Duke Energy CEO Jim Rogers will retire at the end of 2013 and other key executives will be shuffled under an extraordinary agreement to end regulators five-month investigation of Duke Energys star-crossed merger with Raleigh-based Progress Energy.
The proposed agreement goes before the N.C. Utilities Commission for approval on Monday. The commission has suggested that Dukes directors misled it by sacking former Progress chief Bill Johnson, who was to have led the combined companies, hours after the $32 billion merger closed on July 2.
The commissions likely approval would remove a major regulatory cloud over the nations largest utility, one that has weighed down some analysts views of Dukes future profits.
Nearly half of its 7.1 million customers, and a proportionate share of profits, come from North Carolina. Dukes subsidiaries have one rate-hike request now before the commission and a second will be filed in February.
N.C. Attorney General Roy Cooper will continue his investigation of the merger.
The proposed agreement among Duke, the commission staff and the Public Staff, which represents consumers, is most remarkable for the personnel changes it exacts. While the commission has in the past removed managers of small water utilities, never in memory has it reordered the top management of a Fortune 500 company.
It goes a long way toward restoring some balance in the merger, said Robert Gruber, executive director of the Public Staff. It will now be more of what the Utilities Commission thought it was approving a merger of equals.
Chairman (Edward) Finley and the commission have demonstrated by this order that the new Duke is not too big to regulate. I think the Duke board and executives have learned lessons from this, that the most important asset they have is the trust of their regulators.
Duke fought what it considered the commissions unfounded intrusion into its board room, arguing that the board of directors was within its rights to replace a CEO it viewed as arrogant and not forthcoming on key issues.
The company relented in the face of an investigation that could have continued for months.
Rogers, speaking to a financial conference this month, said trust in life goes both ways, and so my hope is that we can build a trusting relationship with the North Carolina regulators, and I believe we will.
Duke will have to write a statement acknowledging that its activities have fallen short of the commissions understanding of Dukes obligations as a regulated utility. The agreement adds that Duke doesnt admit unlawful or improper acts.
That acknowledgment was important, said Sam Watson, the commissions general counsel.
The changes to the corporate governance, to the executive management, all of these were to restore the balance originally anticipated between legacy Progress and legacy Duke, and to restore the relationship and trust between the company and the utility that had been undermined.
Rogers, 65, will retire when his contract expires at the end of next year. An energy CEO for 24 years, hes led Duke since its 2006 merger with Ohio-based Cinergy. Duke touts the shareholder returns hes delivered over the years as among the best in the industry.
But the agreement says a search committee of directors will make its best efforts to have a new chief executive in place by next July.
This settlement agreement is an important step forward for the company because it resolves one of our key near-term priorities: bringing closure to the (commission) merger review process, Rogers said in a statement. We are already delivering significant benefits from the merger for our customers and investors and are well-positioned for the future as a stronger, more efficient organization.
Rogers could not be reached for further comment Thursday night.
Other execs moving
Two other high-ranking Duke executives will be moved to other positions in the company.
Former Progress executive Lloyd Yates, now with Duke, will become executive vice president of regulated utilities. He will replace Keith Trent in overseeing Dukes largest business unit.
Duke also will name a new general counsel, replacing Marc Manly. The company will retain former Progress general counsel John McArthur, who resigned after Johnson was fired, as a consultant for two years. McArthur will advise on, among other matters, maintaining good relationships with governmental officials in North Carolina.
The board committee that will look for a new CEO also will recommend two new directors with no previous ties to either Duke or Progress. Two former Progress directors resigned from the Duke board after Johnson was dismissed.
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.
Other concessions in deal
Duke also agreed to keep at least 1,000 employees in Raleigh, the former headquarters of Progress and a key concern of utility commissioners.
In addition, Duke Energy Carolinas defers an upcoming rate request, initially expected to come this year, until February. Duke will add $25 million in fuel-related savings for North Carolina customers to the $650 million it had previously guaranteed, and give another $5 million to North Carolina workforce development and low-income assistance programs.
Duke also will pay the bills, expected to be in the millions of dollars, of the law firm the Utilities Commission hired to interview Duke and Progress officials and sift through nearly 6,000 pages of emails and other documents the companies were ordered to produce.
Durham activist Jim Warren of NC WARN denounced the settlement as a sell-out to the public. Warrens group was hoping to get the merger overturned.
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.
Duke shares were trading at $63 in after-hours trading Thursday night, up nearly 1 percent from the close. John Murawski of The (Raleigh) News & Observer contributed.