DukeEmployees.com - Duke Energy Employee Advocate
Noon Rebuttal - Page 1 - 2002
say you were at the wheel"- Rep. Jim Greenwood to David B. Duncan, auditor
Noon Rebuttal – March 2002Employee Advocate – DukeEmployees.com – April 1, 2002
The Noon Meeting was held March 11, 2002, in Charlotte, North Carolina. Rick Priory was the host.
Rick Priory: This week, the Senate is taking up the first review of a comprehensive energy bill. We’ve done our best to make sure Congressional staffs understand our positions and our thoughts on long-term strategies...
Employee Advocate: No one questions that Duke has been bending ears in Washington. Duke Energy came up on the list of companies involved in the infamous Dick Cheney secret energy meetings. The White House had to be sued to obtain this information. Much information is still being hidden from the public.
Duke at Secret Energy Meetings
Harvey Padewer at Secret Energy Meetings
Energy Recommendations Became Policy
One-Way Discussion on Energy
Secret Energy Meetings Disclosures
Rick Priory: The bill does include PUHCA (Public Utility Holding Company Act) repeal, which we think is important.
Employee Advocate: Enron also felt that it was important for them to be exempt from this and many other laws. Having few laws and reporting requirements makes it so much easier to “creatively” manage the books.
Goodbye to the Invisible Hand
Rick Priory: We do expect our first Enron related vote coming up this week: Senator Dianne Feinstein of California has drafted an amendment to regulate the energy trading markets through the commodities trading exchange. Federal Reserve Chairman Alan Greenspan, the head of the Commodities Futures Trading Commission and others have expressed concerns about such a move, which we share.
Employee Advocate: That is another requirement that Enron did not like. If fact, they lobbied intensely to be exempted from the reporting regulations that govern others. Operating in total secrecy allows for more “creativity.” The spirit of Enron lives on!
Goodbye to the Invisible Hand
Rick Priory: The Bush administration has issued its “Clear Skies” initiative, which includes proposals for slowing the growth of greenhouse gas emissions and long-term reductions in a variety of other pollutants. We’re supportive of a coordinated proposal, rather than the patchwork set of regulations that have been ongoing for many years, and will be reviewing the plan in greater detail.
Employee Advocate: Bush should present no problems for Duke, as he is firmly in the pocket of the energy companies.
Rick Priory: One of the most impactful lessons from Enron is that the marketplace is strong, responsive and resilient. Enron--a single player involved in one out of every four online energy trades in the country--vanished from the scene and the markets didn’t miss a beat. Hundreds of strong market participants stepped up and filled the void...
Employee Advocate: So, the markets didn’t miss a beat. Employees missed their pensions that had dwindled into nothing. They missed their livelihoods. Of course, we know that Mr. Priory views lost pension money and eliminated jobs as a good thing. (As long as his executive pension does not dwindle, and his job is not eliminated.)
Rick Priory: Last Friday, we received approval from the Canadian Investment Board and U. S. Securities and Exchange. Those were the final approvals that we needed, so Westcoast will close this Thursday (3/14), allowing us to begin the important work of integrating our people and assets...
Employee Advocate: Not everyone is excited about the acquisition as Mr. Priory is. Westcoast employees have informed us that they now have promised pension benefits, and that they want to keep them! An acquisition is often used as an opportunity to raid the pension fund. Duke raided its own employees' pension fund without the smokescreen of an acquisition! We hope the Westcoast employees have a strong union. The stronger the union, the better their chances are of keeping their pension.
Rick Priory: All shareholders will receive the 2001 Annual Report and proxy in the next month. I would encourage all of you to read those documents carefully.
Employee Advocate: We will. We will!
Rick Priory: The Annual Meeting of shareholders is scheduled for April 25. We will talk to shareholders about our terrific results in 2001.
Employee Advocate: Imagine that!
Question: Our next question comes from the portal, and asks about the Associated Press story on mark-to-market accounting as a percentage of profits. I won’t read you the exact question, but could you characterize for us what mark-to-market accounting is and its percentage of our earnings in 2001?
Rick Priory: In our attempts to set the gold standard for disclosure, we openly disclosed at our year-end conference call an expanded level of detail related to our trading and marketing business...
Employee Advocate: It is a “gold standard” for disclosure, now that the wolf is at the door. Over five years after the cash balance pension plan conversion there is not even a “pewter standard” for disclosure. The facts have been hidden, distorted, and misrepresented since day one.
Question: I have seen the articles in the Charlotte Observer about Duke Power’s accounting. It looks like there is a possibility that our rates may be adjusted if the utility commission decides that our profits are too high. We have been cutting our maintenance budget in electric transmission and distribution for years. We are at the point to where equipment is failing to operate and utility poles are rotten. Why do we not put more money into maintaining our system, this would reduce our profits which might help to avoid a rate cut, plus it would improve the reliability of our electric system?
Answer: When we first heard an employee's concerns about our auditing practices via our corporate ethics line, Duke Power launched its own internal investigation. That investigation found that nine accounting entries were handled correctly, four one-time accounting entries were not handled correctly and we are seeking additional guidance on entries related to our nuclear insurance distributions. We found the incorrect entries to have been unintentional mistakes.
Based on our review, we do not believe these accounting entry mistakes would have had an effect on our customers’ rates during the years in question (1998 to 2000). We have been cooperating fully with the commissions and are allowing the auditors full access to any information they wish to see. To date we have provided the auditors more than 10,000 documents and a tremendous amount of information electronically. It would be inappropriate for us to speculate on the possibility of refunds or any change in rates until the audit is complete.
