Tuesday, December 28, 2010

Cross Cutting Duke Energy vs. Indiana

The starting point of this post is not the nuclear industry per se and some may think it odd that we extrapolate from another part of the utility business to nuclear safety culture.  But the news of late regarding Duke Energy and its relationships with public utility regulators in Indiana raise some caution flags as to the nature of how corporate culture might influence the nuclear side of the business.  We believe it also raises fundamental issues about the NRC’s scope of culture assessment and may suggest the need for renewed approaches to so-called cross cutting issues.  With that let’s look at recent reports of what Duke executives and Indiana public servants have been up to.

In brief the situation involves Duke’s coal fired plant under construction in Indiana (the Edwardsport plant) and Duke Energy executives’ interactions with the Indiana Public Utilities Commission personnel, up to and including the head of the IPUC.  During the pendancy of the regulatory consideration of the plant costs, Duke engaged in hiring a key IPUC staff member (their General Counsel no less) and engaged in ongoing email exchanges indicating close personal relationships between Duke and IPUC personnel, the offering of favors, and the exchange of closely held information.  The upshot of the scandal has been the firings of the IPUC Chairman (by Indiana Governor Mitch Daniels), the former IPUC General Counsel hired by Duke, the head of Duke’s Indiana business unit (also a former IPUC staffer) and the Chief Operating Officer of Duke Energy, the second highest Duke Energy executive.  Phew.

James Rogers, chairman and chief executive officer of Duke, said Monday that former COO James Turner had not exercised undue influence with Indiana regulators but resigned because "he felt like it put the company in a bad place."  He went on to say, "He [Turner] made a decision on his own that he felt like those e-mails were embarrassing and inappropriate... If you read through them, it showed a very close relationship between the two of them.”*

But if one visits the Duke Energy website and reads through their Code of Business Ethics it would appear that the activities in Indiana routinely and broadly violated the espoused ethics.  So, did a very senior executive resign because he had bad email habits or was it the underlying actions and behaviors that were inappropriate? 

Our purpose here is not to delve into the details of the scandal since we think the actions taken in response speak for themselves.  Rather we want to examine the potential for such behaviors to spill over or create an influence on other parts of Duke’s business, namely their extensive nuclear plant fleet.  To us it raises the question of what is a cross cutting issue for nuclear safety?  The essence of cross cutting is to account for issues that have broad and potentially overlapping significance to achieving desired safety results.  With regard to safety culture, can such issues be limited to the scope of nuclear operations, or do they necessarily involve issues that span corporate governance and ethics?  A good question.

In prior posts (here and here) we reported some of our research on compensation structures within nuclear owner companies and the extent to which such compensation included incentives other than safety.  We found that corporate level executives including Chief Nuclear Officers were eligible for substantial amounts of compensation, large percentages of which were based on performance against business objectives such as profits and capacity factors.  We raised the concern that such large amounts of incentive-based compensation could exacerbate the influence of business priorities that compete with safety objectives.  The Duke-Indiana experience brings into focus other aspects of the corporate environment, such as business ethics and relationships with regulators, that could also bear on the ability of the organization to maintain its nuclear safety culture.  It is clear that certain corporate level decisions such as budgets and business goals directly impact the management of nuclear facilities.  It also seems likely that “softer” issues such as compensation, promotional opportunities and business ethics will be sending “environmental” messages to nuclear personnel as well.  

There is also something of an interesting parallel in the way that the current issues involving the Indiana PUC were handled.  Duke fired (or allowed to resign) both of its recent hires from IPUC and the COO of Duke Energy.  Similarly the governor of Indiana replaced the Chairman of the IPUC.  Sound familiar?  Seems like the approach taken within nuclear organizations when safety culture issues become problematic.  Get rid of some individuals and move on.  Such a response presumes that “bad people” are the root cause of these problems.  But one wonders, as do many of the news media reporting on this, whether at both Duke and IPUC this was just the way business was being done until it became public via the email exchanges.  If so doesn’t it suggest that cultural issues are involved?  And that the causes and extent of the cultural issues warrant further consideration?

What Duke decides to do or not do with regard to its corporate culture is probably an internal matter, but any spill over of corporate culture into nuclear safety culture is of more direct concern.  Should the NRC be aware of and interested in corporate culture, particularly when fundamental ethics and values are concerned?  How confident is the NRC that some safety culture breakdowns (think of Davis Besse and Millstone) had their genesis in a defective corporate culture?  Does corporate culture cross cut nuclear safety culture?  If not, why not?

*  J. Russell, “E-mail Scandal Topples Duke Energy's James Turner,” IndyStar.Com (Dec 7, 2010).

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