Pressure continues to mount on Duke Energy Florida’s management team after a top investor publicly ripped the utility company in a scathing letter released to the press. The letter slammed Duke for what Elliott says is its “poor track record” and “deep skepticism” toward the company’s senior management team to deliver improvements for both investors and customers.
The letter marks the latest skirmish between Duke and the aggressive investment management company. On several occasions this year, Elliott has been publicly critical of Duke Energy as a whole, and its Florida subsidiary, Duke Energy Florida, specifically.
The letter highlighted a broad list of shortcomings, and also included the open question of whether Duke’s senior management team, based in North Carolina, is capable of managing the business outside of that state.
“Duke Energy Florida is actually particularly egregious” said one analyst quoted in the letter. “That’s the highest cost structure and that’s the angle to watch here closely.”
The Florida subsidiary is getting its share of negative attention because Duke’s Florida customers pay by far the highest rates, with the worst reliability and customer satisfaction, of any of Florida’s large investor-owned utilities. Duke’s residential customers pay approximately 30% more than their in-state counterparts, Florida Power & Light (“FPL”) and Tampa Electric (TECO).
Duke’s cost structure, which included a recent rate hike approved by Florida’s Public Service Commission, has been the subject of scrutiny in recent months. The letter from Elliott Management also referenced Duke’s executive compensation, which analysts found Duke paying moderately more than its peers, but performing worse than its peers.
It’s the second time the executive pay structure at Duke Energy Florida has been raised since June, when an independent watchdog group filed a letter with the Public Service Commission asking it to investigate a potential overcharge to Duke customers for hundreds of millions of dollars in executive pay that should have been charged to investors. Duke has categorically denied those allegations.
Elliott, meanwhile, bristled in the letter about Duke Energy Florida’s (DEF) defensive public reaction to the criticisms:
“Duke apparently does not believe that this subpar performance warrants further investigation or analysis and has justified DEF’s status-quo underperformance with unsatisfactory excuses around why its operations are sufficiently “different” and should be exempt from benchmarking analyses. This is contradicted by Florida Public Service Commission reports that specifically identify operational best practices that are not employed at DEF.”
Elliott didn’t just air a public laundry list of complaints. The firm also outlined four specific action steps they want to see Duke take to turn the situation around, including “enhancing the Board’s independence,” and “improving operational performance in Florida.”
In response, Duke released a lengthy statement blasting Elliott Management’s plan as “unsound,” but the statement did not address any of the points raised by Elliott regarding Duke’s underperformance in Florida.
The full letter from Elliott can be viewed in full, here.