It’s doubtful we’ll ever know what former Progress Energy CEO Bill Johnson did on his one and only day as CEO of Duke Energy, the largest investor-owned utility in the United States.
Johnson is now the former CEO of the company that emerged last week, when Duke and Progress completed their $26 billion merger agreement. He is also roughly $44.7 million richer for his day’s labor. According to a Securities and Exchange Commission filing, Johnson’s exit deal included about $10 million in cash, the remainder in stock and other compensation contingent on a non-disparagement clause.
Johnson was replaced by Duke CEO Jim Rogers, who took over as chairman of Duke’s board of directors.
Rogers, under fire and under oath at Tuesday’s hastily called hearing of the North Carolina Utilities Commission, said the new company’s board was obligated to hire Johnson at the close of the merger, but retained the right to do anything regarding the top position in the company afterward.
“We had contractual commitment to appoint Bill CEO at the point of closing and we did,” Rogers said.
Under questioning from an often incredulous utility commission chairman, Edward Finley, Rogers said rumblings about Johnson’s role started in mid-May, but he was not in the board discussions on the matter. He said on June 23 he was asked to consider the CEO position should the board oust Johnson.
Asked why no one informed the utilities commission, which met to discuss the pending merger again on June 26 and was working closely with the company to finalize the work, Rogers said he and the board did not think it was “appropriate’” to inform regulators.
“The decision was not made until it was made,” Rogers said. “I wish we could have given the [utilities commission] prior notice, but corporate decisions are announced when they are made, not when they are contemplated.”
Rogers said the board cited a loss of confidence in Johnson’s ability to lead the two companies as the reason for Johnson’s dismissal. Rogers said he was concerned about Johnson’s management of Duke’s combined nuclear plant fleet. He said there was pressure to close the deal because after a July 8 deadline, both sides could have walked away without penalty.
The abrupt change in leadership surprised even those close to the negotiations and ignited a chain reaction among investors and regulators eyeing the implications. Bond rating agency Standard & Poor’s Financial Services placed Duke’s debt on watch for potential downgrade, citing concerns about the leadership switch. Company officials have not commented on what led to Johnson’s departure, citing company policy not to discuss board deliberation, but speculation has focused on the prospect that repair costs to Progress Energy’s damaged Crystal River nuclear plant in Florida were greater than disclosed during negotiations.
Late last week, the story continued to escalate when John Mullin, former lead director of Progress Energy, sent a letter to The Wall Street Journal and other business media calling the ouster of Johnson “the most blatant example of corporate deceit” he had witnessed in his career. The takeover by Rogers, he wrote, was the “greatest corporate hijacking in U.S. business history.”
Mullin, who was not named to the combined board, said he would not have voted for the deal had he known Johnson would be replaced.
On Friday, the N.C. Attorney General’s office issued an Investigative Demand for documents going back to Jan. 1, 2011, including communications between top officers and board members of both companies and meeting minutes of both boards. The investigation is focused on whether the company misled regulators when it asked for a rate increase last year to protect its credit.
Attorney General Roy Cooper issued a terse one-paragraph statement accompanying the order: “Despite our objection, Duke Energy said it needed a rate increase in order to protect its credit. Now this significant management change within hours after the merger has put the company on credit watch, so we need to get to the bottom of this to make sure we protect consumers.”
Duke Energy spokesperson Dave Scanzoni said the company was reviewing Cooper’s request and expects to brief a Standard & Poor’s team on the company’s position. He noted that rating firms Moody’s and Fitch had not followed S&P’s suit.
Scanzoni said Duke Energy would fulfill all of its agreements made during the merger negotiations. Asked if Johnson’s departure signaled a change in the agreement, Scanzoni said, “Absolutely not. All of our commitments remain in place.” Those include commitments to the environmental community and promises to Raleigh, Progress’s headquarters, that the new Charlotte-based corporation wouldn’t abandon the capital city.
“We’re fully committed to Raleigh,” Scanzoni said, “in terms of employment and philanthropy.”
As part of its approval of the merger, the state utilities commission required the company to provide $16.48 million in community and charitable support over the next four years, $10 million in energy assistance and $5 million for workforce development.
Gudrun Thompson, senior attorney for the Southern Environmental Law Center (SELC) and a lead negotiator for a coalition of environmental groups during merger talks, said she and other coalition members had no warning of the management change.
“It came as a complete surprise to us as it did a lot of people,” she said. Among the questions about the merger included what strategies and corporate culture would dominate once the companies combined.
“There’s a lot more unknown in light of the ouster or resignation of Bill Johnson,” Thompson said.
For now, the coalition, which includes the SELC, the Sierra Club, Environmental Defense Fund, South Carolina Coastal Conservation League and the Southern Alliance for Clean Energy, is watching for further developments.
“We certainly expect the company to hold up its end of the agreements we’ve negotiated as part of the merger,” Thompson said.
That includes $2 million each for green energy programs in North and South Carolina and an agreement for Duke to continue to phase out aging coal units that lack new environmental controls.
Scanzoni said both the phase-out plan and the green energy programs would not be affected by the shift at the top.
This article appeared in print with the headline “A day’s work: $44 million.”
