The five-month state probe into Duke Energys handling of its merger with Progress Energy ended Thursday with a proposed multimillion-dollar settlement and an agreement that CEO Jim Rogers will step down by the end of 2013.
Duke has agreed to pay $30 million, reshuffle executives and keep at least 1,000 workers in Raleigh for at least five years as a sign to investigators that Raleigh will not be shortchanged by the merger. The penalties and concession go far beyond the terms the Charlotte power company had originally swallowed to get the $32 billion merger approved by the N.C. Utilities Commission.
The settlement, between Duke and staff lawyers at the N.C. Utilities Commission and N.C. Public Staff, will be taken up by Utilities Commissioners on Monday and likely will be approved that day.
Its more than I thought would happen, said Alfred Tollison Jr., a former Progress board member who had voted to approve the merger with Duke and was later outraged by the outcome. Im still upset about what happened during the course of the merger and how it happened, but I think this is a move in the right direction.
The Utilities Commission launched its probe in July in response to Dukes firing CEO Bill Johnson just hours after the merger was completed. The Utilities Commission had approved the merger June 29 with the understanding that Johnson, who had been CEO at Progress, would lead the combined company, now the nations largest electric utility. Instead, Duke reinstated Jim Rogers to the executive suite.
While the settlement deal stops short of accusing Duke of illegal and unethical conduct, the company will be required to issue a mea culpa acknowledging that its activities have fallen short of the commissions expectations. And Duke will have to pay the legal fees of Jenner & Block, the high-priced law firm the commission hired to conduct the probe.
The proposed agreement, which restores greater control to former Progress executives, is the first time in memory that the commission has reordered the top management of a Fortune 500 company.
One of the overall goals was to restore the balance between Duke and Progress that was originally envisioned before Bill Johnson was terminated and the Progress executives left, Sam Watson, general counsel of the commission, said Thursday in a phone interview.
Former Progress executive Lloyd Yates, now with Duke, will become executive vice president of regulated utilities. That means every state president within Duke reports to Yates.
In addition, Duke will name a new general counsel. The company will hire former Progress general counsel John McArthur, who resigned in protest after Johnson was fired, as a consultant for two years. McArthur will advise, among other matters, on maintaining good relationships with governmental officials in North Carolina.
Public Staff Director Robert Gruber, who had called for Rogers resignation, said hes convinced Duke misled the commission about its CEO strategy. The settlement states that to assist with the resolution of these matters Rogers, 65, will retire Dec. 31, 2013, as originally planned in his contract, and Duke will begin a search for a new CEO.
The agreement says a search committee of directors will make its best efforts to have a new chief executive in place by July.
Chairman (Edward) Finley and the commission have demonstrated by this order that the new Duke is not too big to regulate, Gruber said.
Johnsons firing stunned employees and public officials, prompting the investigation by the commission and also by N.C. Attorney General Roy Cooper. Cooper is not a party to Thursdays settlement and is continuing his investigation. Johnson has since been hired to lead another giant utility, the Tennessee Valley Authority.
The commission held days of public hearings, taking hours of testimony from Rogers and Johnson before TV cameras and national media outlets. Four board members also testified, chronicling the conference call at which 10 former Duke board members sacked Johnson over the pleas of five former Progress board members who had joined the Duke board with the merger.
The commission also demanded that Duke turn over thousands of pages of internal emails and documents, which were made public on the agencys website.
The settlement will spare Duke further public hearings and more embarrassing disclosures, Gruber said.
Activists, analysts react
Durham activist Jim Warren of NC WARN denounced the settlement as a sellout of the public. Warrens group was hoping to get the merger overturned.
Analysts, however, are relieved.
The commissions likely approval of the settlement will remove a major regulatory cloud that had weighed on analysts views of Dukes future profits.
Duke has 7.1 million customers in six states but nearly half and a proportionate share of profits come from North Carolina. Dukes Progress subsidiary has a rate-increase request before the commission, and Duke will file a second one in February.
Duke shares were trading at $63 Thursday night in after-hours trading up nearly 1 percent from the close.
Analyst Paul Patterson of Glenrock Associates said the settlement marks the closure of one of the most bizarre chapters in the utility industry.
It looks like were toward the end of the long-running soap opera, Patterson said. Im just glad its over.
Charlotte Observer staff writer Bruce Henderson contributed.