In both electric distribution and transmission we are dedicating significant budget dollars for large, multi-year asset management plans. These plans range from adding technology tools and equipment in our substations to back up generators and increased trimming of our rights-of-way…
Employee Advocate: Good question. Why is the Duke “cover story” often diametrically opposed to outside accounts? We do not mean one or two insignificant points not coinciding. We mean completely opposite accounts!
Duke’s account is “We have been cooperating fully with the commissions and are allowing the auditors full access to any information they wish to see.”
Below are quotes from a Charlotte Observer article:
Duke has probably backed off of some of their absurd demands, but you can see that it was not by choice. Now, Duke wants to take credit for “fully cooperating”!
You can read the complete article by clicking the link below:
Question: I'm relocating to Houston from North Carolina and would like to find a residence convenient to the office. Can you comment on a rumor that Duke Energy might move out of the Westheimer office to another facility, rumored to be the Enron building?
Answer: Duke Energy is investigating our real estate needs in Houston at the present time. It is no secret that we are pressed for more space at our Westheimer location. However, no final decision has been made as to whether we expand our current location or look at other locations in the Houston area.
Employee Advocate: Why not just go for the gold and buy the Enron building? It would not even be necessary to change the name on the building. Just change the name of the company from Duke Energy to Enron. Mr. Priory has suffered from Enron envy for some time. Duke could stop trying to be just like Enron and just become Enron! Duk-ron could be the alternative selection. Just imagine - Duk-ron Field!
Question: In your November 2001 Noon Report, your answer to an incentive goals question mentioned "short term incentives" several times. This implies we have long term incentives. Do we have long-term incentives? And if so, what are they?
Answer: Yes, Duke Energy provides long-term incentives to employees with key financial and strategic accountability. Short-term incentives are provided to all employees and are intended to motivate and reward for corporate, business unit and operational/individual goals and objectives expected to be achieved in the "short-term"; i.e. within a calendar year. Long-term incentives are designed to motivate and reward the achievement of longer-term corporate success.
Employee Advocate: That was a reasonable question. The employee had heard about long term benefits and wondered just what they may be, if any. The best long term benefit is your paid health coverage upon retirement. Oops! You don’t have that anymore.
Another long term benefit is fully paid health coverage while employed. Oops! You don’t have that anymore.
Okay, let’s try again. One long term benefit is your subsidized early retirement pension. Oops! You don’t have that anymore.
Give us a minute. There must be something left. One long term benefit is your “high five” retirement plan. If you work for 30 long, grueling years, you get an annuity that amounts to 60% of your average salary for your highest paid five years. Oh no! You don’t have that anymore.
You are left with a cheap cash balance pension plan. Some employees had 50% of the value of their pension lobbed off during the conversion. Basically, after working for 30 or 40 years, you get to be a ward of the federal government. We suppose your long term benefits are the opportunity to try to live on Social Security and Medicare. Lots of luck!
Question: Is the Enron company-funded retirement account invested in Enron common stock? Is the Duke Energy retirement cash balance plan similar in investment portfolio? If so, are any changes being considered?
Answer: We don’t have reliable information on the investment composition of Enron retirement plans/accounts. The Duke Energy Corporation Investment Committee oversees the investment of the assets of the Duke Energy Retirement Cash Balance Plan, which are held in the Duke Energy Corporation Master Retirement Trust. The Committee sets investment policy and selects, imposes requirements upon, and monitors the performance of, the professional investment managers who actually invest the Trust’s assets. The Committee prohibits direct investment in Duke Energy securities, including Duke Energy Corporation common stock.
Employee Advocate: Congratulations people! You are asking all the right questions. Direct investments are prohibited; all you have to worry about are the indirect investments. (The games never end.)
Question: After hearing the large differences in the payout percentages among the different departments, why aren't we all judged on the same playing field? We're all supposed to be teammates, working for a common goal but come incentive goal time, the goals vary so much between departments you can't even realize that we're in the same industry let alone the same company. Why not have one set of company-wide goals for everyone, top to bottom?
Answer: All employees have an annual incentive opportunity which is intended to motivate and reward for achievement of a combination of corporate, business unit and operational/personal goals. While specific business unit and operational/personal goals may vary between business units and employees, the common goal which connects all employees to Duke Energy's success is earnings per share, which is considered the "corporate" goal. A high correlation exists between the achievement of business unit goals and operational/personal goals and achievement of earnings per share. Therefore, when business units succeed in achieving their goals, employees receive greater rewards for achievement of both business unit goals and the corporation's earnings per share goal.
Employee Advocate: No, no. A common, company-wide goal would never work. Why? It would be too simple. If everyone received a fixed percentage of profits, it would eliminate some paper-shuffling empires. It would also be too fair! It would deprive Duke of the opportunity to social engineer and completely micro manage each aspect of you life.
When you are given a politically correct, feel good, yet worthless goal, the company does not care if you meet it or not. If you meet it, Duke’s hidden agenda is furthered. If you fail, the company saves money. It’s a win-win situation (for Duke).
Question: Is it true that Duke Energy is adding sexual orientation in its nondiscrimination policies? If so, why now and are they considering domestic partner benefits?
Answer: Yes. In today’s competitive environment, Duke Energy needs the “best of the best” from a talent perspective. We need new ideas and perspectives; perspectives that can only come from a diverse workforce and work environment. In benchmarking with other Fortune 500 companies, approximately 52 percent include sexual orientation in their policies in an effort to attract and retain the talent needed to create a sustainable competitive advantage. Therefore, Duke Energy is pressing forward with its diversity strategies. While federal government does not currently include sexual orientation in Civil Rights laws, a number of cities and states where we conduct business do include sexual orientation in their policies. We truly believe this is an opportunity for Duke Energy to create competitive advantage and to reinforce its policy that discrimination in any form or fashion is not tolerated.
