Duke Energy Cleans House in Finance Unit

The giant utility bids adieu to its finance chief and reorganizes risk management.
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Duke

(DUK) - Get Report

has officially started scrubbing its executive suite.

Turnaround CEO Paul Anderson began cleaning house on Friday by sweeping his best-paid executive out the door --

just as some observers had expected. After just three weeks on the job, Anderson has completely washed his hands of embattled CFO Robert Brace.

Brace leaves a huge financial mess behind him. Since his arrival three years ago, Duke has lost its footing as a blue-chip utility and is struggling to pay off huge misplaced gambles on the merchant energy sector.

For now, Anderson has tapped Duke Treasurer David Hauser to pull clean-up duty as interim CFO and possibly take over the post for good.

"We are fortunate to have an excellent internal candidate in David Hauser, who will provide strong and expert leadership for the function," Anderson said. "He is well-known and respected in the financial community for his integrity and experience."

To be sure, Hauser has scored higher marks than Brace with some investors. During his 30 years at Duke, Hauser has held a number of accounting positions -- including both controller and treasurer -- and was rumored as a candidate when Duke last shopped for a CFO. Instead, Duke tapped Brace despite a huge black mark on his career. Brace came to Duke after leaving

British Telecom

(BTY)

, where he served as finance director, in dire straits.

On Friday, Duke rose 16 cents to $17.82.

The Team

After

TheStreet.com

detailed Brace's track record last month, Duke's own employees began questioning why Brace still had a job. Still, management continued to defend Brace until the very end.

"

TheStreet.com

article offers an opinion, rather than facts, about the cause of Duke Energy's current financial situation," management wrote in a recent electronic correspondence to its employees. "Robert Brace ... is part of the current Duke Energy senior management team that is committed to achieving future growth."

But Anderson himself was light on the praise when announcing Brace's departure.

"Robert served Duke Energy during a time of great change and increased regulation," Anderson said simply. "We wish him well in the next phase of his career."

Anderson did credit Brace for introducing a "disciplined approach to capital management and a detailed certification process for financial statements." But Duke's financial statements themselves have generated criticism. Just last month, in fact, Standard & Poor's singled out Duke Capital -- the parent of Duke's troubled merchant energy unit -- for its continued lack of disclosures.

"This is not enough information to fully assess market or credit risk or confidently determine financial performance," S&P analyst Suzanne Smith wrote after reviewing the financial statements of Duke Capital and one other trading company. "Lack of transparency has been a pervasive problem."

Prior to that report, investors were already complaining about Duke's complex financial statements. They were also showing mounting impatience with Brace, in particular, after he confused them about the company's financial guidance.

Hauser has fared better during some of his "monthly chat" meetings with analysts. But he has fielded some criticism internally. In an employee satisfaction survey last year, Hauser's department actually scored lower than Brace's own.

The department's results "appeared to be significantly more negative in several categories when compared to corporate finance," the study noted.

But the controller's office scored even worse. Some insiders have described that department, currently led by Controller Keith Butler, as downright chaotic. And they have already predicted that Butler will soon follow Brace out the door.

Risk Management

In the meantime, Brace's predecessor has been demoted. Brace took over as CFO after Duke veteran Richard Osborne vacated the position to fill the new role of chief risk officer. But that position has apparently been eliminated.

"The company's risk management organization, which currently reports to Richard Osborne, will begin reporting to the CFO," Duke announced on Friday. "Osborne will continue as executive vice president with responsibility for Crescent Resources, internal audit, insurance, crisis and business continuity planning."

Until now, some insiders had speculated that Osborne might replace Brace in his old position as CFO. But they are now starting to wonder if Osborne is being swept out entirely.

Osborne's new role, particularly overseeing the Crescent real estate division, appears to push him further away from Duke's core energy businesses. And his old job, managing risk in the deregulated sector, has already diminished in importance.

Meanwhile, Anderson has clearly hinted that more changes are coming.

"The problem is usually that you have too many people at the senior level who are bumping into each other or going in different directions," he told employees recently. "I don't want people who are clever. ... I want people who can do the job better than anybody else."