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Duke

The Charlotte Observer reported that Duke Energy settled various allegations with the Federal Energy Regulatory Commission (FERC), concerning the 2000-01 California energy crises. The settlement may run $4.6 million. Some of the allegations were: “economic withholding,” withholding physical power, unfair trading practices, double selling, and gaming the markets.

Duke President and Chief Operating Officer Fred Fowler made the “original” and “unusually witty” statement that the settlement “will allow our company and our employees to move forward.”

That is such a relief. Walking around backward was getting sort of old!

At one point, Duke had the distinction of charging $3,880 per megawatt hour in California in 2001.

FERC found that Duke participated in 49 incidents involving driving up the price of power. FERC found that Duke participated in three of the gaming methods made popular by Enron.

Duke was not close to being the ring leader of unethical activity in California. But if even only one single allegation had been proven, that would have been enough to shoot down all the “completely exonerated” boasts made by Duke executives. Many of the executives that screamed “completely exonerated” are no longer with Duke.

Some Executives even blamed the media for Duke’s problems! The media only reported the allegations. Blaming the media was the ultimate act of desperation. As usual, Duke paid up without admitting any violations.

In 2001 FERC ordered Duke to refund $10 million in California overcharges.

New Year resolution suggestion for Duke: Spend more energy addressing problems and less energy denying their existence.

A grand jury is still investigating Duke and the California energy market. Another FERC inquiry will determine how much energy corporations must refund to California. The federal grand jury investigation of Duke Power’s accounting practices also continues.

None of the above is a reflection on Duke’s new chairman and CEO. He only inherited these problems.

Ex-Duke Workers Say Repairs Curbed to Manipulate Output

Paul Anderson’s wife is supporting him in his ongoing effort to communicate with employees, according to the Charlotte Business Journal. At his first meeting with employees, Mr. Anderson introduced his wife, Kathy, and gave her e-mail address. Employees were encouraged to write her with concerns.

John Olson, securities analyst, said “She's a very talented, tuned-in person who understands big business. Needless to say, knowing Kathy, she really has the attention of her husband.”

Mr. Olson said that Paul and Kathy Anderson played key roles in helping turn around Texas Eastern. He added “What they did at Texas Eastern was much of what needs to be done at Duke, which is de-leveraging or downsizing the company.”

John Michel, assistant management professor at the UNC Charlotte, said “It sounds like he really wants to convey a sense of openness. It also is indicative of the changes in communications today in that e-mail has become so important.”

As the new Chairman and CEO of Duke Energy, it is doubtful that Mr. Anderson has a lot of free time on his hands. It was a great gesture for him to ask for e-mail from employees. But the Employee Advocate wondered how he could possibly have time to read it personally.

He dared not let an entrenched PR type “sort and report” on the e-mail. That would have been an open invitation for censorship, endless spinning, and manipulation. He knew that he had to maintain his independence of thought. Who could he trust? Enlisting the support of his wife was a perfect choice.

More Duke heads may roll, but these may be executive heads, according to the Charlotte Business Journal. Many observers feel that Fred Fowler’s head is safe.

The Journal stated: “As for the next executive departure, rumors are widespread among Duke employees that Blackburn, 60, plans to retire at the end of December.”

Duke Energy Corp. has found a new way to raise cash: selling its 300 personal seat licenses for Carolina Panthers games to its employees.

The Charlotte company has pulled many levers in its quest to bolster its balance sheet, such as laying off workers, selling pipelines and limiting spending on plant construction.

The PSL sales, which could net $1.2 million, would offer a relatively small drop for Duke, compared to the $1.9 billion it has raised this year through asset sales.

But this may be the first cost-cutting plan that Duke's employees happily embrace. The team is 8-4, and more Carolinians are jumping on the bandwagon.

Duke is asking for $4,000 per PSL, which fans must own to buy Panthers season tickets.

That's the same price the Panthers would charge, said Phil Youtsey, the Panthers' director of ticket sales. The seats are in the lower level by the end zone.

Most of the PSLs the Panthers have available are in the upper deck, which are going for $2,000.

Duke told its 10,000 Charlotte-area employees Tuesday it will start taking names of interested workers next week. If more than 300 sign up, the company will hold a lottery. It will notify winners on Jan. 30.

Duke bought the PSLs in 1993 to help show the National Football League that Charlotte would financially support an expansion team.

Through the years, Duke has used the PSLs as rewards for employee groups who finished big projects -- sending 20 or so to games -- or to entertain clients and business associates.

Duke has said that it would sell the 300 PSLs after the team got established.

The past two years have been tough for Duke and other energy companies, as profits have fallen and credit-rating agencies downgrade their debt.

"We said we'd look at everything (to reduce costs)," Duke spokesman Randy Wheeless said. "That includes NFL tickets."

Duke will hold onto its 75 club-level seats and its suite at the stadium.

An air quality battle may be brewing in North Carolina, according to the Charlotte Business Journal. The governor and attorney general may sue the Bush administration over lax air pollution rules.

Reporter David Mildenberg said “But politically influential Duke, Raleigh's Progress Energy Co. and the state's leading business group hope they can convince the Democrats to do nothing.”

Paul Anderson inherited a long list of problems to fix as the new chairman and chief executive of Duke Energy Corp.

Should he sustain Duke's dividend or slash it to save cash? What does he do with the wholesale energy unit, once Duke's biggest star and now its biggest drag? How can he repair the balance sheet, saddled with debt?

The first thing Anderson did after taking over as Duke chief on Nov. 1 was not to make a quick announcement about the dividend or lay out a roadmap for Duke's return to health.

Instead, he listened.

Anderson, 58, hit the road for a whirlwind, continent-wide "listening tour" with Duke employees, stopping in Charlotte, Denver, Houston and Chatham, Canada. He sought their criticisms and suggestions. How would they fix Duke and its many ills?

