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Priory's DealThe Charlotte Observer – Editorial – April 12, 2004
(4/11/04) - Let's see, now. Jim Martin, the former N.C. governor who's a member of the Duke Energy Corp. board, told the public that former Duke CEO Rick Priory retired. But in documents filed with the Securities and Exchange Commission, Duke said Mr. Priory's departure -- with a $4.83 million severance package -- was "involuntary" and "a termination by Duke for other than cause."
Which is true?
Mr. Priory, after some tough years in the energy industry, is said to have wanted to retire. Duke wanted new leadership, but didn't want Mr. Priory to go until a successor was lined up. The result? Duke found a successor and Mr. Priory jumped, but Duke's official report to the SEC said he was pushed.
What difference does it make?
Under Mr. Priory's contract, an involuntary departure entitled him to a big severance package -- $4.83 million is the total he and the company agreed on -- in addition to the multimillions he had been paid as CEO ($2.7 million last year). CEO contracts often include such provisions as protection in case a top executive is ousted because the company is sold or the board wants a change of direction. Consider it very generous unemployment insurance for the corporate elite.
But if Mr. Priory's exit had been a planned retirement, he wouldn't have been entitled to the big payoff, just a retirement package that includes an annual pension of about $540,000 a year when he hits 65. He's now 57.
That leaves us with two thoughts:
1. The Bloomberg News columnist who described the deal as "a little raid on the corporate treasury" was right. Duke shareholders paid for Mr. Priory's golden going-away card -- and wouldn't have known how or why if the Observer hadn't turned up the SEC document.
2. The severance agreement included payment of up to $65,000 for Mr. Priory's lawyer's work. Even if the legal fees had come out of Mr. Priory's own pocket, whatever he paid his lawyer to help arrange this deal was worth it.
Blow of Boot Always Softer for BigwigsThe Charlotte Observer – by Tommy Tomlinson – April 10, 2004
(4/9/04) - It looks like Rick Priory had two options.
He could retire as head honcho of Duke Energy, get a round of handshakes and go prop his feet up somewhere.
Or he could skulk out of the building under the shame and disgrace of being fired.
Oh, there's one little detail: Getting fired would put an extra $4.83 million in his pocket.
And so Priory said what most hard-working people would say in his situation:
Fire me! Fire me!
OK, we don't know exactly what Priory said. We're not even exactly sure how it all happened. The more Duke tries to explain, the more confused everybody gets. Which isn't surprising if you've ever tried to decipher your power bill. Here is the one thing that's clear: Rick Priory got $4.83 million that the company was not obligated to give him. Duke board member Jim Martin, a former N.C. governor, said: "He didn't object with what we were doing."
This is what happens at so many of our biggest corporations. If you make it into one of the top jobs, nothing you do can result in personal failure.
It's like you gain superpowers. Falling stock prices? Use your X-ray vision to look right through them! Mounting corporate debt? Use your force field to deflect it away!
Priory did great at first. He led Duke through an amazing stretch of growth. But Duke is struggling with the giant it has become. The company has tons of unpaid debt at the same time its stock is going down. When you grow so fast, it's pretty much guaranteed that your bones will start to hurt.
So the official story is that Priory asked to retire a couple of years ago, and when Duke found a new leader -- Paul Anderson -- Priory was let go.
In other words, even though he asked to retire, and everybody knew he wanted to retire, when it came time for him to actually retire, Duke fired him.
No matter how many ways I write that, it never makes sense.
The best part is what Jim Martin said about it: "We had a smooth and orderly transition, and everything worked out for the company. That's more important than a few cents per share, isn't it?"
What the former governor doesn't seem to understand, or care about, is what a lot of CEOs and board members don't seem to understand, or care about.
People who buy stock know there's a risk. You might own 100 shares in Gizmo Motor Co. when the world finds out that Gizmos explode when you turn on the radio.
Tough luck for you.
But it's tougher luck for the guy who bought the Gizmo. And it's worse when the company has a virtual monopoly.
If you're a Duke customer, it's not like you can call up the competing electric company. There is no competing electric company. It's Duke or a generator.
So when some goofball board of directors hands out a $5 million pat on the back, it's the customers who pay.
But try not to fume about it. If you get too hot, you'll just have to turn on the A/C.
And you know who gets the money from that.
Priory's Severance Hinged on TimingThe Charlotte Observer – by Stan Choe – April 8, 2004
(4/7/04) - Did Duke Energy Corp. terminate Rick Priory or did he retire?
