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Duke Energy board unhappy with "autocratic" Johnson
RALEIGH, North Carolina |
RALEIGH, North Carolina (Reuters) - Duke Energy Corp directors grew increasingly worried about Progress Energy Chief Executive Bill Johnson's "autocratic" management style and lacked confidence he could lead the largest U.S. utility, Duke CEO Jim Rogers told North Carolina regulators on Tuesday.
The unusual hearing was called by the North Carolina Utilities Commission to look into Johnson's surprise ouster only hours after Duke completed its $18 billion takeover of Progress last week. U.S. regulators had approved the merger on the understanding that Rogers would be executive chairman and Johnson would be CEO of the combined company.
Rogers told commissioners on Tuesday that Ann Maynard Gray, Duke's lead director, privately approached him on June 23 to express concerns about Johnson's abilities to lead the combined company. According to Rogers, Gray asked if he would be willing to take the CEO job if the board decided to remove Johnson.
"They felt his style was autocratic and discouraged different points of view," Rogers said, citing concerns by the board that Johnson would try to impose Progress culture on Duke. "There was a loss of confidence in Bill and each director had different reasons, apparently, and this kind of accumulated over a period of time."
Rogers said Duke directors were worried about problems at several Progress nuclear plants and that the financial performance of Progress after the merger announcement was also not what the board expected. He gave no details.
It was not immediately clear if the commission was satisfied with Rogers' explanations, or if the regulator intended to reopen its regulatory review of the acquisition.
"It answered a lot of questions," Utilities Commission Chairman Edward Finley Jr. said of Rogers' testimony. "I'm sure it raised other questions. We got part of the story at least."
Finley declined to speculate on how long the inquiry would continue or the next step.
"Stay tuned," he said.
The deal was first announced in January 2011, when Progress agreed to be bought by Duke at a relatively thin 7 percent premium. Progress' former lead director, John Mullin, said last week that the company would not have agreed to the deal if Duke had not promised that Johnson would become CEO.
North Carolina attorney general Roy Cooper has opened his own investigation and ordered Duke officials to produce merger-related documents from board members and senior managers of both companies going as far back as January 2011.
Late Tuesday, Duke announced the immediate resignations of three executives who once held senior positions at Progress.
These executives included Chief Administrative Officer Mark Mulhern, who had been Progress' chief financial officer; John McArthur, executive vice president of regulated utilities; and Paula Sims, chief integration and innovation officer.
LARGEST U.S. UTILITY
The coup in the Duke boardroom brought into public focus the often rocky relations companies have operating in a regulated world where state commissions hold broad authority to set the rates a utility can charge customers, determine its profit margin and tell the company how it must operate.
With the Progress takeover, Duke became the largest U.S. power company, with 57,000 megawatts of generating capacity and 7.1 million customers in North Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio.
Wade Smith, a Raleigh attorney representing Bill Johnson said his client had been looking forward to running Duke.
"The fact that he is held in the highest regard by his peers in the utility industry and in the North Carolina business community speaks volumes about his leadership and business capabilities," Smith said in a statement.
Regardless, being CEO for a day paid off for Johnson. Utilities Commissioner Susan Warren Rabon questioned Rogers about the size of Johnson's $44 million severance package. She asked if it would be fair to think that Duke's rates were too high if it could afford such a large compensation package for a "20-minute CEO."
"The actual part tied to the transition is probably around $7 million," Rogers replied. "The lion's share of the $44 million were items that Mr. Johnson had earned and were vested at the point of the transition."
He added, "I will assure you none of these dollars will be charged to the customers of this state. We're not taking customer money. We're taking investor money to pay this."
Duke is now the second largest U.S. operator of nuclear power plants.
Rogers said the board was concerned about problems at Progress' existing nuclear facilities and at its Crystal River reactor in Florida, which has been shut since 2009 due to unprecedented cracking in the walls of the containment building. Another major hurdle at Crystal River is whether repairs to the cracked walls will be paid for by an industry insurance fund.
Rogers said Duke will now "pour money" into Progress' operating reactors to "bring them back to excellence."
Glenrock Associates analyst Paul Patterson said cultural issues seem to have played the largest role in Johnson's departure.
"One has to wonder whether the issues associated with Crystal River and the company's nuclear plants would have had the same impact if it weren't for the so-called leadership style issue," he said.
Johnson is known for being a more hands-on leader, while Rogers has a reputation for being focused on macro issues, preferring to leave minutiae to subordinates.
Rogers has an unusually high profile for a utility executive, making frequent media appearances in places as diverse as "60 Minutes" and "The Colbert Report."
He has testified more than 20 times before U.S. congressional committees and is known as one of the first major U.S. utility executives to have backed federal climate change legislation.
On Tuesday, he appeared nervous and referred frequently to a typed statement covered with green highlighting and hand-written notes. He answered many questions from the commission's chairman with short replies of, "Yes sir" or "No sir."
Rogers has been involved in three major transactions in his more than 23 years as a CEO and has ended up in charge of the company after each deal.
But in the Progress case, Rogers told the commission he had been ready to leave the CEO job to Johnson and become executive chairman. He said he had plans to join the boards of the Nature Conservancy and the Aspen Institute, and that the Duke board had thrown a retirement party and gave him a parting gift last December.
"We from the very beginning intended that Mr. Johnson would be CEO of the company once the deal was closed," Rogers said.
But in a meeting on the evening of July 2, just after the deal closed at 4:02 p.m. EST, the new Duke board voted to replace Johnson with Rogers. Ten former Duke directors outvoted five legacy Progress directors. One Progress director was absent, and Johnson and Rogers did not vote.
Standard & Poor's has said it is reevaluating credit ratings for Duke and its utilities, citing the management news.
Rogers said he did not think S&P's negative outlook for Duke would affect the cost of money the utility borrows.
"They are concerned from corporate governance standpoint about this change," Rogers said. "It took them by surprise as it took this commission by surprise."
(Additional reporting by Ernest Scheyder, Michael Erman, Matt Daily and Jonathan Stempel in New York, and Eileen O'Grady in Houston; Writing by Ernest Scheyder; Editing by Gerald E. McCormick and Andre Grenon)
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