Monday, June 18, 2018
Business

Former Progress Energy CEO says Duke Energy got 'buyer's remorse' over merger

RALEIGH, N.C. — Duke Energy came down with a bad case of "buyer's remorse" in the months leading up to its merger with Progress Energy, Duke CEO-for-a-day Bill Johnson testified Thursday.

Unanticipated costs from Progress' busted Crystal River nuclear plant and from addressing regulators' concerns about the merger's competitive effects had Duke officials squirming to get free of the deal, he said.

Johnson said he pushed hard for the two companies to stick to the merger agreement.

At the end, Johnson told North Carolina utility regulators, "They didn't want the merger and they didn't want me."

Duke's board of directors fired Johnson, who was Progress' CEO and was to hold the same position with the combined company, just hours after the two companies officially merged early this month.

In testimony last week, new Duke CEO Jim Rogers said the board objected to Johnson's management style and "lack of transparency'' on crucial issues.

On Thursday, Johnson addressed and disagreed with all of Rogers' allegations.

Nevertheless, Johnson said, the merger makes sense for both companies and their customers.

"I still believe that today,'' he said.

More significantly, members of the North Carolina Utilities Commission seemed to agree, which would indicate they see no point in trying to undo the merger.

"We believed that this combination benefited ratepayers, and we still believe that," said Edward Finley, chairman of the North Carolina Utilities Commission.

But just what the commission can and will do about a merger that formed the largest utility in the country is unclear. At every turn, parties in the merger are hiring powerful lawyers to defend their positions.

Duke hired a former chief justice of the North Carolina Supreme Court to help its legal team.

Retired Justice Burley Mitchell said after Thursday's proceedings that the commission did not hold "a proper hearing. It was an investigation but it was not a legal hearing."

Any ruling by the commission is likely to be appealed, Burley said, because the commission denied Duke's lawyers the opportunity to cross-examine Johnson and others who testified.

Tom Williams, a Duke spokesman, said the utility was unable to challenge Johnson's assertion that they did not want to close the merger. Williams told the media after the hearing, "We worked to close the deal. I was on those teams. There were spirited discussions within the teams. We ultimately got the deal approved."

All told, Progress and Duke had to get it done.

The merger agreement, announced in January 2011, required the utilities to complete the deal or pay hundreds of millions of dollars for failing to do so. Duke could have been forced to pay Progress as much as $675 million — or even more — for canceling the deal while Progress would have had to pay as much as $400 million to Duke.

They could have avoided any such penalty if there was sufficient cause to end the merger due to a major adverse change in either company. But they could not find any problems significant enough to invoke such an out.

As the deal moved forward, a rift between to the companies emerged and widened. "Tension ... was very high," Johnson said. "Tempers flared."

At one point, a member of the merger team stormed out of a room, he said.

In testimony stretching over six hours, Johnson said:

• "I kept offering to go to the Duke board," Johnson told the commission. But Johnson said Rogers, who also was chairman of Duke's board, told him, "'No need to. Everything's fine. There's no need to come to the board.'"

• The criticism of his leadership style and a "lack of transparency," was unjustified, he said. "I am not autocratic. I am adamant about several things. I am adamant about integrity and honesty."

• Troubles at the broken Crystal River nuclear plant were widely detailed and well-known, despite Roger's statements that Johnson had not been completely forthcoming. In particular, Rogers said Johnson had not made clear the status of negotiations with Progress' insurance company over the more than $2.5 billion in repairs and related costs for the plant, which as been offline since September 2009.

Two former Progress Energy board members who now sit on the new combined Duke-Progress board backed Johnson's account and voiced strong support for his leadership.

"Bill Johnson is among the top CEOs," said E. Marie McKee, who had been a part of Progress' board since 1999. "He was a strong leader with strong morals."

McKee and follow board member James B. Hyler Jr. told the commission they were "stunned" by the eleventh-hour move to oust Johnson.

Describing the meeting where the decision was made, McKee said the former Progress board members who now sat on the combined board questioned Duke's lead independent director Ann Gray about the decision.

"Between each one of us we kept asking, 'Why? Why is he being removed?' Ms. Gray kept saying, 'He isn't a good fit.' "

McKee said: "I didn't know whether to cry or throw up."

McKee then told the commission the former Progress Energy board members tried to move from simply defending Johnson to evaluating the decision itself.

"Is this good governance?" McKee said they asked.

"What response was made by Ms. Gray?" asked Commissioner William Thomas Culpepper.

"None," McKee said.

Gray will appear before the commission today along with fellow Duke board member Michael G. Browning to answer questions about Johnson's ouster.

Gray and Browning face a commission that has over the last two weeks voiced deep anguish over the handling of Johnson's firing.

Johnson, who at one point during his testimony became emotional and choked back tears, told the commission it all happened so fast he never had a chance to say goodbye to Progress employees. He said the board had authority to fire him, and "there's no appeal here."

"Well," said Finley, the commission chairman, "Maybe, maybe not."

Ivan Penn can be reached at [email protected] or (727) 892-2332.

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