Anderson has been in office just three weeks, and his to-do list remains long. But early indications are that, at the very least, morale is improving in what had been a dispirited house.

Getting workers excited about working for Duke "is probably the most important thing to me," Anderson said in an interview last week.

"It's a proud group of employees that are very disappointed," he said. "They really want to right the ship."

Employees are hungry to hear good or encouraging news after what some call the most frustrating two years of their careers. Morale has been at its low point, some say.

Two consecutive years of layoffs have trimmed 3,500 jobs, sending Duke employment down to about 23,000. Employees say they're working harder and longer to pick up the slack. Their 401(k) plans are suffering, with Duke's stock down to $17.87 Friday from $47.48 two years ago. People are volunteering to take layoff packages to work elsewhere.

They see Anderson's commitment to communicating with them as a heartening first step.

"Regardless of how things work out, Mr. Anderson could not be off to a better start," a posting on a Duke employee Web site said. "The first thing he has done is to listen. ... Employees will want to see such a man succeed."

When Anderson called an employee meeting in Charlotte two weeks ago, so many people showed up that Duke couldn't fit them all in the auditorium, which can hold 300. About 500 spilled into an atrium and rooms scattered around the building, where they watched on a closed-circuit television system.

In Houston, as well, the meeting was standing-room-only. Another 800 employees filled the cafeteria to capacity, pushing others to watch on closed-circuit monitors.

"He has communicated more with employees in the last few weeks than some executives have in their whole careers," said Jim Matthews, who has worked for Duke Power's McGuire Nuclear Station for 31 years.

Through the meetings and the 400 e-mails Anderson has received from employees, workers are asking him to rebuild the company's credibility.

They want to be proud again to say they work for Duke. Some say they now slink back at restaurants when someone brings up the allegations of improper accounting that have dogged the company. They want to see the stock price, upon which much of their retirement plans depend, soaring again. They want to feel that Duke has regained its place as an industry leader.

Workers are asking Anderson in what direction he will steer Duke, after it suffered what former Chairman and CEO Rick Priory called a "perfect storm" in 2002 that wrecked the once high-flying energy industry. Enron Corp.'s collapse, a credit crunch sweeping the industry and a weakened U.S. economy all combined to swamp the industry. Through his listening tour, Anderson has absorbed the suggestions. They help him formulate his strategy to remodel Duke.

He's concentrating on big policy decisions: Does he want Duke to be a growth company, with continued investment in riskier divisions, such as its wholesale unit, that stand to create enormous profits? Or should Duke be an income company, sustaining its $1.10 dividend upon which many of its older shareholders and Duke retirees depend? How should Duke's management system look? Should it be a top-down institution or more decentralized? How should Duke's regulated Duke Power utility and natural-gas pipelines interact with the riskier, deregulated wholesale unit?

Anderson told workers he doesn't yet know the answers to such questions; he's still getting reacquainted with Duke after being away five years. He'll know by early next year, he says, after Duke pays its next dividend and he has synthesized workers' suggestions.

Executives who have worked with Anderson say he is a manager who leads by asking questions.

Besides meeting with rank-and-file workers in groups, he's sitting down with Duke's top 50 managers one-on-one. He's asking them how their units are performing and how they would fix the company if they were CEO.

"After working with him, you learn that questions are how he steers the company," said Jim Hackett, president and chief operating officer of Devon Energy Corp. Hackett previously worked with Anderson at PanEnergy Corp., the company that merged with Duke Power, after Anderson hired him there.

"When he asks you a question, he may know the answer."

After hearing suggestions, Anderson will let them roll in his head, said Bruce Williamson, chief executive of Dynegy Inc. But he doesn't dawdle.

"He's not rash. He's not quick," Williamson said of Anderson. "He's prompt in his decision making."

Then he sets detailed tasks, which he entrusts colleagues to accomplish. That gets colleagues wanting to succeed for him, executives say, to repay his trust.

"When you screw up, that makes you want to slit your wrists," said Paula Rosput, chairman and chief executive of AGL Resources Inc.

Though some Duke workers say they are encouraged, they say they are still feeling out Anderson, who two months ago was retired in Australia. Duke's board quickly hired Anderson after Priory told directors he wanted to retire.

"I would say I'll need about six to nine months before I can get a good feel for (Anderson)," said Mike Adams, a line technician for Duke Power in Clover, S.C. "But one thing about it is, I don't hardly see where we can go down anymore."

The article quoted:

Paul Anderson’s First Day

(11/21/03) - Duke has officially started scrubbing its executive suite.

Turnaround CEO Paul Anderson began cleaning house on Friday by sweeping his best-paid executive out the door -- just as some observers had expected. After just three weeks on the job, Anderson has completely washed his hands of embattled CFO Robert Brace.

Brace leaves a huge financial mess behind him. Since his arrival three years ago, Duke has lost its footing as a blue-chip utility and is struggling to pay off huge misplaced gambles on the merchant energy sector.

For now, Anderson has tapped Duke Treasurer David Hauser to pull clean-up duty as interim CFO and possibly take over the post for good.

"We are fortunate to have an excellent internal candidate in David Hauser, who will provide strong and expert leadership for the function," Anderson said. "He is well-known and respected in the financial community for his integrity and experience."

To be sure, Hauser has scored higher marks than Brace with some investors. During his 30 years at Duke, Hauser has held a number of accounting positions -- including both controller and treasurer – and was rumored as a candidate when Duke last shopped for a CFO. Instead, Duke tapped Brace despite a huge black mark on his career. Brace came to Duke after leaving British Telecom, where he served as finance director, in dire straits.

On Friday, Duke rose 16 cents to $17.82.

The Team

After TheStreet.com detailed Brace's track record last month, Duke's own employees began questioning why Brace still had a job. Still, management continued to defend Brace until the very end.