As education, “domestic partners” are most often defined as individuals not legally married who share a residence and an exclusive relationship. With respect to offering domestic partner benefits, implementing a nondiscrimination policy that includes sexual orientation is not the first step to offering domestic partner benefits. Human resources will continue to monitor and trend approaches to providing domestic partner benefits, but we are not offering domestic partner benefits at this time.
Employee Advocate: Yes, Duke wants the “best of the best,” but their benefits cry out for the “mediocre of the mediocre”! Guess what they will get.
We need new ideas and perspectives? Yes, Duke sorely need new idea and perspectives. But there is little chance of them ever getting past the curmudgeons at the top! Their game is, and has always been, the same: Take and much as possible from the employees; give as much as possible to the executives. And, the last six years have been the worst in the history of the company.
One point not mentioned in the answer is that qualified, new employees are not exactly breaking down the gates to get in. Many see what has happened to the long term employees and want no part of Duke. Top graduates do not live in an information vacuum. They know were the real opportunities are. Why should they even consider a company that breaks long term commitments to employees?
Duke thought that they were getting free money from the employees. They took the money, but it was not free. They pay each day in lost credibility, respect, and integrity. They will continue to pay. They cannot spin it away.
Question: Since the large and rapid growth of the Duke Energy organization, what are your personal plans for the future? What succession plans are in place in case you decide to leave? Are you planning to relinquish some of your organizational titles?
Rick Priory: I serve at the pleasure of the Duke Energy Board of Directors, so my future plans are tied to the objectives and expectations of our board! I thoroughly enjoy my job, and believe that I have value to add and lessons to learn, so I have no immediate plans to leave the company or lighten my current responsibilities…
Employee Advocate: The question could be construed as: “Isn’t it about time you hit the road, Jack? The answer could be construed as: “But there’s still money on the table!”
Serving the board of directors is not as straightforward as it may sound. Boards of directors typically foster so much back scratching that they are little more than mutual admiration societies. The common goal is to get the biggest slice of the pie as possible. The employees? They can eat cake - crumbs.
We agree with Mr. Priory on one point: He does have a lot to learn. And, time is running out, day by day.
Noon Rebuttal – February 2002Employee Advocate – DukeEmployees.com – March 4, 2002
The Noon Meeting was held in Charlotte, North Carolina on February 11, 2002. It was hosted by Rick Priory.
Opening Comments by Rick Priory:
Rick Priory: Our commitment in 2001 was to grow earnings per share by 10 to 15 percent from our 2000 EPS base of $2.10, and our results were obviously well above that. Likewise, we’ve retained that growth trajectory for 2002 as well. Wall Street would love for us to say we’re going to grow 10 to15 percent from our 2002 numbers, but we don’t think that’s the right thing to do. Many companies make bold commitments that generate a lot of initial buzz, but then they fail to deliver. I don’t believe that’s smart business, and it destroys credibility, a commodity we value highly at Duke Energy.
Employee Advocate: So, Mr. Priory is backing off of making pie-in-the-sky earnings promises to Wall Street investors. Why would he do such a thing? For one thing, the regulating agencies are going to keep a sharp lookout for any funny business with accounting procedures. And, Duke is already being audited by its regulators. Mr. Priory has made grandiose promises to investors, while breaking benefits promises to employees. In his quest for greater profits to appease Wall Street, Mr. Priory has attracted lawsuits, audits, and investigations as never before. Now he doesn’t think that outlandish promises are the right thing to do!
Now he is concerned about credibility. It may be a little late for that, but it does show some growth. It is disturbing that he referred to credibility as a commodity! A commodity is something to be bought, sold, and traded. Dictionary.com defines “commodity” as: “An article of trade or commerce, especially an agricultural or mining product that can be processed and resold.”
Evidently, Mr. Priory does not view credibility as having any intrinsic value. Apparently, he views it as only a means to an end. That end is always more money for senior management. If one runs short of credibility, just buy some more. If one has too much, just sell some. (I’ll trade you five pounds of credibility for a half bushel of ethics!) Is credibility going to be like “pollution credits”? Is Duke going to add a “credibility contract” to its trading floor? If so, they need to enter the market as net buyers; they certainly have no credibility to sell.
Rick Priory: The question you might have is, “Well, if things are so great, why did our stock drop two dollars after the announcement?” First of all, in the fourth quarter, we experienced a slowing economy, mild weather, and continued softening of natural gas liquids prices…
Employee Advocate: Instead of keeping promises to employees and concentrating solely on running the business, Mr. Priory has spent much energy attempting to influence Wall Street. He has been more obsessed with the price of stock than anything else. He made the earnings promises in an attempt to boost the price of the stock. Now, he finds himself on the defensive, trying to justify every bobble in earning and stock price. Live by earnings reports and die by earnings reports. It is not that earnings are unimportant, but when one promises certain earnings in an attempt to influence the price of his own stock, disaster awaits. This was the Enron attitude: Forget the business, just manipulate the results! The former CEO of Enron was big on manipulating the price of stock. The New York Times reported that when Mr. Skilling was asked what his top priority would be as chief executive of Enron, his answer came lightning-fast: "To get the stock price up"!
Rick Priory: We continue to work diligently to get the word out about our outlook for continued growth, and I believe we’re gaining recognition as a leading balanced and diversified energy company
Employee Advocate: There he goes again. Instead of just running the business, Mr. Priory is obsessed with “getting the word out” (manipulating others perceptions). And, all the hoopla about being a diversified energy company was always about being more like Enron. Does that seem like such a worthy goal now?
Rick Priory: As a result of the Enron debacle, there’s been a clamor for increased financial disclosure, so in our year-end results, we shared more information to provide investors with a better sense of our controls, balance sheet conservatism and risk management approach.
