Troubles continued mounting for Duke Energy on Friday as the state attorney general and the N.C. Utilities Commission opened separate investigations of the Charlotte-based power companys ouster of Bill Johnson as CEO.
The Utilities Commission on Friday directed Duke CEO Jim Rogers to appear in Raleigh next week to answer questions about the timing of the companys decision to replace Johnson with Rogers. The commission last week had approved Dukes merger with Raleigh-based Progress Energy with the understanding that Johnson would head the combined company.
The key questions are how long Duke officials had planned to remove Johnson and why they did not disclose information that shareholders, employees, regulators and others considered to be material to their understanding of the merger.
The commission also directed Duke to preserve all letters, agreements, notes, minutes, memos, emails and other documents relating to the merger, an indication that a longer probe could be imminent.
Johnson resigned from Duke late Monday, just hours after the Progress-Duke merger was finalized and shortly after becoming CEO. His exit stunned employees and prompted charges of betrayal and deception by several former Progress board members whose approval of the merger was based on Johnson leading the combined company.
Progress was one of North Carolinas homegrown Fortune 500 companies, with thousands of employees, retirees and shareholders in the state. The companys absorption into Duke, the bigger cross-state utility, was not only a question of investments and lost jobs, but it was also deeply emotional to the identity of the region.
In its investigation, the Utilities Commission is acting under the state public utilities law, which empowers the independent panel to rescind, alter or amend a prior order or decision. The prospect of nullifying the merger could rattle Wall Street next week. And while that outcome is seen as unlikely, the commissions less drastic options, such as imposing stricter and costlier conditions on the merger to preserve its benefits for the public, might further agitate investors.
We can do a lot of things, but what we should do thats the bigger question, commission Chairman Edward Finley Jr. said in his office Friday. Its important to the well-being of the state.
Meanwhile, former Progress board members who had voted for the merger and since left the board when the companies combined continued to publicly denounce Dukes last-minute maneuver to sideline Johnson. Outraged board members were quoted in The New York Times and The Wall Street Journal as the story gained national attention.
One of the latest to speak out was Charles W. Pryor Jr., who served on Progress Energys board of directors from 2007 until the companys sale was completed this week. In an interview with The News & Observer Friday, Pryor said that knowing that Johnson was going to run the combined company was crucial not only to the Progress boards approval of the deal but also for setting the financial terms of the merger.
He said the board accepted lower terms for Progress shareholders because Johnson would remain in charge. Dukes purchase price of Progress was set at a modest premium of 3.9 percent over Progress stock value at the time.
We accepted a fairly small premium, said Pryor, now chairman of Urenco USA, a global company that provides services to the nuclear power industry. In return for that, we understood that going forward there would be a true value proposition in the merged company as a result of Bill Johnson being the CEO and managing the company to a different corporate strategy than Duke had.
And, frankly, we feel betrayed in that regard.
Current directors who also served on Duke Energys pre-merger board did not return calls Friday.
Dukes stock has slowly slid since Monday, closing at $66.23 on Friday, down 5.2 percent.
On Wednesday, Standard & Poors, a credit rating firm, put Duke on a watch list for a potential credit downgrade. However, on Friday, Fitch Ratings began covering Dukes credit quality, assigning a stable outlook for the company and its subsidiaries. Fitch said Johnsons resignation did not affect its ratings.
Cooper wants answers
In a parallel development stemming from the CEO switch, state Attorney General Roy Cooper on Friday said he was opening an investigation to determine whether Duke officials misrepresented facts about their CEO strategy to improve the chances of getting their takeover of Progress Energy approved by the N.C. Utilities Commission, which was sensitive to the loss of a Fortune 500 corporate headquarters in Raleigh.
Cooper said the CEO debacle also raises questions about whether Duke officials lied last year to win a 7 percent rate increase from the Utilities Commission.
The AGs office is also demanding that Duke turn over all documents dating to 2011 between executives and board members. The demand lists more than 40 officials and also requests all board minutes and committee minutes for the past year and a half.
Duke officials said Tuesday that Johnson had resigned by mutual agreement, and have stuck to that explanation.
On Friday, Duke spokesman Tom Williams said Rogers plans to appear at the commission hearing on Tuesday. Rogers already was scheduled to speak to Progress employees Tuesday morning in a closed meeting at the downtown Marriott hotel.
We are evaluating the attorney generals request and will respond in due course, Williams said.
The S&P credit review prompted the AG to investigate. The office is looking at whether Duke had planned to oust Johnson and whether the ouster constitutes an unfair and deceptive trade practice under North Carolina law.
Despite our objection, Duke Energy said it needed a rate increase in order to protect its credit, according to a statement from Attorney General Roy Cooper. Now this significant management change within hours after the merger has put the company on credit watch, so we need to get to the bottom of this to make sure we protect consumers.
Charlotte Observer staff writer Bruce Henderson contributed.