"TheStreet.com article offers an opinion, rather than facts, about the cause of Duke Energy's current financial situation," management wrote in a recent electronic correspondence to its employees. "Robert Brace ... is part of the current Duke Energy senior management team that is committed to achieving future growth."

But Anderson himself was light on the praise when announcing Brace's departure.

"Robert served Duke Energy during a time of great change and increased regulation," Anderson said simply. "We wish him well in the next phase of his career."

Anderson did credit Brace for introducing a "disciplined approach to capital management and a detailed certification process for financial statements." But Duke's financial statements themselves have generated criticism. Just last month, in fact, Standard & Poor's singled out Duke Capital -- the parent of Duke's troubled merchant energy unit -- for its continued lack of disclosures.

"This is not enough information to fully assess market or credit risk or confidently determine financial performance," S&P analyst Suzanne Smith wrote after reviewing the financial statements of Duke Capital and one other trading company. "Lack of transparency has been a pervasive problem."

Prior to that report, investors were already complaining about Duke's complex financial statements. They were also showing mounting impatience with Brace, in particular, after he confused them about the company's financial guidance.

Hauser has fared better during some of his "monthly chat" meetings with analysts. But he has fielded some criticism internally. In an employee satisfaction survey last year, Hauser's department actually scored lower than Brace's own.

The department's results "appeared to be significantly more negative in several categories when compared to corporate finance," the study noted.

But the controller's office scored even worse. Some insiders have described that department, currently led by Controller Keith Butler, as downright chaotic. And they have already predicted that Butler will soon follow Brace out the door.

Risk Management

In the meantime, Brace's predecessor has been demoted. Brace took over as CFO after Duke veteran Richard Osborne vacated the position to fill the new role of chief risk officer. But that position has apparently been eliminated.

"The company's risk management organization, which currently reports to Richard Osborne, will begin reporting to the CFO," Duke announced on Friday. "Osborne will continue as executive vice president with responsibility for Crescent Resources, internal audit, insurance, crisis and business continuity planning."

Until now, some insiders had speculated that Osborne might replace Brace in his old position as CFO. But they are now starting to wonder if Osborne is being swept out entirely.

Osborne's new role, particularly overseeing the Crescent real estate division, appears to push him further away from Duke's core energy businesses. And his old job, managing risk in the deregulated sector, has already diminished in importance.

Meanwhile, Anderson has clearly hinted that more changes are coming.

"The problem is usually that you have too many people at the senior level who are bumping into each other or going in different directions," he told employees recently. "I don't want people who are clever. ... I want people who can do the job better than anybody else."

Previous TheStreet.com article:

Duke's Brass Bracing for the Broom

Stan Choe added some insight into the resignation of Duke CFO Robert Brace, published in The Charlotte Observer. Some resignations are the result of an offer that cannot be refused.

Mr. Brace resigned Friday and it is speculated that he will not be the last senior executive to go. Paul Anderson is noted for changing top management in order to turn around troubled companies.

An employee asked a question internally about Mr. Brace and an article in TheStreet.com. The question specifically asked: “Why does Mr. Brace still have his current job, given Duke Energy’s financial position?”

The Duke spin doctors jumped on the article in TheStreet.com with both feet. They stated: “The Street.com article offers an opinion, rather than facts, about the cause of Duke Energy’s current financial situation. Robert Brace has played a leading role in developing and executing on plans to reduce costs and strengthen the balance sheet through asset sales and debt reduction, and is part of the current Duke Energy senior management team that is committed to achieving future growth.”

Well, well, it seems like TheStreet.com was right again! And, the Duke spin doctors are still setting up smoke screens. No matter what the question is, the answer is always: deny, deny, deny. But when the Duke answer is later found to be 100% wrong, it seems more like: lie, lie, lie!

David Hauser, Duke's senior vice president and treasurer, will temporarily replace Mr. Brace. He may get to keep the position. Mr. Hauser correctly observed that some financial reports are too long, crammed full of extraneous information.

He said “I like to see short reports, where the information has been winnowed down to the essentials.”

Employees can relate to that by looking at the mountain of information introducing the cash balance plan pension conversion. There was a ton of information, but it was useless! It was all hype. It was all: sell, sell, sell. Duke was certainly trying to “sell the sizzle, rather than selling the steak.” The problem was that there was no sizzle and no steak; there was only pension losses for employees. All the pertinent facts were omitted.

A few sheets of facts could have explained how the pension fund was being pilfered. But, you see, that was not the company’s objective. It chose to print a massive amount of garbage, in an attempt to hide the facts. No matter how much one reads garbage, nothing will be revealed. The garbage was presented in a cloth bound, zip up binder, as if the binder would somehow lend worth to the useless content.

Mr. Brace was hired by hired by former CEO Rick Priory in 2001.

Mr. Brace will not leave empty handed. He has a contract, with a severance clause, entitling him to around $1.15 million and two years of medical, dental and life insurance.

Senior executives are guaranteed millions when they leave the company. Employees do not even get the pensions and retirement health care that they were promised!

Coming in, Mr. Brace received $91,666 for moving costs, $70,000 for a club membership, and $983,608 to cover tax liabilities. His salary last year was $579,996.

Mr. Anderson said in an interview, that at BHP only 15 of the top 80 executives were still with the company four years after he took over.

Mr. Anderson will find endless opportunities to change management at Duke. The Employee Advocate has long contended that we need to “change management or change management.”

Paul Anderson has barely made in the door, and already other executives are trying to ride on his coattails. As new chairman and CEO, Mr. Anderson will not object to others riding on his coattails. But it was refreshing to have a small break from the incessant spin doctoring. The fact twisting has resumed.

Ruth Shaw spoke to Greensboro's downtown Rotary Club, according to the Charlotte Business Journal. Her topic was the "Triple Bottom Line." She defined it as:

• financial results,

• social responsibility, and

• environmental stewardship.

