Duke Energy learns its lesson: there are no consequences

Over the last two years, Duke Energy has been involved in 2 major scandals – first, for hiring the lawyer for Indiana’s energy regulator, and second, for ousting the chairman of their newly-merged company only hours after completing the deal. Now, Duke seems to be learning their lesson from the scandals: go bigger and bolder.

Last week, Duke announced that it had hired soon-to-be-ex-Congressman Heath Shuler as their chief lobbyist/Senior Vice President of Federal Government Affairs. (Shuler is ostensibly prohibited from directly lobbying Congress for one year after his departure under the Ethics Reform Act of 1989.) As recently as July, Shuler was denying rumors that he was actively negotiating a job as a lobbyist while still serving in Congress.

Despite the obvious conflict of interest, Shuler is still serving as a self-appointed negotiator on the so-called fiscal cliff, as a member of the self-aggrandizing “Go Big” coalition that wants massive (but conveniently unspecified) cuts in government spending. Rest assured, though, because Duke’s press release clearly states that Shuler won’t vote on any legislation involving his new employer, even though “Duke Energy benefits from a host of tax subsidies, so much so that Citizens for Tax Justice found that the company paid an effective tax rate of negative 3.9 percent from 2008–10 while making over $5.5 billion in profit.”

Shuler served only 3 terms in Congress – but that was more than long enough to eclipse his NFL career, where he was known as one of the biggest draft busts in league history. According to DW-NOMINATE rankings, the Blue Dog Shuler was the most conservative member of the House Democratic caucus in the 112th Congress, and one of the most conservative in the 110th and 11th. Since announcing his retirement in January 2012, he’s missed about 19% of the roll call votes in Congress.

It certainly requires some corporate chutzpah for a corporation to negotiate an employment deal with a sitting Congressman. But it certainly isn’t without precedent for Duke, a company that has developed an intimate familiarity with scandal over the past few years.

Indiana Scandal

In September 2010, Scott Storms left his job as general counsel and administrative law judge for the Indiana Utility Regulatory Commission to go to work for Duke Energy – the state’s largest electric provider, and a company he had been responsible for helping to regulate.

Storms was following in the footsteps of Michael Reed, former Executive Director of the IURC, who became the head of Duke’s Indiana operations in June 2010. The state Ethics Commission initially waived the year-long “cooling off” period for Storms, exempting him from rules that are supposed to prevent these conflicts of interest.

As reporters – especially John Russell at the Indianapolis Star – started to look into Storms’ sudden job change, they confirmed what consumer watchdog groups had been saying all along: there was an uncomfortably cozy relationship between top Duke Energy officials and state regulators. And it turned out that Storms had been fishing for a job with Duke months earlier than he disclosed to the ethics panel.

Emails between top regulators and Duke executives revealed embarrassing lines – who could forget such hits as, “It was impressive that you did not laugh during the Ethics hearing,” and, “Certainly understandable as Hitler and Stalin are dead but still, attending the Ethics hearing and not laughing is more credit than is in your account.

Duke CEO Jim Rogers – who served as CEO at both Indiana’s PSI and Cinergy before taking the top job at Duke – privately expressed his reservations about hiring the IURC officials, writing that it was, “A bridge too far…”

“it bothers me but I don’t know why…feels like a bad move at this time..coming on the heels of Mike–” (July 26, 2010 email from Jim Rogers to Jim Turner)

But Rogers was apparently reassured by Turner’s response about how “positive and supportive the gov’s chief counsel was.” By July 27, emails show that the decision was made to hire Storms. “I suppose there isn’t a way that we’re going to not hire him, but I feel compelled to at least pretend that I need to meet him first,” wrote Catherine Stempien, Duke’s Senior Vice President of Legal. Storms would finally join Duke in September.

In the end, Scott Storms was fired, along with Mike Reed. Duke’s utility chief, James Turner – the former utility customers’ counsel for Indiana – resigned after he was prominently featured in the Star‘s treasure trove of emails. And Mitch Daniels was forced to fire his handpicked IURC director, David Lott Hardy.

Hardy was indicted on 3 felony counts related to the scandal. (In October 2012, a judge denied Hardy’s attempts to delay the trial.) But he seems to be the only one facing serious repercussions from the scandal. Storms was fined $12,000 (less than 13% of his annual salary from the state) and barred from future employment with the state. And Turner walked away from Duke with a $10 million severance and retirement package; he now works as a consultant and serves on the board for a small electric company. (I was unable to find any updated information on Mike Reed.)

While all of this was going on in Indiana, Duke’s internal maneuvering was putting the company on course for another scandal.

Merger and CEO fiasco

In January 2011, Duke announced plans to merge with Progress Energy, another North Carolina-based power company. The merger would make Duke the largest electric utility in the country. Under the merger plan, Duke’s Jim Rogers would become Executive Chairman, while Progress’ William Johnson would become CEO of the new company. The companies eventually got federal and state regulators to sign off on the deal.

But only hours after the deal was finalized on July 2, 2012, Johnson was fired, and the board named Rogers the CEO of the new, bigger Duke Energy. According to Paul Barrett at BusinessWeek, “Those caught unaware by Johnson’s stealth firing included investors, utility regulators, and some 29,000 employees of the combined company.”

Duke officials, including Mr. Rogers and Ann Gray, the company’s lead director, say they acted properly. The merger agreement did not specify how long Mr. Johnson would be chief executive, the company has said.

The sudden change in the terms of the deal set off a new round of investigations. The North Carolina Utilities Commission held new hearings to determine if they were misled by Duke executives. Today, the NCUC announced a settlement with Duke that will result in Jim Rogers stepping down. Despite the settlement, Duke Energy denies any wrongdoing.

North Carolina’s Attorney General opened a separate investigation, which is still ongoing.

In response to the game of CEO-musical-chairs, Standard & Poor’s dropped Duke’s credit rating a notch, from A- to BBB+. (An S&P analyst also cited the “the ‘manifestly poor risk management’ that Duke demonstrated in building its Edwardsport power plant in Indiana, the subject of ethics claims and more than $1 billion over budget.”)

But the downgrade and “negative outlook” don’t seem to have hurt the company’s bottom line. Duke posted a profit of $594 million in its first quarter after the merger with Progress, a 26% increase over the 3rd quarter of 2011.

And Duke’s stock price hasn’t been hurt by the scandals, either. In September 2010, around the time Storms was hired, Duke’s stock price was at $52.59. It peaked at just over $70/share in June 2012. Now, it’s trading around $64.24. In fact, over the 3-year period from December 2009 – December 2012, the stock price has increased by just over 28%.

And so, after more than 2 years of scandals, Duke Energy has no hesitation about hiring a sitting US Congressman to be their lobbyist. They know there will be no serious consequences – it’s a lesson they’ve learned well from Indiana to Wall Street.

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