Regulator, utility power player discussed a lot -- including Duke's hiring process

Original article: http://www.indystar.com/article/20101128/LOCAL/11280356/-1/7daysarchives/IURC-chief-and-Duke-exec-were-pals-e-mails-show

12:35 AM, Nov 28, 2010  |  

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Written by

John Russell

James L. Turner, the second-highest-paid executive at Duke Energy Corp., liked keeping in touch with Indiana regulators, even on a long holiday weekend when he was riding in a boat.

On July 2, Turner sent an e-mail to David Lott Hardy, then chairman of the Indiana Utility Regulatory Commission, telling him he was heading out on a channel to Lake Michigan.

"Would the ethics police have a cow if you and the woman came up some weekend?" he wrote.

Hardy wrote back: "Probably -- we might 'be in the area' some afternoon, but I won't be doing this forever."

A few minutes later, he added that driving to the lake would be a fun outing in a high-performance BMW M5. "It would be a nice run in the M5 and a cheaper [Michigan] journey as usually we only go to [Michigan] so the woman can go to Nieman Marcus."

In dozens of e-mails, obtained by The Indianapolis Star under an open records request, the two men schmoozed and joked over all sorts of personal topics, sometimes trading messages eight or 10 times a day. At one point, Hardy offered advice on what kind of BMW Turner should buy. Another time, they talked about Butler University's basketball championship games. Several times, they had frank discussions on private personnel matters involving Duke officials and job candidates.

Taken together, the e-mails paint a picture of a cozy relationship that extended far beyond a professional association between a utility executive and a powerful state regulator.

They also show that the friendly relationship between Duke and Indiana regulators, which resulted in the firing of Duke's Indiana president, Mike Reed, in an ethics scandal earlier this month, extended all the way to Duke's headquarters in North Carolina.

Turner is one of Duke Energy's top executives, responsible for the company's regulated business segment, which is Duke's largest, and for legislative and regulatory strategy and rates. He oversees a vast portfolio, with responsibility for power delivery, gas distribution, customer service and several other functions.

Last year, Turner earned a salary of $650,000, plus stock awards, cash incentives and other compensation worth a total of $4.35 million. That made him second in total compensation only to Chairman and CEO James Rogers, whose package was valued at $6.93 million, according to the company's proxy filing.

That made him far better paid than Hardy, the man he spent hours cajoling by e-mail. Hardy made $109,000 as chairman of the Indiana Utility Regulatory Commission. He was fired in October by Gov. Mitch Daniels in what has become a major ethics scandal for the state, after the IURC's general counsel, Scott Storms, accepted a job to work for Duke as a regulatory lawyer.

Daniels' office said at the time of the firing that an internal review showed Storms continued to preside over Duke Energy matters even as he was discussing taking a job with the company. Hardy, who was Storms' boss, knew of the situation but failed to do anything about it, Daniels said.

The FBI is investigating, according to the IURC, and Daniels has ordered an investigation into all Duke cases that might have been tainted by Storms' activities.

Earlier this month, Duke fired Storms and the president of the company's Indiana division but declined to say why.

Now, with the release of hundreds of new e-mails between the company and the IURC, questions are sure to arise about who else was involved in the deception and what relationship other Duke officials had with the ousted Hardy.

Turner, once Indiana's utility consumer counselor, did not return a call made to his cell phone Friday to discuss his e-mails or his close relationship with Hardy.

A spokeswoman for Duke Energy Indiana released a brief statement: "Our internal investigation is ongoing. We continue to take this issue very seriously."

The e-mails raise questions about whether Turner had special access to Hardy that was unavailable to utility customers, grass-roots groups and everyday citizens in matters of rate increases and electricity regulation.

"It adds up to a picture of a pretty cozy relationship between the regulator and the regulated," said Kerwin Olson, program director at the Citizens Action Coalition of Indiana, a watchdog group that long has been critical of Duke and the IURC. "There's a lot of schmoozing going on behind the scenes that most people would find distasteful."

Turner's relationship with Hardy appears to have been a deeply close one that gave him freedom to crack jokes that might have earned an ordinary citizen a rebuke from a state regulator.

One day in July, Hardy e-mailed Turner and several other people that he was relaxing by a pool and contemplating breakfast: "There is a blue, cloudless sky, punctuated with the brilliant color explosions of the hot air balloons arcing across my field of vision. In front of me is the reflecting pool bubbling away whilst I drink artisanally roasted coffee and try to decide when I should go in for breakfast. Thoughts appreciated. Oh, do any of you know a good breakfast wine."