The distinction is important because the circumstances under which the former chairman and chief executive left the company also determined whether he was to receive $4.83 million in severance pay and benefits.
When Duke announced Priory's pending departure Oct. 7, the company said he would "retire." But in papers filed last month with securities regulators, Duke said Priory's exit was treated as a "termination by Duke other than for cause."
Because Duke characterized Priory's exit as "involuntary" in papers filed with the Securities and Exchange Commission, Priory, 57, was awarded a package that included two years' salary and bonus, two years of medical coverage and continued vesting of long-term incentive awards.
On Tuesday, Duke board member Jim Martin stuck by the company's initial statement that Priory was not forced out. Priory had told the board he wanted to retire at 55, Martin said. But it took the board 2 1/2 years to find his replacement, former Duke No. 2 executive Paul Anderson.
When Anderson agreed to rejoin the company last fall, the board then told Priory he could retire, Martin said. And because the board set the timing of Priory's departure, the board classified it as involuntary, Martin said.
"The board took the initiative, set the timetable and discussed it with Rick," Martin said. "He didn't object with what we were doing. It was involuntary because we took the initiative."
Priory could not be reached for comment.
But compensation experts question whether Duke legally could have let Priory retire voluntarily, without severance.
Martin, a former N.C. governor, said the board wanted to act immediately.
"I don't think we would have wanted to sit around and see who could outwait whom," Martin said. "We had a smooth and orderly transition, and everything worked out for the company. That's more important than a few cents per share, isn't it?"
Priory's exit came as the Charlotte-based company struggled under heavy debt, low employee morale and a listless stock price. After growing from a regional utility into an international energy giant under Priory's watch, the company became mired in government investigations and the collapse of the wholesale energy market.
Duke has since settled or been cleared in several of the investigations.
Anderson was brought in to turn around the company.
By waiting for Priory to retire, Martin said, the company would have risked losing Anderson to a bidding war with other CEO-hungry utilities. Martin said the board also faced a fairness issue. After persuading Priory to stay on for extra years, the board did not feel it could then ask Priory to voluntarily retire.
"That's something we could have done," Martin said. "I don't know what he would have said had we done that. ... I don't think it would have been honorable to Paul Anderson or Rick Priory."
Marion Crain, a professor at UNC Chapel Hill's School of Law, said it's a legal gray area whether Priory's departure could be considered voluntary.
"It's certainly not laugh-out-of-court territory," she said. "But from an employment contract perspective, it's certainly viable that this is involuntary, in the nature of timing."
Don Delves, president of compensation consultancy Delves Group, said Duke may be following the letter of its severance agreement with Priory but not the spirit.
Companies offer severance packages to protect executives in case they are suddenly terminated or there is a change in control of the company. "It's not to pay for planned retirement," he said.
More often, he said, companies negotiate early-retirement packages with executives. Those deals can be more or less lucrative than severance deals, Delves said.
Many executives receive three years' worth of salary and other compensation for severance packages, Delves said. Priory received two years' worth.
"This doesn't make you want to gag," he said. "This makes you want to roll your eyes."
Graef Crystal, a former executive compensation consultant who writes a column for Bloomberg News, is less charitable.
"This is just a technicality to say (Duke directors ) terminated him involuntarily," he said. Priory "wanted to go. This is just another little raid on the treasury."
In one of the more intriguing clauses of last month's filing, Duke and Priory agreed that his "termination" would apply only to Section 2(c) of his 1999 severance agreement. That section guarantees Priory severance pay for "termination by Duke other than for cause."
For purposes unrelated to Section 2(c), the filing states that Priory's exit will be treated as "termination without `cause' or as a `retirement,' at the Executive's written election, to be made in each instance as soon as reasonably practicable after Executive is given notice that such an election may be made."
Martin said he was unsure why that clause was added. But one compensation attorney said how a departure is classified can have tax implications.
In addition to his severance package, Priory also will receive an annual pension of about $540,000, starting at age 65.
Priory's exit from Duke followed departures by chief executives at several other energy companies, such as Reliant Resources Inc. and Dynegy Inc.
Like Duke, they had jumped into the volatile wholesale energy market during the late '90s. And like Duke, they all suffered from its ultimate collapse.
Duke amassed debt to build its wholesale and international divisions under Priory's leadership. It had $20.6 billion in long-term debt at the end of last year.