Employee Advocate: That’s good. But if complete information had been provided all along, there would be no need to jump through hoops now. It is much easier to skew perceptions in the desired direction if incomplete data is presented. That is another page from the book of Enron.
Rick Priory: Our outlook for 2002 remains consistent with our prior commitments to the Street. We told them nothing changes, we remain committed to delivering 10 to 15 percent off year 2000 earnings. We’ll continue to move forward: managing risk, owning assets, trading, originating, acquiring and divesting to achieve those objectives.
Employee Advocate: So, Mr. Priory just means that he is not going to make any bolder earnings promises than he has already made. But he is still tied to previously made promises. It is obvious that his full attention is on Wall Street promises and not employee promises. That’s the thing about making promises, no matter how much conditions change, the promises are still there. But the Wall Street promises can always be broken, just as the promises made to employees were broken.
Rick Priory: There will be volumes and volumes written about the lessons learned from Enron… Many investigations are underway, and there is great discussion about possible changes going forward, related to pension plans, accounting requirements, disclosures, etc. I hope that rationality will prevail. This provides an important opportunity to review practices and ensure we have a good control system. I’m sure we’ll see some changes, and I’m sure you’ll see Duke Energy supporting a number of those changes.
Employee Advocate: Yes, many investigations are underway, and they are not related solely to Enron! Duke, and several other companies, walked into the California energy debacle hand-in-hand with Enron. They gladly reaped huge profits, as Enron did. However, they are not as willing to share the fate of Enron. Mr. Priory has been trying to close the door on the California situation for some time. He continues to proclaim that his hands are clean. But, fault has already been found and the investigations continue. If no fault had been found, no money would have needed to be refunded. And, it was not Enron who charged the highest price in California, it was Duke Energy, according to The Washington Post. The Charlotte Observer reported that 0ne Duke executive even said: "On average, Duke's prices are not gouging prices"!
“On average,” is that like being a little bit pregnant? Is this like drinking alcohol, but “not enough to get it on your breath”?
Even the long term power contracts are still under investigation in California. Duke feels that California should honor its power contracts with them. However, Duke felt no need to honor its retirement promises to employees. That’s the Duke way; everything runs one-way – Duke’s way. The California government feels that energy prices were manipulated to force them into overpriced contracts. The New York Times reported that Former Enron employees have come forth to detail just how the prices were manipulated. This revelation has prompted new complaints and more investigations. All the blame is not being laid on Enron: “The complaint focuses on 32 contracts with 22 energy sellers.”
Duke has spent much effort in raiding the pension plan. The company has no interest in any legislation that will restore the employee’s lost benefits. Mr. Priory hopes that “rationality will prevail.” Translation: “I hope that there are absolutely no changes made that will benefit employees.”
Yes, this is an important opportunity to review practices, but if there were no potentially shady dealings, there would be nothing to review. The company has always had an opportunity to do the right thing. Honoring commitments does not require an engraved invitation. Does having a good control system mean having plausible denial? Mr. Priory said that Duke would likely support a number of changes (not all). There will, no doubt, be a number of changes proposed that are acceptable to Duke. There will be changes that do not cost a dime, are superficial, and have sufficient loopholes.
Question: There was something in the news recently about a bank experiencing huge losses because of a “rogue trader.” I know we have risk management practices to preclude the potential for that happening. Can you talk a little bit about what those controls look like?
Rick Priory: You picked your words very well: “preclude the potential.” A rogue trader is a criminal, often very bright and very dangerous when he or she is loose in the organization. We protect ourselves against that potential damage through a set of internal controls. Are those controls so good that it’s impossible to have such an event? The answer is absolutely not. About the moment you think you’ve got it, another company has a problem, and you begin looking at their controls to understand how they were penetrated.
We’ve had a few rogue traders, but we identified them quickly and exercised appropriate control. We have a whole set of controls--some of them are manual, some are computer controls—and we set a variety of limits on trading. We measure our exposure through our daily average earnings at risk, or value at risk. We have limits on the number of contract trades that can be exercised during particularly sensitive periods of time to avoid unacceptable exposure. We are building a number of computing engines, including the Risk Management Information System that will enable much more effective electronic surveillance. We have early detection systems in place, and we deal swiftly and severely with trading practices that violate our ethical standards.
Employee Advocate: We give Mr. Priory credit for giving a straight answer on this one. He admitted that it is impossible to guarantee that a trading disaster cannot happen. By stating the truth up-front, he does not have to waste energy trying to defend unrealistic statements. There was a time when Mr. Priory seemed to imply that appointing a chief risk officer would save the company from any trading disasters. But, Enron had a chief risk officer, Mr. Buy. (We do not make up these names; Enron really had a Mr. Lay and a Mr. Buy, and we will not carry this any farther). Even with the services of Mr. Buy, Enron experienced a few problems with risk. Enron even had a “Risk Management Manual.” Evidently, it was about as effective as the Duke Ethics Policy.
Below is a link to an earlier article about the risk of leveraged trading:
Question: Duke Energy’s business strategy seems to be following another energy trading company in the news. Is Duke Energy concerned about following the path of Enron?
Answer: Our business strategy is actually quite different from Enron’s. Enron was following an “asset-light” approach with little emphasis on assets; we believe that our asset and trading positions combine to provide a competitive advantage. Enron invested heavily in deregulating retail markets; we have not pursued that path. Enron also moved away from their core business (energy) with unsuccessful efforts in things ranging from water to broadband; while we have some non-energy related businesses they are a relatively small part of our overall portfolio – our core business is energy.
Employee Advocate: All of the above is true, but it cannot be denied that Mr. Priory suffered from an acute case of Enron envy. From day one, he wanted Duke to become an energy company - like Enron. He wanted the stock to have a high price-to-earnings ratio – like Enron. He wanted to ride the deregulation bandwagon – like Enron. He was mesmerized with the trading portion of the business – like Enron.
