North Carolina utilities regulators said Friday they will continue their investigation into whether they were intentionally misled by executives and directors assembling the country's largest electric company.
The North Carolina Utilities Commission ended three days of hearings Friday after testimony from two directors of Charlotte-based Duke Energy Corp, which finalized its takeover of Raleigh-based Progress Energy Inc. on July 2.
The companies said for a year and a half that the combined company would be headed by former Progress CEO Bill Johnson. But within hours after the deal was done, Johnson was out and Duke CEO Jim Rogers was again the top executive. The commission questioned both men under oath, as well as Duke directors Ann Maynard Gray and Michael Browning, an Indianapolis real estate developer who has been director of Duke and its predecessor utilities in Indiana and Ohio since 1990. Two members of Progress Energy's former board who became directors of the expanded Duke Energy also testified.
"We will proceed with additional phases of the investigation," Commission Chairman Edward Finley said. "We're going to do what we can and what we need to do to maintain the integrity and the reputation of this governmental body."
The CEO switch shocked investors and consumers, generated a shareholder lawsuit, and prompted investigations by the utilities commission and state Attorney General Roy Cooper, who wants to know if consumers were harmed by the aftermath.
Documents demanded from Duke Energy are due to the regulator by the end of the month, and the commission is expected to hire outside investigators to help with their probe. Florida regulators have called Rogers to testify next month.
The commission can rescind or alter its approval of the merger creating a power company serving 7 million homes and businesses in North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky. Duke also depends on the commission to approve requests for rate increases. Duke's operating companies are expected to file two rate requests later this year.
Finley noted that the last time the commission launched a similar investigation, Duke was in the hot seat and settled the problem.
In that 2001 case, a Duke accountant reported the power company made improper accounting changes to avoid cutting the rates consumers paid for electricity. Regulators in North Carolina and South Carolina hired outside auditors who determined Duke underreported profits by $124 million over three years. Duke paid $25 million in a settlement that included no admission of wrongdoing.
Gray's testimony Friday repeated a theme offered by Rogers last week: that Duke Energy had no duty to inform regulators of plans to change leadership until after the merger was done and the board voted Johnson out of the job hours later. Grey called the regulatory body's inquiry "unwarranted."
"Do you understand one of the purposes of this proceeding is to find out whether the commission was intentionally misled during the merger proceedings?" Commissioner Bryan Beatty asked.
"I understand that that's your concern," answered Gray, a former chief financial officer of the company that owned the ABC television network. "It's actually regrettable, but Duke paid about $32 billion for Progress. So for us to have a CEO in whom we do not have confidence is just not the right choice for Duke."
Gray's testimony focused on Johnson's communication practices and his handling of the troubled Crystal River nuclear power plant in central Florida.
The nuclear plant previously owned by Progress Energy has been shut down since cracks appeared in a containment building during a 2009 upgrade and maintenance project. Progress Energy has spent hundreds of millions of dollars to buy replacement power and tussled with Florida regulators about how much of the costs can be passed along to consumers. It isn't expected to operate again until 2014.
Further cracks in the radiation-deadening concrete thwarted plans to restart Crystal River and led to ongoing wrangling with the plant's insurer over who will pay. In February, Duke directors asked Rogers to join with Johnson for an update meeting with the insurer, Gray said. That didn't happen until the day before Duke Energy's May 3 annual meeting, she said.
"You'd never go radio-silent for nine weeks like that," she said. "His style is controlling — not only controlling of the flow of information but of the content of the information."
Progress Energy forecast repairing Crystal River could cost up to $1.3 billion, Duke Energy spokesman Tom Williams said. A new nuclear reactor would cost more. A new nuclear unit Progress Energy proposed building in nearby Levy County could cost up to $24 billion.
Johnson testified Thursday that Duke Energy executives sought to back out of the merger after federal energy regulators demanded extra measures to protect competition for wholesale electricity customers in their Carolinas home territories. The total cost of meeting those conditions is $225 million, Johnson said, degrading the economic rationale for the combination.
Gray and Browning said they never knew of any effort to scrap the merger.
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