After Anderson replaced Priory, he scaled back the company's wholesale and international portfolio to help reduce that debt.
Those decisions led to $3.1 billion in one-time charges, which Duke took in last year's fourth quarter.
When asked whether the board was satisfied with Priory's performance, Martin said that while Priory made mistakes, he cannot be blamed for all of Duke's struggles.
"Did we have criticism? Yes," he said. "Positive and negative. Did we grade him at 100 percent? It was very frank discussions with Rick about some things the company needed to do."
Duke's PayoffThe Charlotte Observer – Editorial – April 4, 2004
(4/2/04) - Many readers probably choked on their cornflakes Thursday morning when they saw staff writer Stan Choe's report of the $4.83 million benefit package for Rick Priory, who at age 57 unexpectedly announced his retirement last October as chairman and CEO of financially troubled Duke Energy Corp.
Mr. Priory's record at Duke wasn't all bleak. Business Week magazine named him one of the nation's top 25 managers in 2002. And when Duke and other energy companies hit hard times, he led the way in slashing spending, laying off workers and selling assets to weather the storm.
But when he left, the company he had helped build into an international energy giant was mired in government investigations and suffering from the collapse of the wholesale energy market, a stagnant stock price and $20.6 billion in long-term debt. Many people think he was forced out, though Duke board members say he wasn't. On the first trading day after his retirement, Duke's share price jumped 3.6 percent on an otherwise down day for stocks. Here's the question some shareholders are asking but Duke's board of directors apparently didn't: Why does he get a $4.83 million going-away present?
Nobody undervalues Mr. Priory's work, but he was well-paid for it -- nearly $5 million in total compensation, plus stock options valued at $2.14 million, for last year alone. Duke's board of directors didn't have to guarantee him a generous buyout to get him to take the job. He negotiated it later. The payoff is a gift, paid for by shareholders without their consent.
Believe it or not, Mr. Priory's severance package is modest by industry standards. The CEOs forced out by three other big energy companies last year got millions more when they left.
Such severance and retirement packages are a sort of unemployment insurance that top executives negotiate for themselves, according to Paul Hodgson, a senior research associate at The Corporate Library, a firm that focuses on corporate governance. He notes that by industry standards Mr. Priory's package wasn't excessive, but "being reasonable in terms of common practice doesn't make it reasonable."
He's right. Investor groups angered by executive pay are pushing for limits on overly generous compensation packages. Shareholders outraged by unconscionable payoffs at Hewlett-Packard and Tyco recently won reforms that require stockholder approval for any severance package exceeding 2.99 times a senior executive's base salary plus bonus.
That's a move in the right direction, but not far enough. Executive compensation has reached insane levels, pushed upward by boards that value corporate perks too much and shareholder interests too little. When we retire, we'll get the company's standard retirement package plus a handshake, a plaque and maybe a slice of cake at a going-away party. That's probably what you'll get, too. Why should executives who've been paid millions a year get millions more just for leaving?
Priory’s $4.83 Million SeveranceEmployee Advocate – www.DukeEmployees.com – April 2, 2004
Rick Priory received $4.83 million in severance benefits, according to The Charlotte Observer. The report was based on a Duke Energy regulatory filing.
Mr. Priory’s legal fees for negotiating the separation agreement came to $65,000. This will not be a problem for Mr. Priory, as Duke is paying the bill. He will also get the standard inside director retirement benefit of an office at Duke Energy and secretarial support.
Problems left behind by Mr. Priory were listed as: “heavy debt, low employee morale and a listless stock price.” The long-term debt came to $20.6 billion. The new chairman and CEO, Paul Anderson, is working diligently to correct all of the above.
Mr. Priory is said to have told directors that he wanted to retire almost three years ago. It would have been better for all concerned if he had not procrastinated. It would have been terrific if he had retired a decade ago - before he became CEO!
There will be endless bickering over the exact amount of compensation. But whatever Duke paid Mr. Priory to leave - it was a very good deal for everyone. The albatross had to go before things could improve.
In addition to other compensation, Chief Financial Officer Robert Brace received two computers to move along.
General Counsel Dick Blackburn is engaged in a legal dispute over his severance pay. Duke has set aside $1.36 million, in case Mr. Blackburn prevails.
It is no doubt helpful that Mr. Blackburn is an attorney. Legal counsel is often required to collect on the benefits promised by Duke. If attorneys have trouble collecting their promised benefits, just imagine the chances of the average employee getting a fair shake!
