NC Regulator to Vote on Settling Duke Energy Probe

From SF Gate

By Emery P. Dalesio

North Carolina’s utilities regulator was scheduled Monday to endorse a settlement ending its investigation into whether Duke Energymisled officials before they approved its takeover of its largest rival.

The North Carolina Utilities Commission had the power to reverse or change its earlier approval allowing the merger with Progress Energy to create the country’s largest electric company. That risk would be buried if the deal is approved, along with embarrassing revelations about how Duke Energy board members soured on Progress Energy CEO Bill Johnson and plotted to sack him despite public statements he would lead the combined company.

The CEO switch hours after the merger closed July 2 shocked investors and consumers, prompted shareholder lawsuits, and sparked investigations by the utilities commission and state Attorney General Roy Cooper, whose probe continues.

Analysts hailed the settlement negotiated by the company as good for Charlotte-based Duke Energy, the utilities commission’s staff, and its division responsible for protecting consumers. Investors bid shares in the company 2.3 percent higher Friday to $63.85; the stock price had been down more than 8 percent since the day before the deal closed.

But energy watchdog Jim Warren called the settlement deal a sell-out by regulators. The deal “represents a huge gift to Duke Energy,” which Warren said “wields an embarrassing level of influence over various levels of our state government.”

Not so, utilities commission attorneys will argue Monday.

They say the settlement is in the public interest because it affirms the commission maintains control over the legal monopolies it regulates; “restores a balance between Duke and Progress in the merged company as originally represented”; and requires that Duke’s shareholders bear the cost of the investigation and all severance costs associated with the departure of Johnson and other top Progress executives.

Duke also must come up with another $30 million for ratepayers and low-income assistance.

Duke Energy wins by clearing the air with the regulator who must approve electricity rate increases in the company’s largest market. Duke Energy has 3.2 million customers in North Carolina and another 4.9 million in South Carolina, Ohio, Kentucky, Indiana and Florida. The power company is gearing up to seek two large rate increases before the North Carolina utilities commission.

“The settlement resolves one of the major regulatory issues facing the company at a low financial cost and introduces a path for resolution of management succession issues,” Deutsche Bank Securities Inc. research analyst Jonathan Arnold wrote in a note to investors. “Settlement talks had taken longer than originally expected, and outcomes were wide-ranging and potentially more financially painful.”

The settlement included several management reshuffles advancing former Progress Energy executives favored by regulators.

The key move was the announcement that Duke Energy CEO Jim Rogers will not continue heading the company indefinitely, but will retire when his current employment contract runs out at the end of next year.

Rogers headed the pre-merger Duke Energy, then stepped back into the CEO role when the company’s board ousted Johnson, who had been promised as the new boss throughout the 18-month process of combining the two Fortune 500 energy companies headquartered in North Carolina.

“The price of peace for Duke Energy in North Carolina is, among other things, the retirement of CEO Jim Rogers,” said Phil Adams, a senior bond analyst at Gimme Credit LLC, which provides the financial industry with independent research into corporate bond borrowing.

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