* Board voted 10-5 to replace Johnson just after deal closed
* Worries mounted about Crystal River nuclear plant
* CEO Rogers says had been fully prepared to step down
By Wade Rawlins
RALEIGH, N.C., July 10 Duke Energy Corp
directors grew increasingly worried about Progress Energy Chief
Executive Bill Johnson's "autocratic" management style and
lacked confidence he could lead the largest U.S. utility, Duke
CEO Jim Rogers told North Carolina regulators on Tuesday.
The unusual hearing was called by the North Carolina
Utilities Commission to look into Johnson's surprise ouster only
hours after Duke completed its $18 billion takeover of Progress
last week. U.S. regulators had approved the merger on the
understanding that Rogers would be executive chairman and
Johnson would be CEO of the combined company.
Rogers told commissioners on Tuesday that Ann Maynard Gray,
Duke's lead director, privately approached him on June 23 to
express concerns about Johnson's abilities to lead the combined
company. According to Rogers, Gray asked if he would be willing
to take the CEO job if the board decided to remove Johnson.
"They felt his style was autocratic and discouraged
different points of view," Rogers said, citing concerns by the
board that Johnson would try to impose Progress culture on Duke.
"There was a loss of confidence in Bill and each director had
different reasons, apparently, and this kind of accumulated over
a period of time."
Rogers said Duke directors were worried about problems at
several Progress nuclear plants and that the financial
performance of Progress after the merger announcement was also
not what the board expected. He gave no details.
It was not immediately clear if the commission was satisfied
with Rogers' explanations, or if the regulator intended to
reopen its regulatory review of the acquisition.
"It answered a lot of questions," Utilities Commission
Chairman Edward Finley Jr. said of Rogers' testimony. "I'm sure
it raised other questions. We got part of the story at least."
Finley declined to speculate on how long the inquiry would
continue or the next step.
"Stay tuned," he said.
The deal was first announced in January 2011, when Progress
agreed to be bought by Duke at a relatively thin 7 percent
premium. Progress' former lead director, John Mullin, said last
week that the company would not have agreed to the deal if Duke
had not promised that Johnson would become CEO.
North Carolina attorney general Roy Cooper has opened his
own investigation and ordered Duke officials to produce
merger-related documents from board members and senior managers
of both companies going as far back as January 2011.
LARGEST U.S. UTILITY
The coup in the Duke boardroom brought into public focus the
often rocky relations companies have operating in a regulated
world where state commissions hold broad authority to set the
rates a utility can charge customers, determine its profit
margin and tell the company how it must operate.
With the Progress takeover, Duke became the largest U.S.
power company, with 57,000 megawatts of generating capacity and
7.1 million customers in North Carolina, South Carolina,
Florida, Indiana, Kentucky and Ohio.
Wade Smith, a Raleigh attorney representing Bill Johnson
said his client had been looking forward to running Duke.
"The fact that he is held in the highest regard by his peers
in the utility industry and in the North Carolina business
community speaks volumes about his leadership and business
capabilities," Smith said in a statement.
Regardless, being CEO for a day paid off for Johnson.
Utilities Commissioner Susan Warren Rabon questioned Rogers
about the size of Johnson's $44 million severance package. She
asked if it would be fair to think that Duke's rates were too
high if it could afford such a large compensation package for a
"The actual part tied to the transition is probably around $7
million," Rogers replied. "The lion's share of the $44 million
were items that Mr. Johnson had earned and were vested at the
point of the transition."
He added, "I will assure you none of these dollars will be
charged to the customers of this state. We're not taking
customer money. We're taking investor money to pay this."
Duke is now the second largest U.S. operator of nuclear
Rogers said the board was concerned about problems at
Progress' existing nuclear facilities and at its Crystal River
reactor in Florida, which has been shut since 2009 due to
unprecedented cracking in the walls of the containment building.
Another major hurdle at Crystal River is whether repairs to the
cracked walls will be paid for by an industry insurance fund.
Rogers said Duke will now "pour money" into Progress'
operating reactors to "bring them back to excellence."
Glenrock Associates analyst Paul Patterson said cultural
issues seem to have played the largest role in Johnson's
"One has to wonder whether the issues associated with
Crystal River and the company's nuclear plants would have had
the same impact if it weren't for the so-called leadership style
issue," he said.
Johnson is known for being a more hands-on leader, while
Rogers has a reputation for being focused on macro issues,
preferring to leave minutia to subordinates.
Rogers has an unusually high profile for a utility
executive, making frequent media appearances in places as
diverse as "60 Minutes" and "The Colbert Report."
He has testified more than 20 times before U.S.
congressional committees and is known as one of the first major
U.S. utility executives to have backed federal climate change
On Tuesday, he appeared nervous and referred frequently to a
typed statement covered with green highlighting and hand-written
notes. He answered many questions from the commission's chairman
with short replies of, "Yes sir" or "No sir."
Rogers has been involved in three major transactions in his
more than 23 years as a CEO and has ended up in charge of the
company after each deal.
But in the Progress case, Rogers told the commission he had
been ready to leave the CEO job to Johnson and become executive
chairman. He said he had plans to join the boards of the Nature
Conservancy and the Aspen Institute, and that the Duke board had
thrown a retirement party and gave him a parting gift last
"We from the very beginning intended that Mr. Johnson would
be CEO of the company once the deal was closed," Rogers said.
But in a meeting on the evening of July 2, just after the
deal closed at 4:02 p.m. EST, the new Duke board voted to
replace Johnson with Rogers. Ten former Duke directors outvoted
five legacy Progress directors. One Progress director was
absent, and Johnson and Rogers did not vote.
Standard & Poor's has said it is reevaluating credit ratings
for Duke and its utilities, citing the management news.
Rogers said he did not think S&P's negative outlook for Duke
would affect the cost of money the utility borrows.
"They are concerned from corporate governance standpoint
about this change," Rogers said. "It took them by surprise as it
took this commission by surprise."