Million Dollar Bonus for Rick PrioryEmployee Advocate – www.DukeEmployees.com – April 1, 2004
Rick Priory received a bonus of $1.1 million in 2003, according to a Reuters report on a Duke Energy Corp. filing. Mr. Priory knocked down the $1.1 million bonus as the company lost $1.3 billion!
He received a salary of $1.2 million.
Rick Priory will forever be known for trying to turn Duke Energy into another Enron. He was paid exceedingly well for almost destroying the company.
Morro Bay Hearing CancelledEmployee Advocate – www.DukeEmployees.com – February 27, 2004
A hearing on Duke Energy’s Morro Bay Power Plant has been abruptly canceled, according to a press release by the Coastal Alliance on Plant Expansion (CAPE). The Central Coast Regional Water Quality Control Board cancelled the hearing because the project may already be dead-in-the-water, so to speak.
New federal regulations could scuttle Duke’s plans to use sea water to cool the plant. The consensus of five regulatory agencies is that the new Duke plant would kill between 16% and 33% of the crab and fish larvae in water withdrawn from the Morro Bay National Estuary to cool generators.
On February 3, the U.S. Court of Appeals for the Second Circuit in New York said that cooling technology that does not harm marine life should be used. The problem could be solved by installing a dry cooling system. This option would cost more money and Duke has repeatedly refused to consider it.
Have the Scams Gone Underground?Employee Advocate – www.DukeEmployees.com – February 25, 2004
Paul Anderson is doing everything possible to erase the scandals of past management. But at best, it will be a slow process. The Fort Worth Star-Telegram reported that Duke Energy is one of the companies the California attorney general's office is targeting for manipulating its market during the energy crisis.
There is some concern that the energy manipulation may have gone underground. Energy trading has been shifting from energy companies to banks. But no one knows what the Banks are doing.
Randall Dodd runs the Energy Policy Forum. He said "There is no hard data on what the new traders are doing."
This secret dealing offer the potential for another round of energy scams and blackouts.
Team-Building Duke-StyleEmployee Advocate – www.DukeEmployees.com – February 16, 2004
Michael P. Regan wrote about corporate team-building gimmicks for the Associated Press. “Gimmicks” is an appropriate label for this strain of corporate lunacy. When corporations have too much money in their budgets, someone always has a slick seminar to sell them. But just because management fell for program-of-the-month, does not mean that the employees will.
Arthur Hull is a “professional drum-circle facilitator from California.” (Need anymore be said?) Even he call his program a “sneak attack.”
The program starts with lies being told to the employees. (It may be an unwritten law that all corporate programs must start with lies being told to employees.) Employees are assembled under false pretenses. They enter a room to find “this guy who's got a funny hat and vest.”
The facilitator said “I can see the hairs go up on the back of their necks. ... 'We've been captured!' ”
Then the "serious" work begins: “they'll spend the next hour or two banging on drums and shaking maracas.”
It was explained that team-building sessions are “novel ways to try to retain employees.” If this is the case, Duke should not need any team-building programs. Duke has been dumping employees since 1988.
Duke Energy unwittingly built two teams some years ago. One team is comprised of senior executives, who raked in millions of dollars in bonuses.
The other team is composed of everyone else. This team furnished the lavish perks, through the forfeiture of pensions, health care benefits, and retirement health coverage.
Team-building supposedly promotes people working together on a common ground. Duke accomplished this when it created its two teams. Of course the common ground is opposite for each team. Therefore, the teams always work against each other.
The employee team works to regain the benefits which were taken from them. The senior management team works to take any remaining nickel that the employees may have left. That’s team-building Duke-style!
Here is a team-building episode that actually took place at Duke Energy. The supervisor had evidently been charged with inspiring his crew to volunteer for team-building. The problem was that his crew was made up of hard core professionals, who could not be dominated by him. The supervisor tried everything to get his crew to volunteer for team-building. He fell on his face; the crew flat out rejected any team-building.
A few weeks later, the crew was instructed to report for "training." The employees immediately wanted to know if this was going to be a team-building session. The supervisor repeatedly swore that the training was not going to be team-building.
As the professional drum-circle facilitator from California said, the crew walked into a sneak attack. Duke did not want to spend the money for a professional team building session. So Duke shot one of its own technical instructors thorough a team-building class and let him “wing it.”
