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Charlotte Observer: Utilities Commission Faces Risks In Ousting Duke Energy CEO

Duke Energy CEO Jim Rogers align=left

Jim Rogers. Restoring trust between Duke Energy and the N.C. Utilities Commission could lead to a settlement that replaces reinstated CEO Jim Rogers, a state official says. While state law gives the commission broad authority, some legal experts say it would be a mistake for the commission to try to force a management change on Duke. Commission Chairman Edward Finley has hinted that the commission could address Duke's management as it investigates the forced resignation of former Progress Energy chief Bill Johnson hours after the companies merged. As hearings wound down last week, Finley suggested members could add a provision "that has some indication of who the CEO will be." He later added: "We never rule out settlements." The commission is expected to hire outside legal help to help sift through emails, meeting minutes and other documents it has told Duke to produce by July 31. "It's my sense that the commission would like to move on and that, listening to the (commissioners') questions, one way to get this behind us is to replace Rogers," Robert Gruber, executive director of the commission's Public Staff, which advocates for utility customers, said Tuesday. "We hope the matter can be resolved through a settlement and that this should not just turn on precise legal requirements. We think the commission has the right to consider who the CEO is as part of an overall settlement." State law, in addition to allowing the commission authority to rescind or change previous orders, gives it general power "to supervise and control" utilities. Some state officials believe that power could be extended to management because the commission is charged with protecting public interests over utilities with monopoly control of their territories. Other legal experts say it would be disastrous for the commission to try to dictate who leads the new Duke. "I think the public fallout of this would be immense if the Utilities Commission stepped forward and was seeking a forced resignation or, worse yet, appointing someone," said Duke University law professor James Cox, who specializes in corporate and securities law. Force regarded as unwise Cox doesn't know whether the commission has the legal authority to dictate a CEO change. But in previous cases, he said, companies have reached settlements with regulators that brought in neutral members to divided corporate boards. Cox thinks such an approach could work for Duke, whose directors from the old Duke out-voted former Progress board members in pushing Johnson out. The two former Progress directors who testified before the commission last week might leave the board. "It's time to make this merger work and part of that could be figuring out a way to bridge the gap between the two factions," Cox said. Columbia Law School professor Jeffrey Gordon, who focuses on corporate law, said regulators can powerfully influence corporate boards, who fire CEOs as they wish. But a forced CEO change, he said, would be a "punitive" move that slows down integrating the two companies and hurts shareholders and, indirectly, customers. "The question is not whether the commission has authority," he said. "The question is whether or not it's a good idea." Can Rogers be replaced? Duke Energy had little to say about its response to such an effort. "We'll be meeting with the commission staff in the near future on some of the items (Finley) suggested," said Duke spokesman Tom Williams. Rogers, 64, was to become executive chairman when the merger closed. His contract with Duke runs through 2013. With Johnson gone, Rogers has no obvious successor. In approving the merger last September, Kentucky's Public Service Commission demanded a commitment that Duke's board include a Duke customer from Kentucky, Ohio or Indiana. Director Michael Browning, who lives in Indianapolis, already fills that role. Duke negotiated a caveat that it will take "reasonable measures" to fill a future vacancy from the Midwest. While the commission has received dozens of outraged letters and emails protesting Johnson's ouster, some in North Carolina's business community are defending Duke. Retired Bank of America CEO Hugh McColl, in a rare guest column in Sunday's Observer, defended the right of corporate boards to pick their chief executives. "If regulators insert themselves into matters of the board room," he wrote, "they chill the business atmosphere for our state." Strategic concerns Dan Fogel, who teaches strategy at Wake Forest University's Babcock Graduate School of Management, said shareholders and Duke would probably sue the commission if it tried to dictate Duke's management. "First of all, they were not appointed to run the company. When they start managing the company, they go out of bounds," Fogel said. "The other part is, they showed their lack of expertise when they called in Rogers (to testify); they should have first called in the directors." Rogers' July 10 testimony before the commission led off appearances by six witnesses, including two Duke directors last Friday. Fogel said the commission should have dug deeper into Duke's post-merger moves, such as rate-hike requests, before approving the merger last month. Such questions, he said, could "make sure they're not going to get blindsided."