RALEIGH — Ousted utility chief Bill Johnson and former Progress Energy board members urged state regulators Thursday not to rescind the merger between Progress and Duke Energy during an all-day public hearing in Raleigh that painted dramatic scenes of the days leading up to Johnsons abrupt dismissal.
Members of the N.C. Utilities Commission repeatedly asked whether the premise of the $32 billion merger that it will benefit the public is still valid in the wake of Dukes merger doubts and Johnsons firing. Time and again Johnson, and the board members who supported him, assured regulators that despite the CEO shakeup the merger will deliver substantial public benefits.
Johnson chronicled mounting tensions between executives and managers at both power companies over the mergers costs. Those costs, Johnson said, prompted Duke officials to badmouth the deal to journalists and Wall Street analysts.
Johnson, meanwhile, became fiercely determined to get the merger done, in part because Progress would have been punished by Wall Street if the merger had fallen through. Such a setback, he acknowledged, would have forced Progress to make considerable staff cuts in Raleigh.
Johnson defended his leadership style and professional judgment, deflecting concerns about Progress nuclear troubles, including the damaged Crystal River plant in Florida that could cost more than $1 billion to repair. He said Duke CEO Jim Rogers came down with a bad case of buyers remorse after federal regulators twice rejected the merger and necessitated changes that ultimately will cost the companies more than $200 million.
I think it comes down to this, Johnson said. They wanted the merger, then they didnt want it, then they couldnt get out of it, then they didnt want to get stuck with me as the person who dragged them into it.
The commission is investigating Johnsons July 2 firing, which took place just hours after the merger was completed. The commission, which has the legal authority to revoke or modify the deal, approved it last month with the expectation that Johnson would lead the combined company, now the nations largest electric utility.
Before Johnson testified, Duke lawyer James Cooney III stood and asked the commission for the right to cross-examine Johnson. Commission Chairman Edward Finley Jr. gruffly told him to sit down. After the hearing, Dukes outside lawyer, retired state justice Burley Mitchell, denounced the commissions hearings as a sham proceeding, saying the company likely will appeal whatever order the commission puts out.
We didnt have a chance, Mitchell said. Weve been absolutely kept mute.
I could not believe it
Two Duke board members who came from Progress and voted against Johnsons ouster also testified Thursday. E. Marie McKee and James B. Hyler Jr. described their disbelief when board director Ann Maynard Gray, without prior notice, introduced a motion to fire Johnson.
I didnt know whether to cry or throw up, said McKee, president of the Corning Museum of Glass in New York. I could not believe it."
McKee and Hyler said resolute Duke directors removed Johnson over the pleas of five Progress members who warned of the outrage and backlash that would follow. Both said they are so disturbed by Johnsons ouster they are thinking about quitting Dukes board.
If there had been some back and forth, there would at least be some appearance that it wasnt all decided before it was all decided, McKee said.
Johnsons testimony came nine days after re-installed Duke CEO Rogers testified before the commission. Rogers said Dukes board lost confidence in Johnson on account of his autocratic bearing and because of Progress Energys deteriorating nuclear performance record.
A packed house
Johnsons appearance before the commission, like Rogers, packed the commissions hearing room. Wearing a dark blue business suit, Johnson, 58, testified in a calm, assured tone for nearly four hours. He lost his composure once, his voice cracking when he spoke about his former employees and colleagues at Progress.
Johnson said Duke approached Progress about a merger in mid-2010, proposing a leadership structure with Johnson at the helm. All seemed to go well until the Federal Energy Regulatory Commission rejected the merger for the second time in December. At that point, Johnson said, it became clear to both companies that completing the deal would be costly because of the hurdles created by federal regulators.
Duke and Progress halted efforts to integrate the two companies after the second FERC ruling to focus on coming up with a solution. Johnson said Duke cut off contact, and despite requests to meet with Dukes board, he did not meet or speak with anyone at Duke except for Rogers between Dec. 19 and June 11.