Why do people insist on lecturing everyone else on the very things that they have not come close to mastering?

Duke’s recent financial results are nothing to write home about. Ms. Shaw did acknowledge recent financial difficulties facing Duke Energy. But the true reasons were not revealed. There was no mention of the excessive greed. Enron envy was not mentioned. The California fiasco was not mentioned. The fines and lawsuits were not mentioned.

Duke Energy is the all time loser in social responsibility. Social responsibility also includes the employees. If the company cannot honor its word to employees, who else can possibly trust it? Promising employees specific retirement benefits for specific years of service, and reneging on the promise is not being socially responsible. Enriching executives, as employees are hoodwinked out of pension money is the opposite of being socially responsible.

If she had said to do everything the opposite of Duke, she would have had a good point.

The environmental issue is a mixed bag. Duke tries to buy good press with token environmental gestures, but the lawsuits keep coming. Citizens keep protesting the building and renovating of Duke plants because of the damage to the environment. Some of these environmental battles have been going on for years, with no end in sight.

Ms. Shaw used the fact that Mr. Anderson is receiving stock in lieu of a salary as an example of the commitment of Duke Energy to returning dividends to investors. That was a nonsensical statement. The directors do not need to take any bows. The compensation arraignment was all Paul Anderson’s idea. All the Duke executives cannot climb onto Mr. Anderson’s coattails. He is the only executive with such a compensation arraignment. He has it because he asked for it.

The CEO compensation agreement only shows that Mr. Anderson has confidence in himself, Duke, and Duke stock. It does not whitewash all the other executives. And, it does not guarantee that there will be no dividend cut. Mr. Anderson will not likely be eager to cut the dividend. It would be cutting his own compensation. But if cutting the dividend were the prudent thing to do, it would be cut.

Here is another example of writing promises in the sand. These people were led to believe that no Duke dividend cut will ever occur. Ms. Shaw cannot control the dividend. She just made a “feel good” speech, on the assumption that she would never be held accountable for her implied promise.

To twist the facts a little more, she went on to say that Mr. Anderson will earn money only if the company does well. That is not exactly true. Most people would call receiving a couple of million dollars in dividends earning money. Mr. Anderson has elected to defer receiving the dividends. In the unlikely event that the stock went to zero, Mr. Anderson would forfeit all compensation. If the stock remained flat, the dividends would be real money.

To Paul Anderson’s credit, he has put his compensation more at risk than any other executive. But it was uncalled for to imply that the dividend cannot be cut and stock must soar for the CEO to make any money. Stretching facts and deliberately cultivating false impressions is one of the actions that has caused Duke’s problems.

Every single event does not have to be a spin session. Some have not yet learned that when they hit rock bottom, to stop digging!

For some Duke executives -- particularly those blamed for corporate disasters -- reckoning day could be near.

Paul Anderson, who abruptly replaced Richard Priory on Nov. 1, is nearly two weeks into his job as Duke's turnaround CEO. Right now, Anderson is still meeting with senior managers to determine just how badly the company has deteriorated since he left as president five years ago to rebuild Australia's BHP. But Wall Street has already predicted that Anderson will quickly follow up by axing some of those same people.

"In our view, Duke is about five years late in appointing Mr. Anderson as CEO," wrote Prudential analyst Carol Coale, who has a neutral rating on Duke's stock. "We believe that more changes will occur at the management level as Mr. Anderson pursues his strategy, potentially resulting in a change in culture at the corporate and management levels. This could be a good thing."

Coale is among a number of analysts who seem hopeful that Anderson will, in fact, pull out the broom and start cleaning house soon. So far, Wall Street isn't necessarily pointing Anderson toward any specific corners of the executive suite. But then, Anderson -- an executive perhaps best known for his ability to clean up companies -- can certainly spot dirt on his own.

Duke inched up 4 cents to $17.45 on Wednesday.

Second-in-Command

Just hours after Duke named him future CEO, Anderson fielded a pointed question from the media.

What did Anderson plan to do about Duke's current president -- and Anderson's former right-hand man at PanEnergy -- Fred Fowler? Anderson never really answered. But Fowler has indicated that he would like to stay put. Still, at least one Wall Street analyst hinted that Fowler may have wanted more.

"It's not clear if Mr. Fowler was extended an offer to lead Duke or whether he turned it down if such an offer was made," J.P. Morgan analyst Jim von Riesemann wrote last month. But "we thought the leading candidate to replace Mr. Priory was ... Fowler." Duke didn't immediately return a call seeking comment.

Taking a Shot

Anderson himself moved on the last time he was pining to be CEO. The former PanEnergy leader agreed to become mere president when his company merged with Duke in 1997. But he lasted just two short years at the post.

"Once you've been the No. 1 guy at a company," Anderson candidly admitted to reporters last month, "it's hard to relegate yourself to No. 2 for very long."

Whatever happens, Fowler seems to have more staying power than one of his well-placed colleagues down the hall. Indeed, some people believe that CFO Robert Brace already has one foot out the door. And they're convinced that he may not be traveling alone.

Dangerous Duo

By now, TheStreet.com has detailed Brace's dismal track record at length.

In a nutshell, Brace came to Duke in late 2000 after being run off as finance director of the U.K.'s largest telephone company. With Brace controlling the checkbook, British Telecom managed to rack up huge sums of debt as it evolved from a regulated monopoly to a far-flung competitive empire. When British Telecom finally got rid of him, its stock price actually spiked, but its balance sheet was already in tatters. In the end, Brace left behind a far different -- and weaker -- company than he had joined.

Some people look at Duke and see a repeat of that story. But if Brace ultimately leaves the company, he could have someone at his side. Controller Keith Butler, the CFO's No. 2 man, has some black marks by his name as well. Last year, in fact, Duke's own employees rated the corporate finance department -- officially led by Brace -- as stronger than the controller's office.

