Duke Second-in-Command Resigns Amid Revolving Door Ethics Scandal
UPDATE 4/13/2012: The Indianapolis Star's John Russel has compiled a full timeline of this scandal: Prying Open the Duke Energy Scandal
Duke Energy is experiencing the departure of its second-top executive (after CEO Jim Rogers), utilities division president James Turner, making Turner the third Duke casualty in an ethics scandal that has already led to the firing of two other Duke officers and an Indiana state utility regulator.
Emails between Turner and David Lott Hardy, the recently-sacked chairman of the Indiana Utility Regulatory Commission (IURC), revealed that the two men had a particularly cordial relationship that extended itself into professional circumstances. As Duke negotiated positions for Michael Reed (coming from the state's Department of Transportation and with three years of experience in the IURC) and Scott Storms (an administrative law judge and general counsel for the IURC), Turner and Hardy frequently discussed the hiring process. The Indianapolis Star revealed that in one message to Turner, Hardy encouraged the executive to hire Reed, asking, "Is this decision yours and I don't need to sell Jim [Rogers, Duke CEO], or is his buy-in pivotal?"
In order to avoid honoring a customary yearlong pause before moving from the IURC to Duke, Storms was given an express pass through the IURC's ethics panel investigation with help from Reed and Hardy. Reed, concerned that Storms would not get the panel's go-ahead, urged Hardy to enlist the help of the IURC's ethics officer, Loraine Seyfried, who then wrote a memo to Storms denying any conflict of interest. The ethics panel mirrored Seyfried's conclusion and allowed Storms to move to Duke; Seyfried got his old job as administrative law judge. Reed and Storms were both fired in November, just before emails revealed the full extent of the scandal. While Seyfried was not fired along with Hardy, she was removed from cases involving Duke.
What made the Duke-IURC revolving door particularly improper was Scott Storms' role as a judge presiding over Duke cases while arranging to work for the utility giant. Chairman Hardy, Storms' boss, ignored the clear conflict of interest, which included Storms' approval of a utility ratepayer hike in order to cover massive cost overruns of Duke's new Edwardsport coal plant.
The new Edwardsport plant, which is intended to both replace an existing facility built in the 1940s and to demonstrate integrated gasification combined cycle (IGCC) technology, has swelled in costs originally estimated at $1.5 billion to just under $3 billion. The difference in costs will be reflected in the estimated 16% ratepayer increase that Storms approved before joining Duke. Indiana's Citizens Action Coalition, which has been a strong voice of opposition to the Edwardsport plant, warns that other hidden expenses will likely wind up in utility bills as well.
The debacle's most recently disgraced figure, James Turner, boasted Duke's second highest annual compensation--$4.3 million--after CEO Jim Rogers ($6.9 million). The Indianapolis Star insinuated that part of Turner's "incentive pay" (last year an almost $800,000 portion of his total compensation) could have been a result of the very revolving door relationships that forced him out of the company. While we can hope the lesson in this case is "don't cheat the system," industry sentiment is much more likely to be, "don't get caught like Duke did."
Important to consider is how similar scandals could be possible on the federal level. Duke has a total of five lobbyists with former experience in the U.S. Environmental Protection Agency, including Bill Tyndall, who was announced as one of the individuals reporting directly to Jim Rogers following Turner's departure.
David Lott Hardy: "Don't tell the utilities I'm being accommodating -- bad for my reputation."
James Turner: "Don't worry. Your reputation in this regard is unalterable."