Turner replied to Hardy and the group: "Does anyone know if a desire to 'bitch slap a chairman' violates any state's hate crime laws?"

In May, Hardy sent an e-mail to Turner, apparently declining a helicopter ride to an unmentioned place. "My purity cannot allow riding in the helicopter, unless, of course, I have a heart attack and you paint LIFEFLIGHT or some such on the side."

Turner joked back: "We could simply boot you out over Indy so no one would ever know how you got there."

During Butler University's basketball championship games last spring, Hardy wrote that Turner should come to Indiana to see one of the games. Turner, apparently still in North Carolina, agreed. "I know. Although the pressure of watching it on TV almost killed me. Wow. Hope they get a chance to stomp Duke."

Several times, they traded e-mails about getting together for dinner and drinks. One time, they quoted lines from Monty Python comedy skits. Another time, Turner joked that one of Hardy's written orders on a regulatory matter seemed "surprisingly lucid."

And the two frequently discussed Storms and Reed, as those two went through job interviews and were hired away from the IURC by Duke earlier this year. Hardy wanted constant reports on the hiring process.

"How real is the interest in Mike (Reed)," Hardy asked on March 13. "I think it's a marriage made in heaven. Is this decision yours and I don't need to sell Jim [Rogers, CEO of Duke], or is his buy-in pivotal?"

Reed and Hardy were friends, having worked together for several years at the IURC. Reed held the title of executive director for three years before leaving last year to become commissioner of the Indiana Department of Transportation. About a year into that job, he applied for a job as president of Duke's Indiana division, which had opened up.

Turner replied that Rogers had been in China during the past week, "so all he knows is that Mike's name is in the ring."

Turner added, "I'm supposed to talk with him tomorrow morning. At this point, he's probably leaning toward [another candidate], but I may work on that in the morning. I'll try to let you know before he gets out there whether a sell is necessary."

Whether it was proper for Turner to disclose to an outsider the decision-making process behind a high-level executive hiring remains unclear. But some human-relations experts said the whole discussion raises questions.

"This is an ethics question at its core," said Karl Ahlrichs, a human-relations consultant at Gregory & Appel in Indianapolis. "What do Duke's policies and handbooks say about a situation like this? What's appropriate conversation with outside parties? My feeling is that people in leadership posts are supposed to act professionally."

How far the cozy relationships with Duke executives extended into state government is unclear. But the subject of Storms' hiring by Duke was raised with Daniels' chief of staff, Earl Goode, nearly two months before Storms left the IURC.

The Star reported last week that Reed was concerned by comments Goode made to him about Storms during a golf game Aug. 1.

According to e-mails, Reed told Hardy he had run into Goode, who said he would be surprised if the state's ethics panel cleared Storms, because of his role in presiding over Duke's $2.9 billion coal-gasification plant in Edwardsport.

Goode said last week that his comments to Reed meant only that Storms would have to go before the state ethics panel, as would any state administrator considering a private sector job offer. He said he had no opinion on Storms at that time. Only later would Daniels' office issue findings that Storms had a conflict of interest.

Asked why he was golfing with Reed, Goode said they were playing together in an event for GTE workers. He and Reed previously worked for GTE.

Reed apparently was worried about Storms' possible difficulties with the ethics commission. Later that same day, he sent Hardy an e-mail suggesting a way to address those difficulties. He urged Hardy to have the IURC's ethics officer, Loraine Seyfried, "clearly spell out how [Storms] would be walled off from Edwardsport, and therefore meet the test."

A few weeks later, Seyfried sent a three-page memo to Storms, stating her opinion that his prospective employment with Duke would not violate the state ethics code. Storms presented that opinion to the ethics panel Sept. 9, when he asked for approval to take the Duke job. The ethics panel gave him the green light in a ruling that largely mirrored Seyfried's memo.

Storms and Hardy later joked by e-mail that they were impressed that no one laughed during the ethics hearing. Later, after Storms went to work for Duke, Hardy offered his old job as administrative law judge to Seyfried, presiding over Duke's Edwardsport project.

Daniels' office later found Storms had not walled himself off from Duke cases while discussing career options there.

E-mails between Duke and the IURC in recent months span hundreds of pages, many of them between Hardy and Turner.

In February, Turner asked Hardy to breakfast. The two had to juggle schedules to set a date. Hardy wrote: "Don't tell the utilities I'm being accommodating -- bad for my reputation."

"Don't worry," Turner wrote back. "Your reputation in this regard is unalterable."