The North Carolina Utilities Commission this week is holding more hearings into the firing of former Progress Energy CEO Bill Johnson, who had been designated CEO of the merged company while the merger was under review, one day after the $13.7 billion merger was completed. Put in his place was former Duke CEO Jim Rogers, who had originally been selected as the executive chairman.
Rogers testified before the NCUC last week. Johnson has been ordered to appear before the panel Thursday, July 19, while Duke lead director Ann Maynard Gray has been called to testify Friday.
"The bigger issue may be the reputational affect on the commission and how the combined company will be treated in its next rate case," said one lawyer who specializes in utility regulation.
Both Duke and Progress, which continue to operate as separate utilities, are expected to seek rate increases in North Carolina later this year. However, regulatory experts say that state officials will be hostile to granting increases, because of hard feelings over the CEO switch and because the primary selling point for the merger was that the greater efficiencies created by merging the two companies would allow them to make expensive upgrades in utility plants with less need to seek higher rates from customers.
"The regulators feel like they were deceived," said another utility lawyer. "As a political matter they can't walk away from this. While they probably can't unwind the deal, they can make life uncomfortable for the company. The long-term consequence of this will be complete mistrust between this entity and North Carolina regulators who feel like they were lied to."
The company's contention, laid out in Rogers' testimony last week, is that the board's decision to replace Johnson began developing very late in the regulatory process when Duke directors sensed that Johnson's management style would conflict with Duke's corporate culture and the final vote not taken until July 2, the day the switch was announced. However, the utility lawyer said the company's explanation is "completely unbelievable."
"The whole thing appears orchestrated and that the Duke board lay in waiting until the regulatory approvals were received," he said.
Who serves as CEO is outside of state regulators' purview, but mergers are politically sensitive issues for utility commissions. The notion that Progress' CEO would be leading the merged company made the deal more palatable to Progress's customers. "The regulators feel like they were deceived," the lawyer said. "The last thing you want to do is make the bureaucrats who oversee your business ... feel like they've been disrespected and that you've bullshitted them."
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