"Overall, finance employees scored more positively in all categories (except one), when compared to all employees surveyed," the internal study found. "However, corporate controller department employees rated significantly below most employees in eight of the 15 categories."

Butler's department scored particularly weak satisfaction rates -- below 50% -- in the areas of task support/resources, empowerment and skills and information.

Although Butler has tapped some high-profile talent, including two senior managers from Arthur Andersen, he continues to lead what some insiders view as a chaotic department. By now, some people have grown convinced that Butler was never really up to being controller at all.

Prior to his selection for that post in 2001, Butler spent two years in a nonfinance position at a small Duke subsidiary. He was operating chief of DukeSolutions, a money-losing division known for such novelties as converting chicken waste into electricity. Hurt by a lack of business, the department pared away staff until it was sold outright -- at a loss -- when Duke began shedding "noncore" businesses last year.

Interestingly, Butler spent the largest chunk of his career in what has since become Duke's most embattled business. After five years in the corporate controller's department, Butler worked for nearly a decade in the unregulated Duke Energy North America, or DENA, division. He was in fact CFO of that department before he left for DukeSolutions and then circled back to the controller's office -- which he now controls -- two years ago.

Past Brass

Since then, DENA has gone on to replace some of its tarnished brass.

In a big shakeout last year, Duke shed both Harvey Padewer -- who once raked in millions as group president of wholesale operations -- and DENA CEO Jim Donnell. The company then tapped Robert Ladd, one of its own insiders, to run the struggling unit.

To be sure, Ladd was no stranger to challenges. He last served as CEO of Duke's troubled merchant-finance division, which the company began dismantling shortly after his transfer. He has since led DENA through a horrendous period that's left some people wishing that division would disappear as well.

In a recent "to-do list" for Duke's new CEO, Merrill Lynch analyst Steven Fleishman called for a new strategy for DENA at least. And new strategies, some people remind, often require new leadership.

Going forward, the shake-up could actually spread into Duke's stronger units as well. In fact, it already has. Duke's core utility business has lost a number of senior executives in the wake of a big accounting probe that's now criminal in nature.

Duke Power, the largest electric utility in the Carolinas, stands accused of underreporting profits to state regulators who can hike rates when a utility exceeds its "allowed return." But several top power executives who may have been involved in the scandal are already gone.

Bill Coley retired as Duke Power president early this year. Jeffrey Boyer, who served as corporate controller when the accounting games allegedly took place, left Duke Power a few months afterward. And Don Stratton, a vice president whose damaging comments may have hurt Duke's case, stopped answering his office telephone months ago.

Rick Ealey, a Duke Power finance executive who made some troubling statements of his own, has reportedly left the company as well. Meanwhile, two other Duke Power executives -- Sandra Meyer and Steve Young -- have been mentioned as possible future targets.

In the end, most agree, major changes are coming. And von Riesemann, for one, suspects that executive housecleaning is just one item on Anderson's list.

"We believe a condition of Mr. Anderson's employment," he wrote, "was a certain level of carte blanche to right the listing Duke ship."

Previous related article:

More Duke Coverage

Wall Street analysts are in a tizzy, speculating that Paul Anderson may sell Crescent Resources, according to the Charlotte Business Journal. But who cares what the analysts are in a tizzy about? Constantly catering to analysts was part of the problem of the old regime.

In a refreshing departure from the old regime, Mr. Anderson is not talking to reporters. He is talking to employees and doing his homework. If Mr. Anderson is able to convince employees that they are, once again, part of the company, it will not be necessary to run a 24/7 promotional campaign. When a company has its act together, it is obvious. There is no need for hype. There is no need for spin doctoring. There is no need for constantly selling “our story.”

The old regime had the gall to promise certain results to investors, after reneging on retirement obligations to employees! There was a belief that if the investors could be hoodwinked, the employees did not matter.

Paul Anderson will talk to reports and analysts when he is ready. Right now, he is doing exactly the right thing. When one has substance, he does not need hype.

Someone made a post on the Yahoo DUK Message Board, claiming to have heard Paul Anderson speak to employees in Houston. The writer seemed very impressed with what he heard. His report was consistent with statements previously made by Mr. Anderson.

Paul Anderson was described as being very candid. He reportedly said:

• The company lacks leadership…

• Crescent is not a fit…

• DENA is huge problem…

• International is holding its own…

• Field Services is a good asset, but not critical…

• Trading around our own assets is needed but other financial trading needs to go…

• Will make decision on dividend by January…

• 99% of the people in the room were not responsible for what has happened to Duke…

• Has no golden parachute, they can fire him anytime with no bucks with it…

• Said the company has been "clever" rather than good!…

• Wants to be known for his results rather than what he said…

• He said he wants to return Duke to a blue chip, capable of growing rather than being in a defensive mode: firing, not spending money, cost cutting, etc.

The Employee Advocate usually has no shortage of comments. But in this case, Paul Anderson has said it all!

Below are comments on Paul Anderson's first day:

Monday was Paul Anderson’s first business day as new chairman and CEO of Duke Energy. In a memo to employees, he said that it was great to be back. It is great to have Paul Anderson back.

There needed to be a clean break from the past seven years. Trying to slowly morph into something else was not working. After a complete disaster, a clean break is required. Changing policies and swapping management around was ludicrous, as long as the top management remained the same.

One cannot trip and fall face-first into a mud puddle, and successfully pretend that nothing has happened. No one will be fooled. Trying to convince others that the event never took place will be futile. In fact, such attempts will only compound the problem.

FIRST: One needs to admit the problem. “Oh dear, it seems that I have fallen into a mud puddle.”

SECOND: A clean break must be made. “I shall go home, take a bath, and change clothes.”

Then, and only then, is there any chance for success.

Regardless of how things work out, Mr. Anderson could not be off to a better start. The first thing he has done is to listen. Long before he took his position, he invited comments from all employees. Keep in mind, there are not two dozen employees; there are about 24,000 employees!