The team-building session consisted of the supervisor, who already had egg on his face; the instructor, fresh out of team building school; and the crew, already seething about all the misrepresentation. The employees held back nothing about how they felt about Duke’s under-handed and conniving manner of conducting team-building. At the end of the day, the crew still had not been beaten into submission. The employees were able to extract a confession that they had been lied to all along. No matter what the “training” was called, it was a forced team-building session.
The supervisor and instructor were no doubt glad when the day was over. The crew knew that they had done well when two of them were sent for a “random” drug screening the very next working day!
Duke has not caught on that everyone does not have to be high on drugs or booze to speak their minds. It cannot comprehend that everyone is not terrified of big, bad Duke.
If Duke would stop all the lies to employees and stop pilfering benefits, it would not have to resort to futile mind control attempts, such as team-building.
Analysts No Longer Run the ShowEmployee Advocate – www.DukeEmployees.com – January 27, 2004
If anyone needed proof of the good job Paul Anderson is doing as Chairman and CEO of Duke Energy, the Charlotte Business Journal provided it. It seems that some analysts are perturbed to find that Mr. Anderson is not a lap dog, eager to do tricks for their amusement. Too bad for the analysts.
The former CEO constantly played to the analysts. He evidently thought that as long as he kept the analysts buttered up, nothing else mattered. He could have not been more wrong.
Apparently the analysts expected Mr. Anderson to carry on the never ending performance for them. They must be really shocked to find out that Mr. Anderson has no intention of catering to their whims.
Mr. Anderson’s foundation is solid. He is building on granite rock. Analysts can come and go, but they are not going to sidetrack him. It is obvious that he has put an enormous amount of time and effort in the decisions that he has made. He does not need to be second guessed by those who know less that he does. How many companies have the analysts led? How many floundering companies have they turned around?
In the Journal, David Mildenberg wrote: “Duke Energy Corp.'s new business plan is winning investors' support, but drawing heat from analysts…”
That statement shows what a good job Mr. Anderson is doing. He has made sound decisions. The investors know it. The Employee Advocate knows it. The analysts can run along and play elsewhere.
From the article: “But Chief Executive Paul Anderson fires back at the criticism, saying the investment community too often favors volatility over slow, steady growth.”
The article stated that Mr. Anderson has traveled widely and listened to workers. “But he has not much listened to analysts.”
That is very good. To be successful, one never wants to take advice from those who know less. If they were any good, why did they not warn anyone before Enron collapsed? They warned no one because they did not suspect a thing. They naively believed the financial statements issued by Enron. Some had investors in Enron stock almost to the very end.
Mr. Anderson was quoted as having said “Too many analysts and big investors benefit from short-term gyrations rather than methodical, long-term growth.”
More from the article: “Duke Energy got into its current financial straits largely because it felt intense Wall Street pressure to show rapid earnings growth, Anderson contends. ‘Enron envy,’ he calls it.”
Mr. Anderson thoroughly understand the problems of the past and how to correct them. Feeling pressure to do stupid things has never caused anyone any problems. It causes problems only for those weak enough to succumb to the negative pressure.
The analysts had all kinds of suggestions for Mr. Anderson to follow. Happily, he ignored them all!
The Employee Advocate asked for a CEO completely opposite of what we had. That request was granted. Paul Anderson is not for sale or trade – not for all the analysts and talking heads in the world.
Conference Call with Paul AndersonEmployee Advocate – www.DukeEmployees.com – January 9, 2004
Duke Energy Chairman and CEO Paul Anderson conducted his first conference call with analysts on Wednesday. The Employee Advocate expected a lot from Mr. Anderson, and he has exceeded all expectations. No one could have done more in slightly over two months. He caused none of the problems, but he is well on his way to fixing them.
One issue that has put analysts in a tizzy for some time is the high dividend rate. There have been predictions that the dividend would be eliminated. Many predicted that it would be reduced. Only Tuesday, Merrill Lynch utility stock analyst, Steven Fleishman, predicted that the dividend would be reduced from $1.10 to around 70 cents to 75 cents.
Mr. Anderson knocked most of the predictors on their ears by maintaining the current rate through 2004. When he took over the troubled Australian mining company, BHP Billiton, analysts predicted that the dividend would be cut. But Mr. Anderson raised the dividend!