Enron was clearly the role model for Mr. Priory. It must be painful for him to now preach about how he does not want to be like Enron. Can you picture Buggs Bunny warning the audience not to eat carrots? He would suffer a credibility problem. Oops, there goes that word again.
Question: In the Duke Energy earnings announcement issued on January 17, "Other Operations" has 2001 EBIT of (296) million dollars, compared to (194) in 2000. What is the "Other Operations" business, and why is it losing so much money year after year?
Answer: “Other Operations” includes various corporate costs, including corporate governance costs, corporate hedging activities and contributions to The Duke Energy Foundation. These corporate costs are not charged to the business units. During 2001 we had higher corporate governance costs and higher funding to The Duke Energy Foundation than in 2000. Also, the 2001 amount was impacted by current market prices for certain corporate hedging activities.
Employee Advocate: That was an excellent question. There will be much more scrutiny of the practice of lumping huge sums of money under the “miscellaneous” category. Duke, and others, have been getting too much mileage out of the footnotes. Footnotes can make black seem white, and losses seem like profits.
Question: Are construction plans underway in Guatemala? Are we doing any public relations in preparation for new customers when deregulation comes about?
Answer: We broke ground on January 9 for a new 165 MW heavy fuel oil thermal plant in Guatemala. This new construction is an expansion of the investment we made in November 2001 with the purchase of 165 MW of thermal generation. In Guatemala, as in other liberalizing markets where we operate, we work with the government to build understanding of market liberalization…
Employee Advocate: In the 2000 shareholder meeting, Mr. Priory said that he wanted to own foreign companies, because after deregulation, the U. S. Government would "tie his hands." We have no doubt that Duke is working with the government of Guatemala to build “understanding of market liberalization.” They worked with California to build “understanding of market deregulation,” and with employees to build “understanding of pension raiding”!
Question: The sale of DE&S shows Duke Energy’s movement out of the nuclear industry. Does Duke Energy have plans to sell their nuclear plants in the future?
Answer: Actually the sale of DE&S is less about movement out of the nuclear industry and more about movement out of the engineering services business. Duke Energy’s nuclear stations continue to be an important part of our generation portfolio.
Employee Advocate: My how times change! It has not been long ago that Duke discounted its nuts-and-bolts businesses in favor of nebulous activities with huge profit potentials. Enron seems to have taught Duke that a huge profit potential can equal a huge loss potential, as well. Now Duke loves the power generating assets – the one thing that does separate them from Enron.
They also come with guaranteed profits; that’s something that Enron should be envious of! It difficult to go broke with guaranteed profits. Some naive executives are like the child who has never touched a hot stove; they just do not believe that they too can get burned.
Anything that is anti-Enron just went up in value!
Noon Rebuttal – January, 2002Employee Advocate – DukeEmployees.com - January 28, 2002
The Noon Meeting was held January 14, 2002, in Charlotte, North Carolina. It was hosted by Rick Priory.
Opening Comments by Rick Priory:
Rick Priory: 2001 will probably go down as the most successful year in the 100-year history of our company, although at times it didn’t feel like success!
Employee Advocate: It did not feel like success because it was not a complete success. True, unprecedented profits were made. If profits are one’s only measure of success, then it would have been a completely successful year.
From Mr. Priory’s comment, evidently something is missing; his financial victory is not quite as satisfying as he had always thought it would be. The company has taken in huge sums of money, and Mr. Priory has personally banked millions of dollars. What is missing? Could it possibly be the manner the in which the profits were generated?
He started his “reign” by not being honest with the employees. The pension fund was raided under the flimsiest of guises. Benefits promised to employees for decades were taken by hook or crook. Employees found it impossible to get a straight answer to questions. The mind set seemed to be that if the employee’s concerns could be ignored for long enough, they would go away. Wrong.
And then, there was the California fiasco, lawsuits, and audits. There is a reason that Duke is ensnared in all of these legal problems. That reason is overpowering greed. Attempting to acquire huge amounts of wealth, with little regard as to the manner, will always bring about problems.
Mr. Priory is desperately attempting to build a glorious empire on a foundation of sand. The higher the tower grows, the more unstable it becomes. He may be wildly successful for a time, but the weak foundation will betray him eventually. Enron was wildly successful for a time, but their weak foundation eventually destroyed them.
In fact, Mr. Priory has spent five years shaping Duke Energy into “Little Enron.” He coveted Enron from the beginning, just as he coveted the Internet ventures, when they were soaring into the stratosphere. When the shaky Internet ventures collapsed, he wanted no part of them. He no longer wishes to call the company “DukeEnergy.com.”
He will find that distancing himself from Enron to be more difficult. Mr. Priory is philosophically joined at the hip with Enron. This is a fact that cannot be denied. It cannot be spun away. It cannot be danced around. It cannot be laughed off.
It has been stated that Enron’s collapse could cost Duke $100 million. The money is the cheapest part of the loss. The fact that everyone knows that Duke has been patterned after Enron for the last five years is the expensive part. That cost is too great, and too pervasive to be calculated.
When Mr. Priory assumed his present position, five years ago, he was not talking about loyalty, integrity, or the value of fair dealing. He was only preaching doubling the price of the stock! That was his all consuming mission. He was preaching raising the price-to-earnings ratio of Duke stock (to be more like Enron). Oh, if Duke could only be more like Enron! (Not to mention that doubling the price of stock does wonders for the executive’s options.)
Mr. Priory wanted to be like Enron so desperately that he even refused to attend meetings where only utility CEO’s would be present! He did not want to be associated with utility companies at all. He wanted to be associated with energy companies, like Enron.
