Nov 30 North Carolina utility regulators' No. 1
goal in negotiating a settlement with Duke Energy Corp
and board shake-up: restore the spirit of the original
Duke-Progress Energy merger.
The agreement, which outlines Chief Executive Jim Rogers'
retirement when his contract expires in December 2013, calls for
two new independent board members, a mandatory retirement age of
71 and provisions to protect legacy Progress
Given that North Carolina is Duke's largest market, the
settlement shows that state's regulators are willing to flex
their muscle well beyond routine electricity rate-setting
"They're not IBM or Exxon, they're a regulated utility,"
Robert Gruber, executive director of the public staff of the
North Carolina Utilities Commission (NCUC), said of Duke. "It's
appropriate for the commission to regulate the merger."
The commission felt slighted when Rogers took control of the
combined company in July after the $18 billion buyout of
Progress closed, according to commission hearing testimony. When
the deal was first announced in January 2011, commissioners had
been told Bill Johnson of Progress would take the helm of what
became the largest U.S. power utility.
The unexpected move to replace Johnson within hours of the
deal's closure caught many off guard, and quickly became a
hot-button topic throughout North Carolina and on Wall Street.
Johnson is slated to become CEO of the Tennessee Valley
Authority in January.
"What the commission is trying to do here is restore some of
the balance that the original merger contemplated before the
board took over and threw Johnson out," said Gruber.
Johnson's exit prompted the commission to immediately launch
The settlement announced on Thursday night hinged little on
Rogers, as the Duke board had not talked about Rogers staying on
past the end of his contract, according to a person close to the
The commission had always expected Rogers would retire when
his contract expired, Gruber said.
Still, in negotiations with the utility commission Duke
pushed back over required lower-level management changes and
opposed regulatory intervention into its corporate governance.
But ultimately the company decided it wanted to put the issue
behind it, the person said.
Duke had already formed a search committee to find Rogers'
replacement earlier this fall and has hired executive search
firm Russell Reynolds Associates, the person said. Russell
Reynolds didn't return phone calls seeking comment.
The search committee originally formed by Duke had seven
members: four legacy Duke directors and three legacy Progress
directors. With the settlement, the committee will now have
eight members, split equally between the legacy companies.
When a new board member joins Duke, he or she will join the
search committee, according to the settlement.
"Whether or not you agree that a commission should be able
to dictate management changes and board changes, I think an
independent CEO and board member will be a good step in
improving overall stewardship," Morningstar analyst Andrew
The market seemed to echo that sentiment, as shares of Duke
traded up more than 2 percent on the day, outperforming the
"This hopefully moves the commission and Duke forward,"
said Sam Watson, general counsel for the NCUC.
Duke declined to say which board members will constitute the
search committee. Through a spokesman, Rogers declined to
Charles Pryor Jr, a former Progress Energy board member who
voted for the merger and is prohibited by the settlement from
re-joining the board, expressed hope the company would move
beyond the recent controversy.
"Whatever Duke's obligations are under the regulatory
compact, obviously the commission felt that they fell short,"
Pryor said. "That's the basis upon which all the other terms of
the agreement were set down."
The North Carolina Utilities Commission is facing change
Two of the seven commissioners have terms that expire in
June. Edward Finley's term as chairman of the commission also
expires in June, although his term as commissioner extends to
Gruber, the executive director of the commission's public
staff, which advocates for consumers, has said he plans to
retire next year.
The incoming North Carolina governor, Republican Pat
McCrory, who would appoint new commissioners, is a former Duke