While Duke Energy agreed to settle a state investigation of its merger with Progress Energy, some experts say the N.C. Utilities Commission went too far in demanding management changes at the nations biggest utility.
CEO Jim Rogers will retire when his contract expires at the end of 2013, with conditions on who may succeed him. Two top lieutenants will be replaced, while a former Progress executive will be brought back as a consultant. Two new directors will be named, neither of whom may have ties to Duke or Progress.
Just as a general principle, this is absurd in a lot of respects, said Wake Forest University business professor Dan Fogel, who teaches strategy in Charlotte. The absurdity is to dip so far into the business as to tell them how to operate and even the number of employees (1,000) to keep in Raleigh.
Those terms, he said, could make it harder to find a successor for Rogers and dampen North Carolinas business climate. Others say the agreement was a bitter pill Duke needed to swallow to stabilize its relations with regulators.
The Utilities Commission will be asked Monday to approve the merger among Duke, commission staff and the consumer-advocate Public Staff.
Duke can ill afford bad relations with the seven-member commission, which suspected it was manipulated when Dukes board ousted former Progress chief Bill Johnson as its new CEO. The commission decides matters mundane and major, including rates and profit margins.
I think (the agreement) helps the relationship because Duke is willing to take some significant, rather unprecedented steps in terms of its board and maintaining the employee presence in Raleigh, said Christopher Ayers, who practices utility law in Raleigh.
That shows good faith on the part of Duke and acknowledges the commissions concerns. Otherwise it was going to be the big elephant in the room. It clears the air.
Dukes stock closed Friday at $63.82, up $1.43.
Duke spokesman Tom Williams said a good, trusting relationship with regulators is vital to his company.
These are special circumstances we needed to address with the closing of the merger, he said, and our focus on addressing the commissions concerns in a way that was amicable so we could move forward.
While Duke acquired the smaller Progress, commission and Public Staff officials described the agreement as restoring the balance of management power between the two companies that commissioners had expected.
UNC Charlotte economist Peter Schwarz, who researches energy issues, said the Raleigh-based commission found itself facing expectations that the merger would be good for the state capital and its hometown utility.
The commission was in the unfavorable political position of the Raleigh area going along with this, believing that it was going to turn out all right, and that didnt turn out to be the case, he said. That put the commission in a bad light.
Gov.-elect Pat McCrory, the former Charlotte mayor and longtime Duke executive, will be positioned to influence who regulates Duke. One seat on the Utilities Commission is vacant and two more come open next June. McCrory couldnt be reached for comment Friday.
Duke has argued that its board had every right to fire Johnson. But after signing the settlement agreement it cant claim the commission overstepped its bounds.
But corporate governance expert Charles Elson of the University of Delaware said the commissions managerial demands could hurt the companys investors.
For regulators to dictate new directors certainly doesnt give an investor confidence, he said. The folks who have been harmed were the investors, and they expressed themselves with their vote approving the merger.
Fogel of Wake Forest said Dukes CEOs will now answer to two boards: Dukes directors and the Utilities Commission.
They have to figure out whether they want to play that game, he said. I think the Utilities Commission has compromised itself in watching out for the rate payers. Is it going to look out for the shareholders too, now? I dont think so.
While Rogers contract expires at the end of 2013, a search committee to be created under the agreement will be asked to find his replacement by July.
Duke typically elevates a new CEO from within its ranks. Potential candidates to succeed Rogers include regulated utilities chief Keith Trent who will be moved to a new position under the agreement chief financial officer Lynn Good and chief nuclear officer Dhiaa Jamil. All worked for Duke before the merger.
Not all scores settled
The commissions approval wouldnt settle all scores.
N.C. Attorney General Roy Cooper declined to join the settlement and will continue his investigation.
The green-energy advocacy group N.C. WARN, meanwhile, maintains the commission pointedly ignored Dukes spending to upgrade former Progress nuclear plants that could cost consumers millions of dollars. The commission has refused the groups request to reconsider its merger approval.
We are planning to take this to the Court of Appeals and we feel like weve got a really strong case, said WARN director Jim Warren.