Duke Energy Corp, under regulatory scrutiny over the abrupt ouster of its CEO, is not expected to be forced to undo its purchase of Progress Energy, but could face a cold reception when it seeks new power rates in North Carolina later this year.
Duke's board of directors removed former Progress chief Bill Johnson from the top spot just hours after completing the $18 billion acquisition last week and asked former Duke CEO James Rogers to take over.
The news angered utility regulators in North Carolina who approved the merger on assumptions that included Johnson's installation as CEO. The North Carolina Utility Commission (NCUC) questioned Rogers in a public hearing on Tuesday about the decision. Rogers had been slated become executive chairman of the combined company.
Rogers testified that he was not involved in the decision, but said Duke board members had come to him in the weeks before the merger closed to express worries about Johnson's ability to lead what is now the largest U.S. power utility.
The NCUC has not said what measures it was considering following the Tuesday hearing, including whether or not it might summon Johnson.
"There hasn't been a decision," said Len Green, senior staff attorney at the NCUC. "I believe they are reviewing what they heard yesterday."
Experts said a move to re-open the process that approved the merger was not likely and would be unprecedented.
Robert Gruber, executive Director of the public staff of the NCUC, which advises the commission, said the commission could take other measures to penalize Duke.
The company is expected to file two requests to adjust power rates in North Carolina this year and Duke could face a chilly reception in the wake of the CEO controversy.
"I think we're in uncharted territory. Short of undoing the merger approval, they could possibly ... impose further conditions. They could possibly consider a penalty," Gruber said.
The NCUC approves a maximum return on equity that Duke earns from its operations in the state. That rate was set at 10.5 percent previously, below the 11.5 percent return the company sought, but higher than the 9 percent one consumer advocate requested.
That difference of a percentage point or two can easily top $100 million for Duke's earnings, Gruber said.
"The trust has been undermined somewhat. And I think public confidence has been undermined," he said.
The risk of a lower return in future rate cases was more likely than a potential re-opening of the merger approvals, according to Philip Adams, senior analyst at bond research service Gimme Credit.
"Every subsequent matter that comes between (Duke and the regulator) become more difficult," he said.
REGRETS, BUT NO LAWSUIT
Members of the Progress board who left the company at the completion of the merger were angered by Johnson's ouster, but had few options and were not planning a lawsuit.
"We don't really have any standing. We aren't banding together to do anything," former Progress board member Alfred C. Tollison, Jr. told Reuters.
"We're just disappointed. I don't see a whole lot that we can do except just have regret."
Duke's board voted 10-5 to remove Johnson and replace him with Rogers. The vote was split along company lines.
Rogers sought to mend fences with Progress' employees at a meeting in a downtown Raleigh hotel on Tuesday morning, where more than 1,000 people jammed two rooms to hear from their new boss.
"It was a very forthright discussion," Duke spokesman Tom Williams said without elaborating.
The CEO switch also angered one long-time activist Duke shareholder, who told Reuters he submitted a proposal for the company to have an independent board chairman. Rogers currently retains the chairman title in addition to CEO.
"There needs to be more independence and the board has to become an advocate for shareholders' interests and demand accountability" of company executives, said Gerald Armstrong, part of a loose network of shareholder activists who files dozens of shareholder proposals each year.
Armstrong said he supported the merger of Progress into Duke because he thought Johnson's presence would lead to greater accountability and help "restore respect and integrity" at Duke following an executive shake-up there last year related to an over-budget coal-fired plant under construction in Indiana. (Additional reporting by Eileen O'Grady in Houston; editing by Andre Grenon)