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Smoking gun in Duke merger scandal found by NC WARN – News Release from NC WARN

Internal Document Indicates Duke Energy Hid Damning News on Broken Nuclear Plant before Merger with Progress Energy was Approved

Johnson memo to his board members strongly suggests Duke misled regulators in various states; NC WARN says this bolsters legal case to reopen merger hearings

Durham, NC – An April memo from ousted CEO Bill Johnson appears to confirm long-running concerns by a watchdog group that Duke Energy hid vital information from regulators in several states prior to the July closing of the utility’s controversial takeover of Progress Energy. NC WARN today filed the document with the NC Utilities Commission in support of the group’s case that merger hearings must be reopened to determine if billions of dollars in hidden costs offset the very savings to the public that are required of such a utility merger.

Amid three thousand jumbled pages of partially censored documents the Commission ordered unsealed during an ongoing investigation, NC WARN found an April 17 memo from Johnson to his board of Progress Energy directors. In it, the former Progress CEO confirmed that Duke had sent 25 engineers to determine whether Florida’s Crystal River nuclear station – where Progress severely damaged the containment building in 2009 during a cost-cutting maneuver – could be repaired, and if so, at what price.

Johnson told his board members that, A report of their review will be presented at the Duke Board meeting in late June [the 26th].” Weeks before the early-July merger closing, NC WARN had begun pressing the NC Commission to look into reports that Duke was withholding information about several projected, multi-billion dollar expenditures that would impact state customers, including the Crystal River repair.

Responding to NC WARN’s motion, Duke lawyers told the Commission on June 28 – only days before the merger closed, but well after Duke apparently received the engineering report – that there was no new information regarding Crystal River. That assertion was fortified by Duke officials during a post-merger grilling by NC Commissioners, even as they cited Johnson’s lack of transparency about Crystal River as a key reason for his firing.

The Commission is now investigating the propriety of Duke’s firing of Johnson on the day the merger closed, which parallels an investigation by the state attorney general. But neither has confirmed that they are looking into the issues NC WARN insists are critical to the merger decisions – the billions that utility customers would be forced to bear in the form of increased rates.

“It looks increasingly apparent that Duke officials deliberately misled the Commission by not revealing evidence of costs of the merger that would wipe out any promised savings for the public. The question now is whether criminal misconduct and perjury are involved,” said NC WARN director Jim Warren today. “They knew the entire merger could be blown if they disclosed that Crystal River could cost billions more than Johnson had claimed earlier.”

Warren said NC WARN did not find any documents indicating the much-anticipated Crystal River report was not available at the June 26 board meeting, nor has Duke ever claimed the engineers ran into problems preparing the report. Moreover, he said it is inconceivable that Duke would have contracted for such a months-long report to be completed a few weeks after the merger closed – instead of beforehand – especially because the Duke Board used the information to fire Johnson.

A summary of the final report, dated August 1, was released to Florida regulators in October, as was a censored version of the full report. The assessment of Crystal River, performed by Zapata Engineering of Charlotte, began “in March” according to the summary.

“With Duke’s Board pressing for the truth about the repair estimates, it’s impossible to believe they didn’t have at least the preliminary findings before the merger closed,” said Warren. “It’s a pretty standard game to claim a controversial report ‘is still in draft form’ as a way to withhold its release.”

NC WARN also noted that Duke apparently has withheld from investigators the official minutes from the fateful June 26 board meeting, and questioned whether board members might have agreed not to inform regulators in North Carolina and other states about Crystal River’s costs. Doing so might have invited additional regulatory scrutiny and required informing Duke stockholders that Crystal River could cost billions more than earlier claimed by Johnson.

In June, NC WARN argued that the Crystal River situation has important impacts for NC ratepayers and should have been disclosed during the merger proceeding, because

  • billions in repair costs in Florida creates pressure for greater parent company profits, thus rates, in its other states;
  • Crystal River losses will raise Duke’s cost of borrowing the billions in construction projects in the Carolinas, hiking rates even more than already planned;
  • Duke’s attorneys replied to NC WARN’s June motion – and Rogers testified to the Commission – that there was “no new information” regarding Crystal River.

“Anyone thinking this merger is a done deal is under-estimating the regulatory and judicial system,” added Warren. “While it’s certain that large corporations have far too much influence over various levels of government, there are many individuals committed to doing their jobs to protect the public from corporate abuse.”

“We’re calling on Attorney General Cooper and the North Carolina Utilities Commission to ensure an open accounting of Duke Energy’s actions – especially when Duke and Progress are seeking repeated rate hikes,” he said.

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See NC WARN’s motion and the Johnson memo here

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