Analyst says new Duke CEO could avoid Rogers "missteps"

Duke Energy president CEO Lynn Good avoid Jim Rogers missteps

By Wayne Barber, Chief News Analyst, GenerationHub

A Wall Street analyst said June 19 that while he would have preferred a true outsider to become Duke Energy’s (NYSE:DUK) new president and CEO, Lynn Good is cautious enough to avoid some ‘missteps’ the company saw recently under departing CEO Jim Rogers.

Duke announced June 18 that Executive Vice President and CFO Good would become new president and CEO July 1. Rogers, who has been CEO since 2006, will remain Duke’s chairman until the end of the year in keeping with Rogers’ prior plans and a settlement worked out with the North Carolina Utilities Commission.

“We are pleased with Rogers' departure and with the separation of the chairmanship and chief executive positions at Duke,” Bernstein Research Senior Analyst Hugh Wynne wrote in a commentary for investors.

“Duke has weathered a series of self-inflicted crises in recent years, reflecting a pattern of poor judgment and erratic management that apparently escaped the notice of the board while Rogers served as chairman,” Wynne said.

The recent Rogers era has seen a large number of problems, Wynne said. They include:

  • The $1.3bn cost overrun and consequent $866m write-off in connection with the Edwardsport IGCC (integrated coal gasification and combined cycle) plant in Indiana;
  • The controversy involving Duke’s hiring of the former general counsel of the Indiana Utility Regulatory Commission (IURC), which led to dismissal of the IURC chairman by Indiana Gov. Mitch Daniels and the subsequent resignation of the head of Duke’s core regulated utility business.
  • The decision to acquire Progress Energy and the Duke board’s eventual dismissal of former Progress CEO William Johnson “on the very day he assumed the leadership of Duke pursuant to the merger agreement with Progress,” Wynne wrote.

Duke: Investors have ‘voted with their dollars’

“He is entitled to his opinion,” Duke Energy spokesperson Dave Scanzoni said of the Wynne analysis. “Most analysts and others have had a different opinion,” the spokesperson said.

“Most investors have voted with their dollars” in favor of Duke during the Rogers’ tenure, Scanzoni said. Duke’s stock price closed at $66.72 per share June 19 following news of Good’s promotion. The company has a market cap in excess of $46bn.

Any large company will experience problems over time and Rogers has resolved those as they came up, Scanzoni said. Rogers is also recognized as an industry leader on issues like climate change, the spokesperson said.

Analyst more upbeat on Good

Bernstein Research was not privy to Duke’s thinking when it decided to go with an internal candidate “and close associate of Rogers,” Wynne said. Good had previously served under Rogers as CFO of Cinergy prior to its 2006 merger with Duke Energy.

"Nonetheless, our own view is that Good's personality and professional background augur calmer days ahead. A series of difficult professional experiences encountered by Good over her career may have engendered a more cautious attitude towards risk than was characteristic of Rogers,” Wynne said.

“The first of these was the failure of Arthur Andersen, where Good was named a partner in 1992. In 2002, when Arthur Andersen was found guilty of criminal charges related to its audits of Enron, the firm surrendered its accounting license and liquidated its accounting practice,” Wynne said.

Good has thus been in a position “to observe the misadventures of the Edwardsport project from its development by Cinergy in the years after she joined, through the 70% cost overruns incurred during the project's construction, the IURC investigation this triggered, and the $866 million write-off that followed,” Wynne said.

“If we understood her correctly, Good's top priority will be to integrate successfully the operations of Duke and Progress and realize the maximum possible savings and synergies in the process,” said the Bernstein analyst. A second critical objective is to achieve regulatory reform in jurisdictions such as the Carolinas and Florida, where the company believes that current regulatory procedures delay the incorporation into rate base of large capital projects and lead therefore to unnecessarily large base rate increases in periodic rate cases, according to the Bernstein analysis.

Bernstein Research is also known as Sanford C. Bernstein, a “sell-side research firm” on Wall Street.

With her appointment, Good becomes a member of a very small group – female CEOs of publicly-traded utility holding companies.

Others include Alliant Energy (NYSE:LNT) Chairman, President and CEO Pat Kampling, PNM Resources (NYSE:PNM) Chairman, President and CEO Pat Vincent-Collawn and Sempra Energy (NYSE:SRE) Chairman and CEO Debra L. Reed.

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