It is safe to say that no other CEO has gone to greater lengths to hear what’s on the employees’ minds. Employees will want to see such a man succeed. It is obvious that Mr. Anderson recognizes the potential power of a fresh start.

The last seven years were doomed to failure from the start. Instead of starting off with employee goodwill, the past regime started off with employee disgust. Cheapening health benefits was not a good way to gain employee support. Taking pension money from employees sealed the fate of the past regime. Taking retirement health benefits placed the tombstone over the past regime. One cannot make up for lack of business acumen by constantly robbing employees.

There was no listening to employees before, only total arrogance.

Mr. Anderson has been listening to management also. The danger of listening to only management is getting told what they think you want to hear. Face it, most get into management positions by totally conforming, kowtowing, and never rocking the boat. They will always strive to give a politically correct answer to any question. They will always strive to tell their superiors exactly what they think they want to hear.

The average employees in not so prone to mince words. If one does not want the facts, it is best not to ask.

Mr. Anderson said that he recognizes that the employees have the ideas, talent and initiative to succeed. He can make such statements and sound believable. Others have made such comments only as an attempt to flatter and patronize. Their arrogance always overshadowed anything said.

Paul Anderson said “An early priority I have is to listen and learn from each of you.”

Humility will win out over arrogance every time.

The Employee Advocate has never been totally “anti management,” only anti bad-management!

Melissa Davis (www.TheStreet.com) writes articles about Duke Energy occasionally. But things are heating up. She wrote one article on October 27 and another on October 30.

The first article quoted Carol Coale, Prudential Equity analyst, "Mr. Anderson is held with high, if not highest, regard among the Wall Street community…while our initial reaction to the announcement was 'We love this guy!' we were also concerned that the management change at the top could be a cry for help.”

Of course it is a cry for help. It is better to cry for help when needed, than to deny the obvious, and continue on a course to disaster.

In the second article, Melissa wrote “With his time running out as Duke's CEO, Richard Priory offered his final confession on Thursday.

“Duke, which missed third-quarter earnings estimates, will not meet the 2003 earnings guidance critics have questioned for some time. In one of his final acts as Duke's CEO, Priory officially shaved full-year earnings guidance -- already expected to come in at the low end of a previous range of $1.35 to $1.60 a share -- to between $1.20 and $1.25 a share.”

Making big promises and spending every moment trying to manipulate Wall Street opinions has been one of the many blunders of the past seven years.

Ms. Davis said that CFO Robert Brace is expected by many to follow Mr. Priory out the door.

The last earnings call was not considered to be the disaster that the previous one was.

Ms. Davis summed up the situation: “Ironically, Priory's own exit is viewed by some as Duke's most significant step toward future recovery.”

Previous TheStreet.com article:

Duke Crowns New Leader

WYFF News 4 and Duke Energy reported for Halloween that 700 employees in the Carolinas would get the ax. Most layoffs were said to be voluntary. A total of 2,000 will leave the company, voluntarily or involuntarily.

According to a spokesperson, 85 percent of the employees will leave voluntarily.

"Why does a dog wag its tail? Because the dog is smarter than its tail. If the tail were smarter, the tail would wag the dog.”

The price of a stock is the sum of all knowledge, speculation, and emotional reactions concerning the stock. It is the composite rating of the stock by thousands or millions of investors. The investors are the “dog.” They wag the “tail,” the price of stock. If one person can get enough publicity, he may be able to affect the price of the stock to suit his own purposes. In such a case, he would be “wagging the dog.”

On Thursday, the Wall Street Journal published “Utilities May Have Bottomed Out.” Only the most naive investors make financial decisions based on media headlines. Case in point: Many media headlines were predicting that the sky was the limit for stocks, immediately prior to the market crash of 1929.

• “STOCK PRICES WILL STAY AT HIGH LEVEL FOR YEARS TO COME, SAYS OHIO ECONOMIST” - New York Times headline, October 13, 1929.

• “FISHER SEES STOCKS PERMANENTLY HIGH” - headline in the New York Times, October 16, 1929.

Even during the crash, there was no shortage of individuals trying to talk up the price of stock:

• "Stocks believed on upward swing" - headline in The Press Democrat, October 29, 1929.

• “Bankers State Support Continues - Spokesman Expresses View Hysteria is Passing” – headline in the Wall Street Journal, October 30, 1929.

A good question to ask about such bold headlines is: “Where did the information come from?” The utilities article was based on the comments of several individuals affiliated with the energy industry. The problem is that all the comments, except one, were neutral to negative!

So, all comments were ignored except the rosy one, and the headline derived from it!

As it turns, out the rosy prediction maker was none other than Fred Fowler, Duke Energy president and COO! The Journal took a pump-up statement by Fred Fowler to employees and ran with it. Other newspapers also began to pick up the “story.”

When executives start making stock predictions about their own stock, there is a major conflict of interest. How many times have you heard an executive say “I predict that our stock will lose 90 percent of its value over the next 12 months”? They might think it, but they will never say it. That is not the direction they spin their predictions in.

When Enron executives knew that the company stock was going to crash, what did they do? They encouraged employees to buy more, even as they unloaded their vast holdings. As the employees rushed to buy in, price support was provided for the executives to sell into! Executives were able to get out of the stock at a good price. Many employees became unemployed paupers. Remember this scenario when an executive starts touting his own stock.

Duke executives have made millions of dollars from stock options, as the price of stock rose. If they can “talk up the price,” it is money in the bank for them. Stock predictions by a corporate executive should always be suspect.

The Charlotte Business Journal reported on the same facts as the Journal, but its headline was not nearly as euphoric “Oversupply hits value of Duke plants.”

Why would the Journal pick the one positive statement to base the headline on, over all of the more negative statements? We will never know the true reason. But Duke has spent large sums of money running “feel good” ads in the Journal. If the price of Duke stock is talked up, it could mean more millions for Fred Fowler and more Duke brand-touting ads for the Wall Street Journal.

