A year after the shock and awe of Duke Energys merger with cross-state Progress Energy, the companies are starting to work as one, says the executive charged with making that happen.
Were hitting our numbers and feeling pretty good about it, said Lee Mazzocchi, Dukes chief integration and innovation officer.
The combination that closed July 2, 2012, created the nations biggest regulated utility with 7.2 million customers in the Carolinas, Florida, Ohio, Indiana and Kentucky.
A year later, following five-month state investigations, it also paved the way for Duke to be led by women. New CEO Lynn Good starts Monday, replacing Jim Rogers, and lead director Ann Maynard Gray will take over as chair on Dec. 31.
A core selling point for the merger was expected savings to be passed to customers, taking some of the sting out of future rate increases.
Through April, Mazzocchi said, Duke has recorded $97 million of the $687 million in savings it guaranteed to Carolinas customers over five to six years. The savings, which are far ahead of the $70 million Duke expected to save in the first year, come from using less fuel and jointly operating its Carolinas power plant fleet.
The fuel savings have come from burning cheaper coal from the Illinois Basin and Northern Appalachians at Dukes larger plants, and from greater use of low-priced natural gas. Duke says it has locked in, through contracts, $238 million of the $331 million in fuel savings it expects over five years.
Customers see the savings in adjustments to the fuel portion of their bills.
The joint dispatch of the power plant fleet which allows operators to choose the most efficient generation at any given moment is possible because of the Carolinas regulated markets and the adjoining territories of Duke and Progress.
Morningstar analyst Andrew Bischof wrote last week that the 5 percent to 7 percent in overall reduced costs Duke expects with the merger is attainable. But delivering the promised fuel and dispatch savings to customers, he said, could be tougher.
Virtually none of those benefits will go to shareholders, and the savings guarantee to Carolina regulators ultimately could come out of shareholders pockets if Duke cant meet that minimum, Bischof wrote.
A shrinking workforce
Since the merger 1,051 employees have left Duke, 820 of them taking buyouts and leaving a workforce of 26,643.
Duke expects to cut 1,860 positions, in all, through additional buyouts, voluntary departures. Layoffs have claimed 102 jobs so far.
Duke now employs 6,035 people in Mecklenburg County, compared to 5,732 a year ago. In Wake County, the former Progress home base, Duke has 2,870 employees compared to 3,237 last summer.
Many of the cuts were of redundant administrative jobs, Mazzocchi said. Some jobs, including engineering and craft positions at nuclear plants, werent open to buyouts. Scaling back the workforce could take several years to unfold in areas such as finance, human resources and work management.
Teams of Duke and Progress employees started working together to look for potential operating efficiencies in early 2011, well before the mergers target date of the end of that year. Then regulators took an extra six months to approve the merger, interrupting the companies momentum.
Combining the companies meant applying best practices in core operating, supply-chain and other functions from one company to the other and sometimes, Mazzocchi said, discovering new efficiencies.
Duke has completed nearly 230 of 600 integration initiatives and expects to finish 400 by the end of the year, he said.
Surprise and uncertainty
The softer side of Mazzocchis job, combining two corporate cultures, started with a surprise, a lot of emotion and a certain degree of uncertainty, he said.
Dukes board closed the merger, installed Progress CEO Bill Johnson as chief executive and promptly fired him, saying his management style didnt fit Duke. Employees were stunned.
I had doubts, Mazzocchi said. I was very sorry to see Bill leave.
A Cary native who trained as a civil engineer at N.C. State University, Mazzocchi was a 22-year Progress employee and its chief procurement officer. At Duke he replaced Paula Sims, one of three top Progress executives who quit after Johnson was fired.
Settling an investigation by the North Carolina Utilities Commission shook Duke from the top down.
Rogers will retire by the end of this year, under the agreement.
Former Progress executive Lloyd Yates took charge of Dukes regulated utilities, replacing Keith Trent, who is now chief operating officer of those utilities. Dukes former chief legal officer, Marc Manly, became president of commercial businesses. Duke agreed to add two new directors to its board with no previous ties to either company.
The advocacy group N.C. WARN is still fighting the merger approval before the North Carolina Court of Appeals, after the Utilities Commission refused to hear what the group says is new evidence.
WARN argues that the merger is a bad deal for consumers, a charge Duke says is not true. The group says private deals between Duke and some customer groups, and likely spending on nuclear plants, will erode promised savings for customers. WARN was joined by the city of Orangeburg, S.C., in its court appeal but has agreed to mediation.
Two working as one
As the regulatory waters boiled, the companies shared five goals: Completing the merger and integrating the two companies; resolving two state investigations; deciding whether to close a troubled nuclear plant in Florida; and settling the cost overruns of a new power plant in Indiana.
We really rallied around those, and nothing brings a company together like a common enemy, Mazzocchi said. They became the focus, and the more we focused, the more we worked together, we found we liked working together and the rapport built.
Top executives embarked on conversation tours to meet with employees and answer questions. Merger success stories were posted on the employees web portal. Managers were coached to look forward, not back.
Weve gone through the stage of grieving, Mazzocchi said. Were talking more and more about being one company, and less about being two.
Henderson: 704-358-5051 Twitter: @bhender
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