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Regional Report Western April 2010

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Western

Landslide spooks foes of those so inclined 

It wasn’t as bad as Peeks Creek, where in 2004 a landslide killed five people, but when mud gushed down the mountain below a Maggie Valley amusement park recently, the disaster potential was greater. Eighteen families lost houses or were relocated for fear of more slides. There was one other big difference: Nature triggered the Macon County slide, but the one at Ghost Town in the Sky began when a retaining wall collapsed.

That mishap, along with other recent ones, has bolstered a push in western North Carolina for laws to protect people and property. Bruce Goforth, a state representative from Buncombe County, says he’ll introduce legislation when the General Assembly convenes this spring to regulate steep-slope development (“A Slippery Slope,” June, 2007). It will join a bill introduced last year by another Democrat, Ray Rapp of Madison County. Goforth faces a challenge in May’s primary from former Buncombe County Commissioner Patsy Keever, who promises to introduce a tougher bill if elected.

Goforth, a contractor and member of the North Carolina Home Builders Association, wants steep-slope rules limited to western counties. “You can’t get a bill passed,” he says, “that would affect 17 counties but apply to all 100.” His would focus on site and road preparation and poorly engineered projects. It would set minimum standards and require counties to enforce them but give them two years to start. “We don’t see houses sliding off the mountain. But we see a lot of grading mistakes, not compacting soil properly, not building retaining walls right.”

That doesn’t go far or fast enough, Rapp and Keever say. Rapp’s Safe Artificial Slope Construction Act would allow the state to step in when steep-slope construction pollutes streams or has other impacts counties can’t control. Keever’s would allow the state to set and enforce standards requiring real-estate agents to tell people they’re buying in risky places and making developers certify their projects aren’t in debris flows such as Peeks Creek.

Each measure likely faces stiff opposition from builders and developers. Rapp’s already has. In Raleigh, Lisa Martin, director of governmental affairs of the 15,000-member home builders association, hasn’t seen the new proposals, but she’s skeptical. “It’s a matter of forcing it on people who haven’t asked for it,” she says, “and some counties aren’t exactly rolling in money right now.”

None of the proposals is likely to pass in the two-month session that begins in May, the three politicians concede. “All this has at least moved the conversation off dead center,” Rapp says. “They might defeat it and call it a victory, but the problem is not going away.”

WILKESBORO — Atlanta-based CompuCredit planned to close its collection center at the end of March, putting 234 out of work. It blamed the lame economy. CompuCredit sells credit cards and other products to consumers with poor credit histories.

CHEROKEE — The Eastern Band of Cherokee Indians opposes Duke Energy’s construction of an electrical substation near a mound that marks the tribe’s ancestral home. The Charlotte-based utility apologized for failing to consult the tribe. Work stopped after Swain County temporarily banned such structures.

SWANNANOA — The developer of The Cliffs at High Carolina hopes to raise more than $60 million from property owners in its six other developments. The Cliffs Communities, based in Travelers Rest, S.C., plans to use the money to pay for amenities here, which will include a golf course designed by Tiger Woods (Regional Report, February).

ASHEVILLE — Water in the French Broad River basin is getting cleaner, according to state regulators. About 224.5 miles of its rivers and streams don’t meet federal standards this year, down from 293.5 in 2008. Environmentalists say recession has curbed development that adds pollutants.

Bills filed in Congress would authorize spending $75 million over five years to add 50,000 acres to the Blue Ridge Parkway. The 469-mile road runs through the mountains of North Carolina and Virginia. Land could be acquired only from willing sellers.

 

Regional Report Triangle April 2010

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Triangle

Tight budget pinches state pay 

Recession’s gloom might be lifting for some private-sector workers, but the downturn’s doldrums likely will linger at least another year for state employees. In March, Gov. Beverly Perdue told a reporter there’s no money for raises in the fiscal year that will begin in July. The nearly 200,000 government employees didn’t get one this year, either. In fact, they effectively took a ½% pay cut due to unpaid furloughs they were forced to take.

In a typical year, state employees can expect at least a 2% increase, closely tied to the federal consumer price index, says Dana Cope, executive director of the State Employees Association of North Carolina. That translates to about $1 billion in economic impact. With the CPI rising 2.6% in 2009, state workers lost purchasing power. “That means there’s less goods and services in demand by these employees,” Cope says.