He maintained the dividend rate, even though he admitted it was higher than he thought it should be. Why would he do this? Because there are many retired investors who are not fabulously wealthy, but do own Duke stock. These people are dependant upon the dividend to meet living expenses. Many of these investors have held Duke stock for many years. Many held the stock during the Enron envy disaster. Mr. Anderson chose not to kick these retirees in the teeth. Duke now has a chief who realizes that there are people in the world other that just himself.
Debt will continue to be reduced. International holdings will be reduced. Merchant energy exposure will be reduced. And not least, speculative energy trading will be gradually eliminated. No date was set to be completely out of speculative trading. It would have been foolish to have set an arbitrary date. Duke can ease out of casino trades prudently, as conditions permit. The important thing is that the company is now going in the right direction.
Trading pertaining to assets owned and products produced will remain. That is not, and never was the problem. If a farmer grows corn, he should be allowed to sell it.
Mr. Anderson only wants to be in foreign markets if there is a compelling reason to be there. Duke has emerged from the Dark Ages. There is no mad rush to get out of foreign deals that are not the best in the world. This is not Mr. Anderson’s first rodeo. He knows that he does not have to jump for anyone. As long as he is going in the right direction; he will eventually get to where he wants to be. There has been enough of pandering to analysts and making outlandish promises in the recent past. When one knows where he is going and how to get there, groveling is unnecessary.
Duke no longer exists just to pump the price of stock. Every move made will put Duke on a more solid foundation.
Paul Anderson said “We feel we can create more value by setting realistic growth targets and not trying to stretch the organization in terms of growth or the risk that comes with higher growth.”
Treasurer David Hauser said that the company is comfortable with where it is with rating agencies, and what they may do. That is a refreshing break from the past. It used to be constant sell, sell, sell. It used to be constantly “Telling our story.” The “story” was a real story, as in fabricated. People always eventually see through the hype. The bubble always eventually bursts.
Analysts gave Mr. Anderson every opportunity to spin fanciful long range predictions. He did not take the bait and even cautioned against addressing forecast-related questions! No one truly know what will happen tomorrow. We have heard enough glorious predictions by others, in the past. Their predictions turned out to be hallucinations. All anyone can do is get things moving in the right direction, based on today’s imperfect knowledge. The past “guarantees” of specific results, quarter by quarter, were sheer lunacy!
Even taking a loss for 2003 was a good thing. The loss was there. It had to be eaten some time. There is no shortage of ways to legally hide a loss, move it around, and disguise it. But it never goes away. It can be hidden in the closet, under the bed, or hidden in the shrubbery, but is does not go away. To make a loss go away, you have to eat it. It does not taste good, but you have to eat it anyway. Then it is gone. Any attempt to manipulate the loss away, only binds it to you. Each day you wake up saddled with the failures of the past. The loss will be ever lurking, ready to suck up any chance of future prosperity. Just eat it, and be done with it!
Duke is transforming from an Enron wannabe into an anti-Enron. Enron had no viable business. Enron traded illusions and hoaxes. The analysts ate it up. Duke’s former Chairman and CEO ate it up! Enron had no real business and it never took a loss. The losses were there, but they were always hidden. Enron did not stop with merely legal ways of hiding these losses. It is easy to get into the vicious cycle of refusing to take losses. It always ends in disaster.
Rick Priory Era ClosesCharlotte Business Journal – by David Mildenberg – January 6, 2004
The Rick Priory era at Duke Energy Corp. looked good at the start, but the ending wasn't pretty.
In seven years as chief executive officer, Priory changed Duke from a regional utility to an international energy player. While he was in charge, Duke invested more than $20 billion in 60-plus deals.
Early in the process, Priory gained widespread fame and earned acclaim from analysts and leading national business publications as a bold, visionary top executive. The merger of Duke Power Co. and pipeline operator PanEnergy Corp., which Priory had worked on closely in 1996 with his predecessor William Grigg, was widely praised.
Expanding a profitable, regulated utility into other regions and nations seemed appropriate, given the fervor for deregulation and Duke's proud heritage. Duke's board rewarded Priory handsomely, paying him $14 million over the past three years. That made him the highest paid CEO of the nation's eight largest public utilities, according to Bloomberg News.
Priory's high profile position capped a remarkable rise for a New Jersey native whose father was a Naval station commander and later, an insurance salesman. After earning a master's degree in engineering at Princeton University Priory came to Charlotte in the early 1970s to teach engineering at UNC Charlotte.
