RALEIGH, N.C. — Duke Energy Corp. displayed “buyer’s remorse” a year into efforts to take over Progress Energy Inc. and tried to back out when a federal agency insisted combining to form America’s largest electric company required more concessions to protect competition, the ousted CEO told North Carolina regulators.
Bill Johnson, the executive dropped within hours of the two companies completing their merger July 2, told the North Carolina Utilities Commission on Thursday that Duke executives tried to delay completing the deal hoping time would run out. The deal allowed either company to walk away without penalty if it wasn’t concluded by July 8.
This spring, Duke Energy CEO Jim Rogers and other top executives told Wall Street analysts the deal was likely to break up and that Duke would be better off, Johnson said.
Duke executives asked to renegotiate the merger after the Federal Energy Regulatory Commission insisted last December on changes to protect wholesale power customers in North Carolina and South Carolina, Johnson said. Raleigh-based Progress Energy refused unless Charlotte-based Duke paid the $675 million break-up fee, Johnson said. Work on integrating the two companies halted in January, the same time Progress hired outside lawyers to make sure the deal got done, Johnson said.
The merger went ahead.
Duke Energy now has 7 million electricity customers in North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky. But Johnson was out hours after the merger closed. Rogers was again named CEO of Duke Energy. Johnson left with nearly $45 million in severance, pension benefits, deferred compensation, and stock awards.
“They wanted the merger, then they didn’t want it, then they couldn’t get out of it, then they didn’t want to be stuck with me as the person who dragged them to it,” Johnson told the state regulators. They are investigating the aftermath of the merger involving North Carolina’s two Fortune 500 energy companies.
Duke’s board of directors never told the utilities commission that officials were considering a change at the top for two months, even as the regulatory agency rushed to meet the merger timetable. The commission is investigating why Johnson was dumped as CEO — a detail commission Chairman Edward Finley called “a primary factor of the merger.” Commissioners also want to know why they weren’t told.
The commission can rescind or alter its approval of the merger, including imposing fines or setting new conditions. The commission also approves requests for rate increases, and Duke’s operating companies are expected to file two rate requests later this year.
Rogers testified to the commission last week that directors told him they were disappointed with Johnson’s “autocratic” style, his handling of problems with Progress Energy’s closed Crystal River nuclear plant in Florida, and the company’s financial performance.
Johnson’s narrative depicted those explanations as a ruse to get rid of him.
Johnson said tensions with Rogers and with their executive teams rose after December, when FERC for the second time rejected approval of the merger over concerns it would reduce competition for wholesale electricity in the Carolinas.
“It was very apparent to me that the Duke management had had a change of heart when they started looking at what the mitigation plan for FERC would cost,” Johnson said under friendly questioning from Finley. The two men worked together two decades ago as utilities law specialists in the same Raleigh law office.
In March, Duke and Progress said they would spend $110 million to build new or upgrade existing power transmission lines to increase the electricity that can flow into their home territories from outside suppliers. Johnson said the total cost of meeting FERC’s conditions is $225 million. Duke Energy spokesman Tom Williams said the full cost is still being determined.
Progress faced financial trouble if the Duke deal fell through, Johnson said.
The six-member utilities commission also heard from two members of Progress Energy’s former board of directors who joined the expanded Duke Energy board — E. Marie McKee and James Hyler Jr. McKee said directors who had been on Duke’s board had their minds made up to scrap Johnson before entering the meeting, and none but lead director Ann Maynard Gray said anything before all 10 voted against all five former Progress directors.
McKee said the Progress directors argued for an hour to keep Johnson, and consistently got the same response from Gray: “He’s not a good fit.”
The commission plans to hear from Gray and fellow Duke board member Michael Browning on Friday.