Saturday, May 26, 2018
Business

Secrets about Crystal River nuclear plant could be revealed at hearings this week

Duke Energy's new Florida customers may find out this week just how good the utility is at keeping secrets about the troubled Crystal River nuclear plant.

The North Carolina Public Service Commission has summoned several Duke board members to explain the less-than-one-day tenure of Bill Johnson as CEO of the newly combined Duke-Progress Energy giant.

Johnson's "lack of transparency" in his accounting of the busted Crystal River plant seems central to his ouster. Duke has revealed that its own secret report highlights the plant's problems, but it has thus far resisted releasing the study.

The commission's unusual move to call Duke board members to testify, experts say, sends a clear message that the utility needs to justify the removal of the man that for 18 months was slated to lead the company after the merger. That could mean revealing what the secret report concluded about the Crystal River plant.

There's little cover for any of those who will take the stand. What the board members heard leading up to Johnson's ouster and the statements they made are not protected by confidentiality, experts say. "They're now going to have their feet held to the fire to identify what it was that led to their decision," said Mark Cooper, senior fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School.

Added David Larcker, a Stanford University Graduate School of Business professor: "What was it that happened that caused you to lose faith in the person so quickly? What was the process you went through? What meetings did you have?

"It's not going to be fun to be on the stand describing this," Larcker said. But "it will be fun to be there and listen to it."

The hearings begin Thursday with testimony from Johnson and two former Progress Energy board members, E. Marie McKee and James B. Hyler Jr., both of whom became Duke board members. They voted against Johnson's ouster. They will be followed Friday by Duke board members Ann M. Gray and Michael G. Browning, who in the weeks leading up to the merger voiced a deepening loss of confidence in Johnson.

The commission and the North Carolina attorney general opened investigations into Duke's decision about its chief executive just days after the utility closed the merger July 2 and removed Johnson.

At the commission's first hearing on July 11, the panel peppered Johnson's replacement, Duke CEO Jim Rogers, with four hours of questions about what led to Johnson's departure. Rogers rattled off criticisms of Johnson's management capability and "lack of transparency" in revealing problems with the utility. In particular, he cited ongoing troubles at the Crystal River nuclear plant in Citrus County, underperformance of the overall nuclear fleet and Progress' weaker financial status.

The two utilities announced plans to merge in January 2011. At the time, the Crystal River plant was expected to restart power production two months later after a maintenance and upgrade project, as well as a repair of a crack in the concrete containment building. But as workers moved to restart the plant, the reactor's 42-inch-thick concrete containment building cracked again. Months later, as it sat idle, the building suffered a third crack.

The 36-year-old plant has been out of service since fall 2009. It may have to be shut down permanently because repair and related costs are expected to run in the billions of dollars. The merger moved forward with the utilities rarely mentioning Crystal River. But as the merger closed, the new combined board voted 10 to 5 to replace Johnson with Rogers.

James Cox, a Duke University law professor of corporate securities law, said the hasty move unsettled investors because it raises questions about the board's decisionmaking and judgment. It was "terrible" from a public relations standpoint, he said.

"If they couldn't handle (the CEO decision)," Cox said, "how the hell are they going to handle this pressing problem with a multibillion(-dollar) potential time bomb?"

In addition, Cox and others said the board's divided vote on Johnson heightens investor concern because it highlights the rift among its members.

"Is this board functioning well?" said Larcker, the Stanford business professor. "Are they being transparent? If you're an analyst, you're going to worry about something like that. It's additional risk associated with the company."

Duke shareholder Lesley Rupp filed a lawsuit in Delaware Chancery Court on Tuesday against Duke Energy over the board's decision. She alleges the directors conspired to oust Johnson in violation of their responsibilities to the company.

Johnson's departure also has prompted dozens of letters to the commission to fine Duke or even break up the merger. One Johnson supporter created a website www.mybilljohnsonstory.com to show support for the former executive.

Cox and others believe the divide on Duke's board, within the company and throughout North Carolina, where both utilities were based — Duke in Charlotte, Progress in Raleigh — will continue to manifest itself. And a focal point of the divide, the experts say, will be Crystal River. Johnson wanted to repair the plant while Rogers has spoken of giving more consideration to shutting down the reactor. Either way, customers could be on the hook for millions of dollars, if not billions.

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