This is undoubtedly a bittersweet time for Mr. Priory. He has his position, he has his wealth, he now has some of Enron’s former business. But at what price? Enron is regarded as being so despicable that politicians no longer want money from them! And, just how many times have you heard of politicians turning down free money? Articles have already appeared in the press alluding to Duke as the next Enron. Mr. Priory has fought hard to earn the Enron brand. Now he can were it with pride. Well, maybe not with pride, since Enron is no longer in fashion. But that’s the thing about being branded; the brand does not wash off!
Mr. Priory was the bull who escaped from his pasture to get to greener pastures. He finally reached the green, green pastures of his dreams. But the new pastures were made of Astro-Turf. They looked great, but everything was phony!
Mr. Priory has been shamelessly riding on Enron’s coattails. Enron is synonymous with electric deregulation. It was easy to steam-roll it through with the governor of Texas (and later the president) and much of Congress in Enron’s pocket. Now, Enron is no longer around to do the dirty work. What can be done?
The whole shell game could be renounced for what it is (not likely to happen). Mr. Priory could step up to fill Kenneth Lay’s shoes (very likely to happen). No one in the universe is more qualified to fill Kenneth Lay’s shoes than Rick Priory.
Rick Priory: Early in the year, we committed to grow earnings 10 to 15 percent over 2000. It appears as if we’ll outperform that expectation for 2001, and will continue our commitment to grow earnings this year 10 to 15 percent beyond our 2000 base.
Employee Advocate: Yes, Mr. Priory has made more promises to his pals on Wall Street. But accounting for these profits can be tricky. You see, parts of the business is regulated, and there are limits as to the amount of profits that can be made. What if these profits were “shifted around”? It can be done, but look what shifting profits and losses around did for Enron. And, oh yes, that is why the utilities commissions from two states are now auditing Duke’s books.
And, what happens when there is an ethical decision to be made? What if the growth in earning could be met, but only by questionable means. That, my friend, was a rhetorical question! It has be proven time and again what will happen when Duke has to choose between ethics and profits. The answer to that dilemma is always: “Show me the money.”
Rick Priory: I’d like to thank all of you for that 2001 success! You are the ones that make these things happen.
Employee Advocate: Mr. Priory must have hired a writer. That was a very uncharacteristic remark for him to make. He has the pension, money, and benefits. Why not take all the credit too?
Rick Priory: In December, we filed comments in response to the Federal Energy Regulatory Commission’s September “notice of purposed rule making” related to codes of conduct for affiliate transactions for transmission providers.
Our comments state that the FERC’s proposed new rules are so broad that they risk unintended, adverse effects on energy markets and consumers. We believe the current rules are working and those rules protect consumers.
Employee Advocate: This really sounds like Mr. Priory does not want his playhouse messed up. Do you think he has one iota of concern for consumers? What about the hapless rate payers who had to pay quadruple prices for electricity in California? His statement, no doubt, means that the current rules are not working, and he would like to continue to exploit them! Corporations are formed for the sole purpose of creating profits. They are amoral; they care nothing about consumers, employees, or the general public. When a corporation starts talking about protecting consumers, rest assured that their only concern is protecting the corporation. Corporations like it best when there are no rules. Kenneth Lay saw to it that Energy companies were exempt from as many rules as possible. Rick Priory stated at a shareholder meeting that he wanted to own foreign companies to be free of the United States regulations. So much for protecting consumers.
Rick Priory: We have always been strong advocates of economic development in the Carolinas. Economic development brings people, homes and businesses to the area, all of which use energy, of course. And from an economic development perspective, it’s not good for a growing city to lose its NBA team. As a consequence, we will do what we can, reasonably, to encourage the Hornets or another NBA team to play in Charlotte…
Employee Advocate: We know; we know. Enron felt the same way. That is why they promised $100 million dollars for Enron Field. For some reason, that number seems to pop up a lot. $100 million is supposedly the potential Enron loss for Duke. It is also the same figure that Duke and two banks offered to provide for an arena. The $100 million offered in Charlotte did not come without strings, of course. Duke seldom offers anything without strings attached – even pensions. (The string is used to yank it back.)
Rick Priory: This is the ruling from the Ninth Circuit United States Court of Appeals Federal Court in California: “It’s ordered, adjudged and decreed that judgment be and hereby is entered in favor of plaintiff (Duke Energy) against defendant Gray Davis. It’s further ordered, adjudged and decreed that defendant Gray Davis be and hereby is enjoined from taking action against plaintiff (Duke Energy) concerning any outstanding block forward contracts under the authority of executive orders. Dated this January 7th, year 2002, Terri Hatter, United States District Judge.” That’s about the cleanest award you’re going to get. It’s great to have this behind us.
Employee Advocate: That means that Duke has won one case. Investigations are still underway that may produces new lawsuits. These things can drag on for years. Mr. Priory continues to try to prematurely close the door on this issue. What is the rush?
Question: I believe there was recently a tentative decision from the commission regarding how DEGS (Duke Energy Generation Services) is reorganizing itself. What are the implications of that?
Rick Priory: What we received from the NCUC wasn’t really a decision, but a request for additional information. As I understand it, our team is compiling the information requested to help address the commission’s questions.
Employee Advocate: Doesn’t Duke Energy Generation Services sound a lot like Enron Energy Services? Perhaps the North Carolina Utilities Commission is learning to request all of the information that it can get.
Question: “Do you have a sense of what industry changes might be recommended (regarding the several federal Enron investigations)?”