In a further attempt to wag the dog, Duke then fed the headline back to employees, citing the Wall Street Journal as the source. Wagging the dog can start a vicious cycle, that tends to feed on itself. It can be a lot like a dog chasing its tail. The dog is not going anywhere, there is only a lot of commotion.

No fundamental change has occurred. The stock has only been touted, by one with a vested interest in the outcome.

Mr. Fowler’s attempt to wag the dog has so far sputtered. Duke stock was down 1.7 percent Thursday and down 0.44 percent on Friday.

The Charlotte Business Journal reported that the corporate marketing group will be among the first to feel the cutback ax. The group is composed of a dozen promoters of the Duke Energy corporate image and brand. The original source was said to be two company insiders.

The company is cutting the fluff and concentrating on core businesses.

Duke went wild buying “corporate image ads” during the excesses of 1999-2000. The ads touted all the great new ventures that Duke was getting into.

But cooler heads have prevailed. local ad executives said that Duke has done little corporate advertising in the last 18 months. That’s understandable. No one wants to draw any more attention to the “great” new ventures that have lost so much money!

As Rick Priory heads for the door, his grand, money-making illusions go with him. Duke is now minding its real businesses, the electric utility and natural-gas pipeline.

Rick Priory, Another Fallen CEO

In The Charlotte Observer, Glenn Burkings lumps Rick Priory in with the other fallen energy CEO’s. He said that no one should have been surprised at the turn of events. Mr. Priory simply met the fate of the other wheeling-dealing, energy trading executives.

Just as Doctor Frankenstein did, Mr. Priory helped create the deregulation monster that destroyed him.

Three other departed energy CEO’s were listed:

• Charles Watson, Dynegy Corp., who resigned May 2002,

• William Wise, El Paso Corp., who resigned in February, and

• Steve Letbetter, Reliant Resources Inc., who resigned in April.

Rick Priory will join the list of fallen energy CEO’s on November 1, 2003.

It was noted that none of these CEO's were actually fired. None were forced to resign, so the companies say. But it is not too hard to figure out he real reason that all of them are gone. Corporations always try to put everything in the best light. Corporations seldom like to admit failure. Every event is spun for all it is worth.

Glenn Burkings wrote “But look behind the official statements and it becomes clear that each of the CEOs, in his own way, got at least a gentle push.

“In the end, they were devoured by the very markets they set out to restructure.”

The herd mentality that drove the Internet bubble was used as an example the of Enron envy craze. No one wanted to be left out. They all wanted to trade, trade, trade.

Only those not infected by the craze, could see the destruction that lie ahead. The CEO’s, drunken on greed, could not see the edge of the cliff, as they raced forward.

As usual, the people, who did not create the problem, will have to pick up the pieces.

The End of Mr. Priory’s Fun Ride

Duke Energy and Dominion Resources are still not disclosing enough data to the public, according to Standard & Poor's.

Suzanne Smith, credit analyst, wrote in a new report “It is still not possible for an analyst to draw conclusions about the financial performance of trading and hedging activities.”

Not long ago, Duke made a big fanfare of supposedly leading the industry in more financial openness. Alas, Duke once again only led in lip service.

Linked below is a Rick Priory lecture about the importance of not getting defensive, transparency and adequate disclosure, being accountable, ethical conduct, "de-coding" ethics for employees, and humility. He spoke against pride, arrogance, over-confidence, and a sense of superiority! And no, it was not made at the Comedy Zone!

Rick Priory’s Confidence Speech

Paul Anderson understands workers and investors are frustrated with the Duke Energy, according to The Charlotte Observer. To put it more precisely, employees have had it with Rick Priory. His arrogant, know-it-all manner has driven the company deeper into the gutter each year. He has systemically destroyed employee benefits, while rewarding himself handsomely for poor performance.

Mr. Anderson feels that, as new chairman, he can spark morale within six months. That is very possible, as long as he understand that it cannot be accomplished with words alone. There is no shortage of executive cheerleaders, as it is. But all they have to offer is empty words, if not outright lies. As the cheerleaders cheered, employee benefits evaporated, and Mr. Priory’s compensation soared.

Rick Priory talked a good game, even as employees, investors, and California customers were being fleeced. But what he said never quite reflected reality. Everything was always skewed to put him in the best light. He was always quick to take credit, but refused to accept any blame. In Rick Priory’s world, he never made any mistakes. It was always the media, the slow economy, or a bad cycle that was blamed for everything. He even blamed Enron, when actually it was his Enron envy that caused the Duke foundations to crack. There is no shortage of witnesses to the fact that Rick Priory asked employees to make Duke more like Enron.

Rick Priory and his predecessor, Bill Grigg, sought to build a mighty empire for themselves, at the expense of the employees, who had build the company. Why pay earned pensions when the money could be spent on third world crapshoots? Why pay earned health care when employees could be thrown to Medicare? Small men tried to build an empire on a morally corrupt foundation. It worked out about as well as it always does. Duke’s torment will never end until restitution has been made.

To Mr. Anderson’s credit, he is not coming in with the attitude that he knows everything, and everyone else needs to stand out of his way. He has wisely asked for input, not only from management, but from employees. If he only sought input from management, he would only receive advice on how to continue on the course to failure. The employees, who do not turn cartwheels to be politically correct, will tell him exactly what is wrong.

Mr. Anderson hopes to animate the company's culture quickly. Again, it can be done, but not with words alone. If employees are convinced that he will turn around actions taken since 1996, he will enjoy smooth sailing. That is something that Rick Priory has never known. Rick Priory has spent seven years in a futile effort to force his self-centered will on those unwilling to be dominated by him. He commanded the tide not to come in – and the waves flattened him!