During the last six months there was no opportunity for anyone other than Jim Rogers to observe my style, Johnson said, suggesting that Rogers was the sole source for the Duke boards conclusions about his leadership style.
Johnson said he got to meet with Dukes board just twice, in November 2010 and June 2011. During the second meeting he learned that the board was concerned that Progress was attempting to impose its corporate processes and structures on Duke. He assured the board that he was sticking to the original game plan, to pick the best talent and policies from both companies.
Tensions flared when the two companies tried to figure out how to get the merger past the FERC. Johnson said Dukes negotiators wanted to back out of a promise to deliver $650 million in fuel savings in the Carolinas over five years, hoping to reduce the promised savings by $200 million or more.
Johnson said Rogers and several other Duke executives met with an analyst April 13, and that days later that analyst issued two reports on Duke and Progress.
The Progress report recommended selling the utilitys stock and said there was significant downside for the company if the deal didnt close. The analysts Duke report gave a favorable valuation to Duke if the deal didnt close and downgraded Dukes stock if the merger closed.
This is like dropping an atomic bomb in your deal, Johnson said of the reports, which he believes were planted by Duke to discredit the merger.
Progress concerns about Duke getting cold feet became great enough that in late January the company hired outside legal counsel to help it get the deal done, Johnson said.
We were having to drag them every step of the way, he said. They explored every avenue to get out of this merger short of violating the merger agreement.
As for complaints about the performance of Progress nuclear fleet and specifically its troubled Crystal River plant in Florida, Johnson said he openly shared all information about the fleet with his Duke counterparts. He said Progress had added a Duke representative on the Crystal River team to make sure the Charlotte-based company was kept in the loop.
Duke put out a statement after the hearing disputing Johnsons claims that the company sought to derail the merger.
The evidence clearly shows that Duke Energy worked diligently to complete the merger throughout the 18-month merger review process, the statement said.
Congratulations all around
Johnson and the two Progress board members vividly described the boardroom coup that led to his dismissal.
Johnson said on July 2 he put on a new tie that his wife bought him for the occasion and made the flight to Charlotte to meet with senior management ahead of the mergers closing. After the deal was approved by South Carolina regulators around noon, executives congratulated each other. The deal closed at 4:02 p.m.
Handshakes, pats on the back, congratulations all around, Johnson said.
Minutes before the 4:30 p.m. board meeting, Rogers came to Johnsons office and the two chatted before Rogers said, We cant be late for your election.
The board met by conference call for 20 minutes and approved its new officials, with Johnson and Rogers listening in the same room.
The board then went into executive session, excusing Rogers and Johnson, who prepared to head back to Raleigh.
Several minutes later Johnson got an email from Dukes lead director, Ann Maynard Gray, telling him to stay. During the executive session Gray introduced a motion: Johnson is not a good fit for Duke, should be removed, and replaced by Rogers, who had been Duke CEO since 2006.
Gray said she knew this would be a shock and expressed her apologies, McKee said. The five former Progress board members began enumerating Johnsons attributes and qualifications and asked the board to reconsider, McKee said. For one hour, McKee said, Gray kept repeating: Hes not a good fit.
None of the other nine legacy Duke board members spoke.
There were no answers, McKee said. It felt like a lifetime.
The vote was 10 to 5, with the Duke members siding against the ex-Progress members.
About 6:45 p.m., Johnson met with Gray, who was accompanied by an unfamiliar lawyer from New York. Gray told Johnson that his leadership style was not suitable for Duke. She wanted his resignation by 7 a.m.
Johnson, knowing it was a done deal, said he didnt ask for explanations but warned Gray that combining the two companies would be much harder as a result of his dismissal.
Johnson said he and several Progress executives took a grim flight back to Raleigh. Johnson called his wife, but before I could say I was fired, she congratulated me.
Gray and fellow board member Michael Browning are scheduled to testify Friday.