Rick Priory: It’s hard to tell at this point. Since the New Year, the Enron collapse has taken on a bit of a political tone. As such, business people, politicians, special interest groups, the SEC and other parties are trying to get to the facts. This is an incredibly difficult time for Enron and Arthur Andersen. From a legal perspective, they’re very limited in what they can disclose. My take on the situation is that we should withhold judgment until after the facts are known. The net effect for us is we will be compelled to share significantly more disclosures than we – or other companies – have in the past, and we’re comfortable with that. S&P and Moody’s recently affirmed their strong ratings of Duke Energy. But there will probably continue to be fallout from the Enron situation for the industry for the next six months or so.
Employee Advocate: Mr. Priory says that the collapse has taken on a political tone. The Bush administration insists that it is all a business matter. It is both! When one’s hip is fused with Enron’s hip, it is automatically fused with the Bush administration. If one were to wait until all of the facts are know, they would wait forever. All the facts are never known. Enron had people in on Christmas day shredding the facts. A lot of people will want the door closed on this one, as fast as possible. That is all the more reason for all employees to write to Congress demanding a full investigation. And while they are at it, the cash balance plan conversions need a complete investigation.
Mr. Priory stated that he is comfortable with sharing more disclosures than in the past. Duke and the other energy companies were not at all willing to provide information in California. Now that they may not be able to get out of it, there is a sudden willingness to provide information. When the choice is to provide information or heads, the information will flow.
The meeting was held on January 14, on January 17, ABN AMRO downgraded their Duke Energy stock recommendation.
Question: Can you say anything about the potential sale of Duke Energy’s subsidiaries and the impact that might have on employees?
Rick Priory: As active portfolio managers, we frequently look at our businesses and market opportunities. That’s the case currently with Duke Engineering & Services (DE&S). There’s nothing definitive to report at this point, but a number of external companies have considered acquiring portions of DE&S. As you are aware, DE&S operated effectively for a number of years, had some difficult times more recently, but has done some admirable turnaround work that makes portions of that business attractive to other companies. So we’re evaluating that market. Again, I don’t have any specifics to share at this time, but we will communicate directly with DE&S employees if anything moves forward.
Employee Advocate: You’ll know when the ax hits your neck that your number is up. Mr. Priory has demonstrated that he has zero concern for the impact that any decisions will have on employees. The only thing that is ever considered it the effect on the bottom line.
Observer Mr. Priory’s terminology. He has never seen people, plants, or dedication. You are merely a small part of his “active portfolio.” As part of his portfolio, you are stock to be bought, sold, or traded. More appropriately, you are stock to be sold at the stockyard for slaughter! The pride that employees have taken in constructing and maintaining plants is lost on Mr. Priory. He has never seen it and he never will; he does see the bottom line. You are not seen as having any intrinsic value, and your plant is only seen as a playing card to be “flipped.” Again, this is Mr. Priory’s terminology. He buys an “asset” for his “portfolio” here, he “flips” one there. It’s all a game of video poker to him. The irony is that the subjective human aspects that he seems incapable of comprehending, can profoundly affect the bottom line. All truly great leaders are keenly aware of this fact. This concept completely eludes him.
He has placed his fate in the hands of Wall Street jackals, wearing suits and ties. If he ever exposes one drop of blood, the feeding frenzy will begin.
Question: In 1997 when we converted to the Retirement Cash Balance Plan (RCBP), there were several assumptions made around earnings, salary increases, etc. Now, five years later, it looks as if the assumptions were pretty aggressive. Does anyone compare these types of assumptions against what’s really happening, and are there opportunities to make changes?
Rick Priory: Yes. We do review the assumptions regularly (with the last comprehensive review taking place about two years ago) and compare them to what’s actually happening. And you’re right, the Treasury bond rate hasn’t risen to levels that the average was suggesting, although it still might because the assumptions are based on a long-term average. At this point, we are not considering changes.
Employee Advocate: This albatross will hang around Mr. Priory’s neck as long as he is with the company, and then some. The betrayal of the employees was the beginning of the loss of all company integrity. You see where the figures came from, right out of the sky.
Mr. Priory was given a chance to save face on the cash balance plan blunder. For almost three years, employees repeatedly ask him to reconsider the act of raiding the pension fund. Each time he refused. After his final refusal to give employees equitable treatment, age discrimination charges started to be filed with the Equal Employment Opportunity Commission. The charges are still active and other options are still available. The Enron 401 (k) meltdown will likely turn the heat up on this issue as well. More developments will be forthcoming.
Question: Can you speak to the role of Duke Power in Duke Energy going forward? Given deregulation’s delay – what is Duke Energy expecting of Duke Power, and are there situations where a spin-off or sale to another company would make sense?
Rick Priory: The answer to the last part of your question is yes, there probably are circumstances under which a spin-off or sale would make sense, although none of those currently exist… Deregulation will happen, but we can’t rush it.
Duke Power and the pipelines have contributed to the growth of our overall company, by providing the capital required by a fast-growing enterprise. In addition, Duke Power’s reputation as the finest electric utility in the world adds to our corporate reputation, and much of our talent resides in that company. So, Duke Power is a key part of our company…
Employee Advocate: Expect plenty of buying, selling, trading, spinning off, and flipping to occur in the future. Free markets will work with most things. But some things still work best when regulated. This could change – in about fifty years, or so. The electricity market is not ready for deregulation today. Enron certainly tried to rush it! Their political donations and lobbyist covered the country, attempting to force deregulation. Their efforts blew up in their faces. Enron is dead. What does this say for deregulation? If it is not dead, it is crippled, and maybe mortally wounded. Mr. Priory tied his future to deregulation and Enron envy. He may try to act as if nothing has happened, but he knows better.
From some of his statements, he may be getting a shred of a clue that some things have no dollar value. This does not mean that they are worthless; it means that they are priceless. This is the first time that Mr. Priory has ever been a chairman or CEO; he is entitled to make a few mistakes. But is it necessary to make every single one? It wears upon the employees breaking these newbies in!