At 30, he joined Duke full time as a structural engineer in 1976 and was heavily involved in the design of 10 nuclear units. The construction of six was canceled in the 1980s because electricity demand growth slowed. Still, his combination of business smarts and intellectual capacity impressed Grigg, who tapped him as his successor.
The choice surprised many in Charlotte who expected the job to go to long-time Duke executive William Coley, who was more visible locally. Coley retired as president of Duke Power in early 2003 after 37 years at the company.
The Enron collapse in early 2002 pointed to the dangers of energy trading and diversification, but Duke initially sidestepped the industry difficulties. An April 2002 Fortune article titled "The Un-Enron" praised Priory's strategy and emphasized his efforts to retain Duke's strong corporate culture.
But by 2002 market conditions turned sharply. Kudos over Duke's aggressive expansion turned into brickbats. By 2003, Duke's $8 billion investment in unregulated merchant power plants suddenly looked reckless given lack of demand and the rising cost of natural gas, which fuels those plants.
Even though Duke Power was earning record profits, Duke Energy's overall earnings and stock price fell sharply in 2002. Credit ratings on the company's $22 billion in debt slipped.
Duke's pristine image also took a hit because of alleged price gouging during California's energy crisis and for apparent underreporting of profits in its regulated business in the Carolinas. After an audit, the company agreed to reimburse $25 million in customer payments in North Carolina and South Carolina.
By early 2003, analysts were nearly unanimous in their disdain for Priory's leadership and strategy. None of nearly 30 analysts following Duke were urging their clients to buy the shares, according to First Call research.
Priory's response to Duke's rapid descent was to lay low and, in many instances, allow President Fred Fowler to represent the company. The CEO's presence in Charlotte affairs dwindled, while employee criticism mounted.
So it was almost anticlimactic on Oct. 7 when Duke announced Priory's retirement and the recruitment of former PanEnergy President Paul Anderson to replace him. Veteran Duke board member Jim Martin, a former N.C. governor, said Priory had been talking about retirement for two years. Anderson's availability just hastened the process, Martin said.
Welcome to 2004Employee Advocate – www.DukeEmployees.com – January 1, 2004
The national do-not-call list banning telemarketing calls went into effect in 2003. Telemarketers are libel for $11,000 for every privacy violation. Today, a federal ban of e-mail spam goes into effect. Spam may be forwarded to the Federal Trade Commission at firstname.lastname@example.org
In 2003, Rick Priory gave employees, investors, and ratepayers the greatest gift of all – he retired! It was not possible to continue to pretend that everything was a huge success when everything was clearly a total failure. Each day it became more difficult to pretend to ignore the herd of elephants in the room. There needed to be a point of demarcation – a clear separation between past failures and future successes. It came on November 1, 2003, when Paul Anderson became the new chairman and CEO.
The perpetual layoff continued through 2003. Early in the year, the top management structure was changed. This was an attempt to erase the failures caused by Enron envy. But the top position at Duke remained stagnated. So, no real change had occurred. The barnacles were removed on November 1, and once again, the ship began to sail.
2003 was the year that Rick Priory had to concede that the energy generation and pipeline businesses, that he despised so much, were leading the company in profits! He stated “Duke Power nuclear stations delivered their best performance ever…” All of Mr. Priory’s exotic adventures became money-losing rat holes.
The employee and retiree 401(k) lawsuits against Duke Energy were dismissed. Interestingly, Duke offered not to bill for its legal expenses if there were no appeals.
2003 was a great year for employees battling abusive cash balance pensions. IBM employees won their cash balance pension lawsuit. Xerox employees won their cash balance pension lawsuit and they won all appeals. Xerox offer to make a settlement with the wronged employees.
Congress got into the act by forbidding the Bush administration to nullify the federal court ruling through Treasury regulations.
The most outstanding news of all is that Congress is requiring G. W. Bush to propose legislation to address the loss of pension benefits because of cash balance plan conversions! The Bush administration has already unsuccessfully attempted to legalize age discrimination in cash balance pensions. Do not forget this at election time!
Employees have ongoing cash balance pension lawsuits against ATT and CIGNA.
All employees can benefit their own situations by keeping fires built under congressmen and senators. Above all, do not vote for anyone that condones corporate pension theft!
Duke Energy is specifically mentioned in this ABC News cash balance pension report:
The year started with subpoenas from U.S. Commodity Futures Trading Commission. It was investigating the reporting of fake natural gas prices.
