This blog was written by John D. Wilson, former Deputy Director for Regulatory Policy at the Southern Alliance for Clean Energy.Guest Blog | July 19, 2012
In his book The Climate War, Eric Pooley described Duke Energy CEO Jim Rogers as a “silver-tongued devil.” Today, we may find out if former Progress Energy CEO Bill Johnson agrees. After being ousted as the CEO of the newly merged Duke Energy, Johnson will testify before the North Carolina Utilities Commission which has been the leading voice of skepticism around the sudden shift in utility leadership.
Covering Duke Energy’s decision to give Rogers full control of the merged utility, reporters John Murawski and David Ranii explained that, “Some detest Rogers as a double-dealing self-promoter, but others defend him as a daring innovator in a risk-averse industry.” Indeed, many agree strongly with both perspectives.
Given that SACE has a relationship with both Duke (in the Carolinas) and Progress (in the Carolinas and Florida), we are often asked for our opinion about the merger dynamics. While I’ve met Jim Rogers several times, my impressions of Bill Johnson are all second-hand.
Relative to other Southeastern utility executives Rogers is a visionary, but he leads a very structured utility bureaucracy, which is to say the utility is stubborn but reliable. Individual staff at Duke listen, offer valuable insights on the company dynamics, but generally don’t personally resolve problems. When Duke does make a change in its position, you can rely on the company to follow through, sometimes to a fault.
Johnson seems to many to be a traditional utility executive, albeit one who has a genuine touch with many of his staff. In contrast to the structured bureaucracy at Duke, Progress puts forward its trusted employees. This can go badly, when Progress staff have been dismissive or even disrespectful. But it can go very well, when they engage in a thoughtful and sincere manner. It isn’t just personalities, I’m aware of staff who have presented either aspect at different points in the relationship. Progress staff can and do offer individual commitments to resolve issues which are dependable. Yet when they aren’t willing to engage, Progress Energy seems to have lacked an internal process, other than going to the top, to engage in discussion with stakeholders.
The personal importance of the two CEOs cannot be understated. Throughout the merger process, my experience with the staff of the two utilities hinted at a powerful struggle for control of the new utility’s destiny. In informal settings, Progress staff strongly implied that they would be in control of the regulated utility’s direction – there was a sense of satisfaction that the free-wheeling days of Jim Rogers would be winding down. Duke staff tended to speak with less passion, more confidence in the process of resolving issues between the two companies. On the record and off, it was agreed that if the utility staffs couldn’t resolve an “issue,” the issue would be referred to the two CEOs, CEOs who operated with very different ambitions.
Both Jim Rogers and Duke Energy staff seemed eager to demonstrate leadership through innovation as the nation’s largest utility. In contrast, Progress Energy staff seemed a bit unsettled by the spotlight, and emphasized an interest in leading by performance, not with vision.
Which is better? It is hard to say, given my limited perspective and the contradictions I have seen within each utility. But, oh how differently these two utilities were led and organized!
North Carolina commissioners will focus on unraveling why the Duke Energy board ousted Bill Johnson. The staff of what is now the country’s largest utility has and will be deeply affected by this decision. Shareholders and customers of the utility will struggle to understand how this affects earnings and future electric service. But a more important question for the public may be what this tempest says about the future of our electric utilities more broadly.
Duke and Progress Reflect a Struggle for the Future of Electric Utilities
Electric utilities are really, really important. To most people, utilities are a bill and an annoyance when the power goes out. But behind that bill and the trucks that roll in an outage, electric utilities are, as Lisa Margonelli suggests, an echo of our common purpose that we may be failing to embrace today.
“In the 20th century, the goal was universal access to electricity,” Rogers once reflected. Universal access, and the nature of electricity (how many electric lines do you want coming in to your house) gave us the system that is still in place in the Southeast: large utilities that own everything from coal plant to the customer meter. The sheer difficulty of giving 24-7 electric service, on demand, everywhere – and the potential to exploit monopoly power – drove regulators and utilities to favor centralized generation, control and finance.
Yet Rogers completes his thought by recognizing that, “In the 21st century it will be about modernization.” Perhaps the tension between Rogers and Johnson, between Duke and Progress, really represents a tension over what “modernization” might mean. For Johnson and Progress, perhaps it represents being best of class – being a leader among peers. For Rogers and Duke, perhaps it is more about being the utility that makes the BIG change. After all, Rogers was not exaggerating his ambition when he suggested that utilities “have the opportunity to totally reconfigure [their] business.”
Modernization isn’t a concept that has clear meaning to utility insiders. For example, a National Energy Technology Laboratory report emphasizes that utilties and their regulators haven’t figured out what modernization is yet.
Much has been said about individual technologies such as renewables and about specific energy issues such as environmental impact, but little has been said about the overall vision for a modernized grid – a vision that integrates the appropriate technologies, solves the various grid related issues and provides the desired benefits to stakeholders and society.
When they figure out exactly what it means (!), the grid modernization advocates will be challenging the very heart of what regulators and utilities (at least in the Southeast) think it means to be an electric utility. Centralized generation, control and finance are each replaced by something more, well, complex and (we hope) responsive.
I’ve seen these issues play themselves out in quite unexpected ways at both Duke and Progress over the past few years. Here are just two examples.
Paradoxically, Duke Energy (promoter of customer engagement) has put more effort into central ownership of new solar resources than Progress. While Progress Energy‘s solar program works primarily through third-party ownership, Duke Energy has sought to own much of the solar power developed to meet its North Carolina mandates. Although Duke’s vision is very much about engaging customers in energy management, and using the market to control costs, these issues weren’t contested vigorously. Instead, utility commission staff skepticism centered on specialized accounting rules designed for 20th century utilities.
And even in the merger debate, the tension between past practices and the push for “modernization” were exposed in the question of whether the Federal Energy Regulatory Commission (FERC) would use the merger as a wedge to open up energy markets in the Southeast. Regulator and utility opposition to energy markets was evident during the merger proceedings as North Carolina Utilities Commission Chairman Edward Finley Jr. sought assurances that the combined utility would not join a regional transmission organization (RTO). Yet in the end, FERC did not force the RTO question and accepted some highly directed transmission upgrades as “mitigation.”
In both of these examples, when given the opportunity to lead with innovative, market and customer focused policies, Duke chose a different path. I’m not suggesting hypocrisy, as much as reflecting on the complexity of how different motivations within the utility coalesce in an unexpected choice.
Today, just weeks after the merger, centralized generation, control and finance are reborn in the new Duke Energy, their canonization affirmed by Southeastern utility regulators. Yet even in what is arguably the region with the most anti-market form of utility regulation in the country, there are signs that customers will be engaged around energy efficiency, and signs that companies that wish to challenge central generation with new resource alternatives. These stakeholders are looking for Jim Rogers’ ambitions and visions to grow a bit more real.