RALEIGH, N.C. - The ousted CEO of America's largest electric company told North Carolina regulators that a year after the takeover of Progress Energy Inc. by Duke Energy Corp. was announced, Duke soured on the merger and tried to back out when a federal agency insisted it do more to protect competition.
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 slow down work on completing the deal hoping time would run out. The deal allowed both sides to walk away without penalty if that work 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 last December insisted 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 deal was done. 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 state regulators 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 timetable for merging the two companies. The utilities 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 ongoing 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 power transmission lines or enhance existing ones in order to increase the electricity that can flow into their home territories from outside suppliers.
Progress had been approached by corporate buyers several times and once came "exceedingly close" to merging with Atlanta-based Southern Co. before talks collapsed. Progress recognized it was carrying heavy debt and knew that merging with another company would help it save on fuel costs, labor and lower borrowing costs for upgrading decades-old coal and nuclear plants.
Progress faced financial trouble if the Duke deal fell through, Johnson said.
Progress agreed to be bought out for a price just 5 percent higher than its stock was trading — not so Johnson could become CEO, but so the combined company would be more profitable in the first year than the separate companies could be, he said.
"The issue of tying the premium to me being CEO is not accurate, not true," Johnson said.
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