Duke Ex-CEO Johnson Will Testify on Leadership Switch
Former Progress Energy Inc. Chief Executive Officer Bill Johnson will testify to North Carolina regulators about Duke Energy Corp. (DUK)’s decision to replace him hours after the companies combined to create the largest U.S. utility owner.
The North Carolina Utilities Commission yesterday ordered Johnson and four Duke board members to appear at hearings on July 19 and 20. Johnson was replaced by Duke Chairman and CEO James Rogers hours after the takeover of Progress closed on July 2. The executives testified before the merger that Johnson would be CEO while Rogers served as executive chairman.
The hearings are an expansion of the agency’s inquiry, following July 10 testimony from Rogers. The commission asked former Progress directors E. Marie McKee and James Hyler Jr. to appear on July 19 with Johnson, who will be speaking publicly about his unexpected resignation for the first time. Duke directors Ann Maynard Gray and Michael Browning were ordered to appear July 20.
“One has to wonder how far the North Carolina commission will take this inquiry,” Paul Patterson, a New York-based analyst with Glenrock Associates LLC, said in an e-mail yesterday. “Issues such as the selection of a company’s chief executive are traditionally matters left to the board and not second-guessed by state regulators.”
Four former directors of Raleigh, North Carolina-based Progress have said they would have opposed the merger had they known Rogers would remain in charge. One former director, John Mullin III, said the CEO switch was “corporate deceit.” Three Progress executives resigned following the CEO shuffle.
North Carolina’s attorney general is investigating whether Duke violated any laws with its boardroom maneuver. The utilities commission is determining whether it was misled and if customers were harmed. State law allows the commission to rescind, alter or amend its June 29 order approving the merger, said Sam Watson, the agency’s general counsel.
Duke faces tougher scrutiny from North Carolina after having a “very good relationship” with the commission, said Robert Gruber, the state’s utility customer advocate.
“It will make us suspicious, a little less trusting of upper management going forward,” Gruber said in a July 11 interview. Duke will probably face extended hearings when it seeks rate increases for its two North Carolina utilities later this year, he said.
Duke’s board voted 10-5 to replace Johnson in an executive session July 2, the day the merger closed, Rogers told the commission this week. All votes in favor came from former Duke board members and all opposed were former Progress directors. Neither Johnson nor Rogers took part in the meeting.
Both McKee and Hyler voted against. McKee, a former Corning Inc. (GLW) executive and president of the Corning Museum of Glass, considered resigning after the board vote, according to Mullin. She didn’t respond to voicemails and an e-mail seeking comment yesterday.
Hyler is a former chief operating officer for First Citizens Bank and now serves as managing director of Raleigh- based Investors Management Corp. Hyler said yesterday he would appear before the commission as ordered. He declined to comment further.
Duke directors Gray and Browning were directed to “provide testimony addressing the timing of the decision to replace Johnson with Rogers,” according to the commission’s order.
Gray is Duke’s lead director and has been on the board of Duke and its predecessor companies since 1994. Browning has been on the board since 1990, according to a U.S. Securities and Exchange Commission filing.
Rogers told commissioners the Duke board “lost confidence” in Johnson during the final weeks of the 18-month merger review. The two management teams clashed over a plan to address antitrust concerns in North and South Carolina and the fate of Progress’s shuttered Crystal River 3 nuclear plant, highlighting differences in corporate culture.
Rogers was approached by Gray on June 23 with “concerns about Johnson,” who had an ``autocratic'' management style, according to his testimony. Gray and Browning asked him about replacing Johnson as CEO of the post-merger company during a June 24 dinner, Rogers said.
Regulators asked Duke to provide by July 31 all employment contracts with Rogers, all board and committee meeting minutes from July 1, 2010 to today, and all memos, letters, e-mails and other written and recorded communications from Rogers to board members.
Johnson will “gladly attend and answer all the questions the commission members have,” Wade Smith, Johnson’s attorney, said in an e-mail yesterday.
Browning didn’t respond to an e-mail seeking comment. Attempts to reach him by phone yesterday at his Indianapolis office weren’t successful. Gray didn’t respond to a voicemail message left on her home phone.
“Our focus at Duke Energy is on bringing our two companies together to harvest our merger’s savings for our customers and to deliver value to our shareholders,” Tom Williams, a spokesman for Charlotte, North Carolina-based Duke said in an e- mail yesterday.
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