Before 2003 was over, Duke Energy Trading and Marketing had been fined $28 million for “attempted manipulation and false reporting.”
CFTC Chairman James Newsome said the penalty against Duke Energy will send "a clear message that such illegal conduct will not be tolerated."
Exxon owned 40 percent of the operation. Exxon issued this statement: “We are extremely disappointed in Duke Energy's management… The irregularities in the reporting of DETM transactional pricing data are inexcusable. We are holding Duke 100 percent responsible for the settlement and the actions that caused it.”
What happened to all the executives that were proclaiming innocence of all wrongdoing and “complete exoneration”? The good news is that many of them have departed. Those left will simply adjust their spin on a minute to minute basis to suit the situation.
In February, Duke Power received a subpoena from a federal grand jury investigating alleged inappropriate accounting. The settlements made with regulators did not make the issue go away. This was another case where Duke made a settlement, but still claimed to be innocent.
Duke settled most of the accusations with the Federal Energy Regulatory Commission (FERC) that it helped cause the 2000-01 blackouts in California. A cheap $4.6 million could settle accusations of using unethical energy-trading methods, etc. As usual, Duke admitted nothing.
Regarding FERC charges, the Employee Advocate wrote the following on July 14, 2003: “Some companies may make settlements, but not admit any guilt. This will not mean that they are innocent. It will mean that they bought their way out of a possible conviction. It happens all the time.
“Companies may say that they were innocent, but settled to ‘move forward.’ The translation is: ‘We were guilty as sin and did not dare face the charges in court.’ ”
The San Diego port commissioner that was receiving money from Duke Energy was sentenced for conflict of interest.
In response to Duke’s many problems, the weakest defense was to blame the media!
The Patriot Project Pipeline was pushed through in 2003. This was not a joyous event for many of the people living near it.
Duke made a major PR event out of supposedly leading the industry in more financial openness. But Standard & Poor's accused Duke Energy and Dominion Resources of still not disclosing enough data to the public. PR events are always easier than any real change.
Some employees had medical complaints after a potassium chromate leak at Oconee.
Rick Priory once vowed that Duke would not curtail energy trading. That statement crumbled like the rest of his bluster.
When the Financial Accounting Standards Board no longer allowed energy companies to inflate trading revenues, the reported revenue of $60 billion turned out to be Monopoly® money. Realistic accounting knocked Duke from the 13th-largest U.S. corporation to 115th.
A group of CEO’s held the "Forum for Corporate Conscience" in Charlotte, North Carolina. This forum was supposed to solve all of the corporate ethics problems in America. Is it only a coincidence that even more scandals have hit the news since the forum was conducted?
Getting fired is not always so bad. A jury awarded this former Duke employee over a half million dollars.
Bill Coley, president of Duke Power, retired early in 2003. Dick Blackburn, executive vice president, general counsel and chief administrative officer is retiring this month. Chief Financial Officer Robert Brace departed, with perhaps some degree of encouragement.
No officer left the company in more style than Mike Tuckman, executive vice-president of Nuclear Generation. As he departs, the nuclear division is a leader in profits and the recipient of unprecedented recognition by regulators. Mr. Tuckman and the Employee Advocate agreed on very little, but this does not diminish his technical ability and overall excellent performance. Good luck to Mr. Tuckman as he begins his well earned retirement.
Brew Barron is the new executive vice-president of Nuclear Generation. Duke would have been hard pressed to have found a more experienced person for the position. He will really have more pressure on him than Paul Anderson. Almost anything Mr. Anderson does will have to be an improvement over the past several years. But when a division is already at the top, even maintaining the status quo would be an outstanding accomplishment.
Another Duke executive decided that he had been on the job long enough. He left after one month!
Jeffrey L. Boyer, corporate controller, departed under somewhat mysterious circumstances.
Duke Power was considering seeking a rate increase for South Carolina customers to recover the costs of restoring power after a storm last January. The rates were adjusted later in the year – only they were adjusted lower! The Public Service Commission of South Carolina adjusted Duke’s rates lower to remedy $30 million in excess profits.
2003 brought Duke another whistleblower lawsuit.
At one point, the FBI was going to try to crack Duke’s books by using psychoanalytical accounting.
A full report was made on the 2003 Duke Shareholder Meeting:
It has been one legal problem after another for Duke’s auditor, Deloitte & Touche.
Happy New Year!