progress directors have resigned from the Duke board and Standard & Poor’s downgraded Duke’s corporate credit ratings. Bernstein Research Senior Analyst Hugh Wynne has said Duke probably faces a year-long regulatory and legal “quagmire” – although one it will probably survive.
Rogers will testify before the Florida Public Service Commission (FPSC) on Aug. 13 on how Duke views the issue of whether the long-idle Crystal River nuclear plant, also known as Crystal River 3, should be repaired or replaced with other power generation.
In his much-reported July 10 testimony before the NCUC, Rogers said that concern over Crystal River, which has been idle since the fall of 2009, and the larger issue of Progress nuclear performance combined with Johnson’s “autocratic” leadership style led to the Duke Energy board of directors to have second thoughts about having Johnson as CEO of the combined company. Disappointing financial performance by Progress was also cited by Rogers.
Johnson then got his chance to respond to Rogers on July 19 when he appeared before the North Carolina panel. A Duke attorney had requested permission to cross-examine Johnson during the NCUC proceeding but the commission refused. Audio links and transcripts to the testimony by Rogers and Johnson are available on the NCUC website.
Johnson said Rogers made CEO offer; Progress also nearly merged with Southern
During his testimony, the former Progress CEO Johnson said that Rogers and Duke first approached Progress Energy about a possible merger of the two neighboring power companies in the summer of 2010.
It was Rogers and Duke that broached the idea that Johnson become CEO of the combined company.
Johnson also noted that during 2010 Duke Energy Indiana executive James Turner, who had often been mentioned as a successor to Rogers, had resigned from Duke Energy. Turner resigned following a much-publicized controversy about Duke’s relationship with Indiana regulators concerning the Edwardsport integrated gasification combined-cycle (IGCC) project being built in Indiana.
Johnson said he relayed Duke’s merger interest to the Progress board of directors.
Progress Energy had previously had merger talks with other power companies over the years and came “exceedingly close” to a deal with Southern (NYSE: SO). But Progress and Southern were unable to agree on price and other key issues.
As for the Duke-Progress merger, Johnson said that the combined company would be heavier in regulated utilities than the incumbent Duke. As a result, the Progress board felt it was important for Johnson to become CEO because “I knew how to run the regulated business.”
Did Duke get cold feet on the merger?
During his testimony, Johnson suggested that Duke started having second thoughts about the merger after FERC issued a market mitigation settlement that made the deal more onerous for Duke. At one point, Rogers suggested that the only way to really make the merger work would be to form a regional transmission organization (RTO) in North Carolina and South Carolina, which could prove a tough sell in the region, Johnson said.
Johnson said that during the first half of 2012, Progress was hearing rumors that Rogers and certain other top Duke executives were telling Wall Street officials that the deal probably wouldn’t go through – and that would be fine with Duke.
Johnson also expressed skepticism that the Crystal River nuclear problems would catch anybody by surprise at Duke given that they have been widely reported in the press.
As for his alleged autocratic management style, Johnson said it was ironic that Rogers said the Duke board had grown disillusioned with Johnson’s leadership style during a period when there was little contact between the two companies
Johnson said he has always received good job performance evaluations as a CEO at Progress and prior to that when he joined Carolina Power & Light’s (CP&L) legal department in the 1990s. CP&L would subsequently become a Progress subsidiary and is now under the Duke umbrella.
Johnson said that both he and other top Progress Energy officials were annoyed when Rogers gave an interview to a North Carolina publication that suggested Duke was paying a lower “premium” for Progress because Johnson would become the joint CEO. Johnson said that Rogers seemed to create the impression that Johnson was selling Progress Energy cheaply in order to secure the chief executive post.
When contacted July 30, a Duke Energy spokesperson declined comment on the Johnson testimony.