Duke Energy Corp.'s surprise CEO said Tuesday that America's largest electric company dumped Progress Energy Inc. CEO Bill Johnson the same evening it was created in a merger because directors of the two merging corporations worried about Johnson's authoritarian style and being forced to pump billions into a troubled Florida nuclear plant.
Duke Energy CEO Jim Rogers remained CEO after the merger, though the companies had said they planned for Johnson to head the expanded company.
Meanwhile, Duke Energy announced Tuesday that three top executives have resigned: John McArthur, executive vice president of regulated utilities; Mark Mulhern, executive vice president and chief administrative officer; and Paula Sims, chief integration and innovation officer.
The North Carolina Utilities Commission heard from Rogers on Tuesday as it opened an investigation of whether it was misled before approving the merger June 29.
State law allows the commission to rescind or alter its decision approving the merger. The regulatory board also approves electricity rate increase requests. Both Duke Energy and Progress Energy, which remain separate operating companies in the Carolinas, are expected to seek rate increases later this year.
Rogers told state regulators Duke Energy directors told him they were disappointed in Johnson's authoritarian-seeming style, ongoing problems with Progress Energy's closed Crystal River nuclear plant in Florida, and Progress' financial performance.
"Our board did not feel that his style was appropriate or transferrable to leadership of the combined company," Rogers said. "They felt his style was autocratic and discouraged different points of view."
Duke Energy board members also were concerned that under Johnson, Progress was losing the option of mothballing the troubled Crystal River nuclear plant by marching ahead with repairs. Crystal River has been down for repairs since 2009 and isn't expected to operate again until 2014.
Rogers said Duke Energy's 10 representatives on the expanded company's board of directors voted to oust Johnson within hours of closing the merger July 2, while five Progress Energy directors voted to keep Johnson at the top. Rogers said neither he nor Johnson took part in that closed-door meeting.
Johnson's attorney declined to dispute details of Rogers' testimony.
"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," attorney Wade Smith said in a statement.
Commission Chairman Edward Finley was noncommittal on whether regulators would call Johnson to offer his side of events under oath. Finley said the commission's six members would discuss how to proceed with its rare post-merger investigation.
Johnson, 58, signed a three-year employment contract five days before the merger concluded. The new company announced hours after the merger closed Johnson was leaving by "mutual agreement." Johnson is due to receive up to almost $45 million in severance, pension benefits, deferred compensation, and stock awards.
The package "will all be paid by the investors and none will be charged to customers of this state," Rogers, 64, assured commission members.
Progress Energy directors agreed to a relatively low sale price to Duke Energy due in part to being assured their top executive would lead the expanded company. Former Progress Energy board members have said publically in the past week they felt misled by the last-minute CEO switch.
While regulators were promised Johnson would become the post-merger CEO, no one said for how long, Rogers said.
Corporate directors asked him more than a week before the deal closed whether he'd consider staying as CEO, but nothing was final until the expanded company's directors met after legalizing the merger, Rogers said.
The utilities commission reopened hearings on the final details pending before the state regulatory body on June 25. That was two days after Rogers said he became aware Johnson might be dumped. Finley asked Rogers whether Duke Energy shouldn't have informed regulators that a possible switch as CEO was in the offing.
"The decision was not made until it was made," Rogers said. "Corporate decisions are announced when they are made, not when they are contemplated."
Duke Energy's directors had a responsibility to shareholders to close the deal, and the commission decided the merger was in the best interest of consumers after placing about 200 conditions on the deal, Rogers said.
He also expressed regret at the resignations of the three executives.
"Our hope was that we could all work together to capitalize on the significant opportunities we now have as one company," he said.
Bernstein Research analyst Hugh Wynne said in a note to investors Tuesday that Duke Energy's legal and regulatory troubles could last for months, during which the company's stock price could suffer. The merger's prolonged aftermath could leave the company's directors and senior managers "preoccupied with protecting the company and themselves from legal and regulatory challenges rather than completing the integration of the two companies," Wynne said.
The combined company will serve more than 7 million customers in North Carolina, Kentucky, Ohio, Indiana, Florida and South Carolina.