Duke Energy Corp. Chairman and Chief Executive Officer Jim Rogers must step down by the end of next year as part of a settlement with North Carolina regulators stunned by a July boardroom coup.
The settlement, which lays out a series of executive changes and employment and financial concessions, represents a rebuke to the largest U.S. utility owner by market value.
Approval by the North Carolina Utilities Commission would end its investigation into the ouster of former Progress Energy CEO Bill Johnson and reinstatement of Rogers hours after the company closed its $17.8 billion takeover of Progress. Commissioners had just approved the merger and accused Duke of misleading them with the CEO switch.
“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 released after the close of trading in New York yesterday.
Duke rose 2.3 percent to $63.82 at the close in New York. Shares have fallen 3.3 percent this year.
Duke will create a special committee of the board comprised equally of pre-merger Duke and Progress directors to choose a successor for Rogers, according to a filing yesterday with the U.S. Securities and Exchange Commission. The committee “will make its best effort” to have a new chairman, president and CEO of Duke in place by July 1, and no later than Dec. 31, 2013, according to the settlement.
“One of the goals of the settlement was to restore the balance between legacy Duke and legacy Progress,” said Sam Watson, general counsel for the commission, in a telephone interview. The agreement doesn’t affect a separate investigation by North Carolina Attorney General Roy Cooper into whether Duke’s actions violated state law, Watson said.
Lloyd Yates, former head of Carolina Power & Light, one of Progress’s flagship utilities, will be promoted to replace Duke’s Keith Trent as head of regulated utilities, according to the filing.
Marc Manly, another legacy Duke executive, will be replaced as general counsel by a new hire. John McArthur, Progress’s last general counsel, will be retained for two years to advise Duke “on regulatory and legislative matters in North Carolina,” according to Duke’s statement. McArthur resigned from his post-merger job as Duke’s executive vice-president for regulated utilities shortly after Johnson was replaced.
Trent and Manly will be reassigned once the commission approves the settlement, according to the filing.
In the agreement, Duke guaranteed $25 million in additional fuel-related cost savings to customers on top of $650 million already promised for the first five years after the takeover. The company agreed to maintain at least 1,000 employees in Raleigh, North Carolina, the former headquarters of Progress Energy, and make an additional $5 million payment for workforce development and low-income assistance in the state.
Duke denied any illegal or improper actions in the CEO shakeup, although it agreed “its activities have fallen short of the Commission’s understanding of Duke’s obligations” as a regulated utility, according to a company regulatory filing yesterday. Rogers agreed to retire at the end of 2013, as scheduled before the shakeup, “to assist” the settlement, according to the filing.
The accord was reached with the North Carolina Public Staff and the state utilities commission to end its investigation of Johnson’s ouster after Duke’s all-stock acquisition of Progress on July 2, 2012. Johnson, who served as CEO of Progress, had been expected to take over leadership of the combined companies.
Neither Rogers nor Johnson are eligible to serve as chairman, president or CEO of Duke, according to the agreement. Johnson was named Nov. 5 to become CEO of the Tennessee Valley Authority, a federal power agency.
Duke also agreed to defer a rate increase request for its North Carolina utility until February 2013.
The settlement has “the potential to remove uncertainty associated with this rather unusual probe,” said Paul Patterson, a New York-based utility analyst for Glenrock Associates LLC. “The whole saga has been a bit of a head-scratcher to begin with, and hopefully this is the end of it,” Patterson said in a telephone interview.