Mr. Priory will leave with his millions, but that is all. Expect no ticker tape farewell parades.

Mr. Anderson said “One of the things that I have told the management is that if everyone doesn't feel better six months from now, then I have really failed. Either people will say, `Things are getting better; I feel we're making progress,' or `This guy is a real bozo, and we're worse off than things were before.' ”

Paul Anderson is wise enough to know that nothing is guaranteed, and that failure is possible. But he has one thing in his favor. Huge numbers of employees and investors are exhilarated to see Rick Priory go. They will give Mr. Anderson every opportunity to be successful. They want him to succeed. Mr. Anderson is starting out with goodwill that money cannot buy. On the other hand, Rick Priory overdrew his goodwill bank account, even before he became chairman. In 1996, before he became chairman, he worked feverishly to weaken employee benefits. He was preparing the groundwork to implement his Enron master plan. Evidently, he thought that his actions would never have any repercussions.

Mr. Anderson has another thing going in his favor. By looking at Mr. Priory’s blueprint for failure, he knows exactly what not to do!

Mr. Anderson has a history of turning floundering companies around. Mr. Priory entered the chairman’s world as an unproven newbie. He was going to force the world to bend to his will. He never outgrew his newbie clothes, if anything, he shrank.

Stan Choe wrote that Mr. Anderson “steps into an increasingly dispirited house.” That observation is 100% correct.

Mr. Anderson noted a “sense of dread” among Duke employees. After almost seven years of failure, what is there not to dread? The only speculation is where the next benefit loss will come from. Many lost the benefit of employment, because of conditions that they did not create.

One cannot help but wonder what would have happened if Bill Coley had been selected as chairman, over Rick Priory in 1997. Or, what would have happened if Rick Priory had left in 1998, and Paul Anderson had stayed. We are going to get a chance to find out the answer to the last question!

Mr. Anderson has mentioned that he will bring in some of his own senior management. That is a good move. The more new people on the board of directors, the better. The more old directors that leave, the better. Mr. Priory did not fail so completely alone. The board of directors empowered him. If the directors allowed Mr. Priory to browbeat them into submission, all the more reason for them to go.

Most Duke executives have deep knowledge of some areas of the business. A small percentage are totally clueless cheerleaders. Duke is overloaded with cheerleaders. Perhaps Mr. Anderson will make them an offer that they cannot refuse.

Mr. Anderson said “It's very difficult to come into an organization and not make some changes.”

Duke Energy is a corporation that desperately needs changes from the past seven years.

Rick Priory tampered with the dividend structure, in an attempt to convert Duke stock from blue chip to growth. In reality, it became more of a speculative stock. It became a stock not to bet the nest egg on. Unfortunately, some employees did, by investing all of their 401 (k) assets in Duke stock. Between the stock losses and the pension losses, many of these employees will be forced to work until the day that they die. The grave in now their retirement future.

Duke stock would have been much more resilient, had Mr. Priory kept his hands off of it. He was lusting after growth stock run-ups. He failed to consider that massive run-up are often followed by massive wipe-outs. Mr. Priory has already done the damage to the stock. Whatever changes Mr. Anderson has to make to the dividends will not hurt it now. There are two schools of thought on keeping the dividend. Each has merit. The Employee Advocate will not second guess any decision that Mr. Anderson makes concerning the dividend.

As a point of interest, Mr. Anderson said that analysts expected him to cut the dividend at BHP. But instead, he raised the dividend. Speaking of analysts, Mr. Priory made a career of leading them in circles. They were so easy.

Mr. Anderson does not feel that some of the international holdings earn enough to warrant the risk. Rick Priory was crazy about foreign holdings. When a stockholder complained about them, Mr. Priory said that he favored them because of less regulation in foreign counties. Try as some do, is it very hard to dodge all of the laws.

Rick Priory despised the regulated utility business. He even refused to attend any analysts meeting, if only other utility CEO's would be present. He billed himself as and energy CEO, not an utility CEO. He was going to show the world how to really make money with his plunge into exotic endeavors. Every one turned out to be a failure – EVERY ONE!

And what Duke division was the profit leader in the first half of this year? None other than Duke Power, the lowly, Carolinas based, regulated utility! Mr. Priory’s exotic schemes lost money. Now, some Duke Power employees must sacrifice their job to Mr. Priory’s excesses. What a bitter pill for Mr. Priory to swallow, on his way out. He can console himself with his multimillionaire status. Employees, investors, and some customers paid dearly for him to acquire his wealth.

Massive management swaps were made to try to stop Duke’s death spiral. There are some points to consider about all of the changes. If executives were doing a bad job in areas that they were familiar with, how will putting them in unfamiliar areas help things? What does musical management chairs really change? If the person at the top remains the same, how can anything else really change?

Just because Mr. Priory is retiring, is no reason for his failure as a CEO to be ignored. Paul Anderson should thoroughly analyze the failures of Mr. Priory. He will certainly not want to repeat them!

A 2002 BusinessWeek interview with Rick Priory contained the following quote: “ ‘It has been a fun ride,’ he (Rick Priory) says with a smile.”

Rick Priory’s “Fun Ride”

Mr. Priory was having a fun ride on a skateboard at 90 miles-per-hour, until he ran into a stump.

All comments about Rick Priory are about Rick Priory, the CEO, not Rick Priory the man. There is no personal resentment against Mr. Priory. He should move on, and not look back. It is too late for him to change anything now.

Mr. Anderson has learned of the employee anger because of executives pocketing millions of dollars, as the workers benefits were being cleaned out.

Mr. Anderson asked President and COO Fred Fowler if the cost-cutting should continue. Mr. Fowler said “Yes.”

Mr. Anderson said “I think you can always have a sense of excitement if you feel like you're making progress. If you can establish that, you can have excitement even in a difficult industry.”

It is possible, but will never happen with “happy talk” alone!

Strategy Out of Gas