Question: I started work at Duke Energy this year and joined an HMO. I have been extremely dissatisfied with the quality of service, repeated billing errors, and high attrition rate of doctors from this HMO. My wife has called them at least 60 times in six months. Other employees with whom I've spoken have similar concerns.
Answer: Please convey your experience directly to the Employee Service Center…
Employee Advocate: The HMO’s and health care games came in about the time as the destruction of all of the other benefits. Health coverage used to be free for employees. The deductibles were modest. The coverage was the same for all. If you are upset, as a new employee, imagine how the employees feel who had decent benefits and saw them systematically taken away over a five year period!
Question: Based on the answer given to a recent question from the Intranet concerning anticipated changes to our Retirement Cash Balance Plan (RCBP), I’m confused. About a month ago, the Employee Portal posted the announcement that, “Suspension of 30-Year U.S. Treasury Bonds May Affect RCBP,” and stated that, “The company is studying how the suspension may affect the plan’s continued use of the yield on the 30-year U.S. Treasury bond.” The Retirement Benefits Center is still using the old 2001 GATT interest rate of 5.78 percent to estimate the value of an annuity or lump sum for a retirement in 2002. The new GATT interest rate seems to be 5.12 percent. Will this be the interest rate used for the coming year? If so, when will the RBC start using it to calculate our benefits?
Answer: You’re correct – the GATT rate for 2002 is 5.12 percent. The Retirement Benefits Center started using this rate for estimate calculations on January 1, 2002.
Employee Advocate: We have been avoiding this can of worms. How the GATT rate was developed is a curiosity in itself. The 30 year T-Bond yield allows the company to pay you cheap interest while possible making a much higher return on the pension fund assets. Duke keeps the difference. The lower GATT rate can make for larger cash payouts versus an annuity. The large company representatives are lobbying now to have the GATT rate replaced! The companies are constantly whispering into the ears of Congress to get the rules set up to favor them. If conditions change to make their own rules less of a windfall for them, they immediately clamor for the rules to be changed. (See why we have avoided this. No matter how you put it, it still sounds like gibberish.)
Question: With the federal government discontinuing the issuance of 30-year Treasury Bills, what will be the basis for determining the interest rate for the Retirement Cash Balance Plan?
Answer: On October 31, 2001, the U. S. Treasury announced that it was suspending the issuance of 30-year U. S. Treasury bonds. This announcement deals solely with the issuance of new bonds. The yield on the 30-year U.S. Treasury bond is still being reported, and it is the basis for determining the interest crediting rate (set quarterly subject to the 4 percent minimum /9 percent maximum) and the payment form conversion, or GATT, rate (set annually) used in the Retirement Cash Balance Plan.
We’re studying how the suspension may affect the Plan’s continued use of the yield on the 30-year U. S Treasury bond. Changes, if any, to how the interest crediting rate and the GATT rate are set in the future will be communicated to participants prior to the changes taking effect.
Employee Advocate: The closer Duke can get to paying 4 percent, the better they like it. The lower GATT rate is another matter. Duke hints of changes to come. Any changes will not benefit employees.
Question: In a recent Noon Report, a question asked, “Do you anticipate any changes or improvements associated with the RCBP?” The answer was, “Not at this time,” but went on to say that, “The company reserves the right to amend or terminate the plan at any time.” Please explain the definition of “terminate.” Does it mean employees would still receive the balance in the plan and would not accumulate more or does it mean we would no longer have a balance and would get nothing?
Answer: By reserving the right to change, or terminate, the company is reserving the right to change how future benefit accruals will occur in the Retirement Cash Balance Plan (RCBP). In the case of a plan termination, an employee’s cash balance account does not receive any additional pay credits. Interest credits will, in effect, continue until the vested benefit is paid out of plan assets.
Employee Advocate: It is only since the cash balance plan fiasco that Duke has been admitting that your benefits are written in the sand. They can literally disappear overnight. The documents that were sent to employees homes for years did not have this disclaimer; we went through all of them. Some will tell you that it does not matter what they give you in writing, that only their hidden documents have any binding. Some say that if employees have been misled, it can stand up in court. At this time no one know how this will be settled. If you have your old documents, do not throw them away! The company is trying to cover themselves in any future litigation by getting the disclaimer out at each opportunity. It will get more interesting.
Question: Is Duke Energy considering a short-term disability package as an insurance option for employees?
Answer: At this time, we are not considering offering short-term disability insurance. Business unit policies regarding time off or sickness allowance cover an approved short-term disability absence and may include a combination of paid and unpaid leave. If you have questions about your business unit’s policies, you should talk with your business unit human resource representative.
Employee Advocate: Every benefit seems to have a sticking point. Retirement disability is no exception. It has taken Duke Energy employees as long as two years to get their disability payments started from the time of disability! This it totally unacceptable.
Question: Why does Duke Energy still use my Social Security number to identify me when I get parts from a warehouse? Even if I refuse to provide my Social Security number, an online search engine researches my name and provides that number. Anyone with access can get at my most sensitive information. When will this stop?
Answer: This is a recurring comment in the Noon Report. We are aware of the issues related to Social Security numbers and are moving away from their use with new computer applications. The materials system (MAPPS) you reference is scheduled for replacement by the end of 2003 in many of our locations, although some areas of Duke Energy (such as nuclear) are currently reviewing plans to replace their materials and work management systems. Rest assured that management is aware of the sensitivities around the use of Social Security numbers, and we’re taking steps to minimize use of those as an identifier within the company when possible.
Employee Advocate: Anything that does not add to the bottom line always seems to be an overwhelming technical challenge that takes years to implement. Duke can split the atom, but is overwhelmed by the prospect of swapping one number for another.