Core Drama At Largest US Electric Company Lingers
RALEIGH, N.C. (AP) — The investigations into whether regulators and consumers were misled in the run-up to the merger of North Carolina’s two Fortune 500 energy companies could continue quietly for months after a deadline arrives next week.
North Carolina utilities regulators and the state’s attorney general have demanded internal documents and other evidence by Aug. 7 involving Duke Energy Corp. and its surprise decision to change a key detail of its Progress Energy Inc. takeover even as regulators were considering approval.
The utilities commission plans to hire an outside law firm to review the documents to see whether it was misled when it approved the takeover June 29. The companies completed their merger July 2. About two hours later, Duke Energy’s board of directors voted to oust the CEO they’d officially appointed, former Progress CEO Bill Johnson.
The commission’s review could take months, or Duke Energy could take the very strong suggestion of the regulatory body’s chairman and offer settlement terms.
The company isn’t saying whether it’s looking for a quick end to the controversy that this week led credit ratings agency Standard & Poor’s to lower Duke Energy’s credit rating, citing the utility’s lack of transparency and the consequences of dropping Johnson.
“We are not commenting on any potential private meetings we may have related to this issue,” Duke Energy spokesman Tom Williams said.
The investigations complicate the already tricky effort to mesh operations without affecting service to Charlotte-based Duke Energy’s 7.1 million residential and business customers in North Carolina, South Carolina, Ohio, Kentucky, Indiana and Florida.
As a legal monopoly provider of electricity, North Carolina regulators limit how much Duke Energy can charge its 3.2 million customers in the state. The regulators can order electricity prices down if profits rise above a set return level, or they can allow rates to rise for a number of reasons including fuel costs and company investments in generating power. The company plans to seek rate increases in North Carolina this year.
Dumping Johnson after stating for a year and a half that he’d run the combined Duke Energy increases the risk “that the company may not be able to realize timely and constructive regulatory outcomes in North Carolina and Florida, two of its largest jurisdictions,” S&P credit analyst Dimitri Nikas wrote last week.
North Carolina’s utilities commission can revoke its earlier approval of the merger or set new conditions, potentially including requiring Duke Energy to find a new CEO to replace top executive Jim Rogers.
If Duke Energy can’t or won’t settle the issues created by switching CEOs, the doubts could linger for weeks or months. Morningstar analyst Andrew Bischof expects a long delay until a resolution is reached as regulators look into whether they were duped by corporate insiders.
“I wouldn’t think they’d want to enter into settlement talks until they got an idea what was in the materials that they requested,” he said Friday.
The last time the commission launched a similar investigation, it hired outside auditors who took nine months to comb through Duke’s books. They found Duke underreported profits by $124 million over three years. Duke paid $25 million in a settlement that included no admission of wrongdoing.
The company also paid for the costs of the audit, said Sam Watson, the commission’s top attorney.
A spokeswoman for Attorney General Roy Cooper said Duke Energy is cooperating with its document demand. Prosecutors also are seeking documents from the New York crisis communications firm Duke Energy directors hired and the Indianapolis investment firm run by Duke Energy director Michael Browning, who has been a director of companies led by Rogers for two decades.
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