Nowhere will the impact be felt more keenly than in the Triangle, which accounts for nearly 40% of all state-government workers. They make up 8.8% of the workforce in the Raleigh-Cary metro area and 11.8% in the Durham-Chapel Hill metro. By comparison, 8.5% of workforce in the Charlotte metro is engaged in financial jobs.

The General Assembly often tacks on money for employee pay as the budget moves through the legislative process. State workers got a 4% raise in fiscal 2007-08 after Gov. Mike Easley proposed 2.5%. In 2008-09, lawmakers bumped the increase from 1.5% to 2.75%. They didn’t come to the rescue last year, and Cope doesn’t expect them to this time. The state needs to modernize its tax structure, including taxing services instead of just goods, to reflect changes in the North Carolina economy and stabilize its revenue base, he says. “This is an election year. It’s an important election year because of redistricting, and I don’t think the legislature is willing to tackle any of the difficult decisions.”

The impact of no raises will be even greater — in the Triangle and across North Carolina — because it also affects about 130,000 public-school teachers, administrators and staff. Though stagnant state wages affect the Triangle disproportionately, there are two reasons the region will fare better than most places, says Mike Walden, economics professor at N.C. State University. “One, employment here has not been as adversely affected by the recession due to the preponderance of state employees here. We have not had the kind of layoffs in the public sector that you’ve had in the private sector. Secondly, even with the prospects for slow economic growth, the Triangle, because of its economic fundamentals, will still be one of the fastest-growing metropolitan areas in the country.”

Slim Jim snaps ties To Garner

For about 40 years, Slim Jim meat snacks have been made in Garner. But ConAgra Foods Inc. plans to close the plant by the end of next year, laying off 450. An explosion caused by a natural-gas leak damaged the factory last summer, killing four workers and injuring dozens more. Since then, Omaha, Neb.-based ConAgra has been considering whether to pump more money into repairing the plant or move production. Garner officials tried to put together a package of state and local incentives to keep the plant, but Wake County declined, saying the circumstances didn’t fit the requirements of its incentives policy (Regional Report, March). Production will shift to a ConAgra plant in Troy, Ohio. The company plans to give Garner the 106-acre Slim Jim site, which is near an Interstate 40 interchange.

 

CHAPEL HILL — Erskine Bowles, 64, will retire as president of the 16-campus University of North Carolina system at the end of the year. He has been president since Jan. 1, 2006. No replacement was named. During his last year at the helm, he also will co-chair a committee studying how to reduce the federal deficit.

PINEBLUFFBRS Aerospace started hiring 110 workers at its local plant, doubling its workforce. The South St. Paul, Minn.-based company won an $8 million Army contract for cargo parachutes.

RALEIGH — The Raleigh-Cary housing market is the nation’s healthiest, according to California-based Hanley Wood Market Intelligence. The Durham-Chapel Hill market came in sixth. Rankings are based on home prices, employment and potential for income growth.

DURHAMInspire Pharmaceuticals hired Adrian Adams as CEO. He replaced Christy Shaffer, 52, who announced her retirement last year. Adams, 59, had been CEO of Marlborough, Mass.-based Sepracor.

RALEIGH — Royal Bank of Canada Chief Financial Officer Janice Fukakusa told analysts that RBC Bank, the Toronto company’s U.S. banking arm, must improve its performance before it can expand. It employs about 500 locally and was reorganized last year.

CHAPEL HILLPiedmont Community Bank Holdings received federal approval to become a bank holding company. Chief executive Scott Custer, 51, was CEO of RBC Bank until last fall. Piedmont plans to buy banks in North Carolina and Virginia.

CLAYTONNortheast Foods will spend $25.4 million to build a bakery that will open in spring 2011. The Baltimore-based company, which makes buns for McDonald’s, will employ 84 here.

MORRISVILLEHarris Stratex Networks, which makes wireless-communication equipment, changed its name to Aviat Networks to distance itself from Melbourne, Fla.-based Harris, which spun off its interest in the company last year. Aviat employs about 250 locally.

Regional Report Triad April 2010

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Triad

LabCorp tests waters of a larger labor pool 

Mac Williams admits it grudgingly — after being prodded a few times. Yes, the president of the Alamance County Area Chamber of Commerce concedes, it hurt when Burlington-based Laboratory Corporation of America Holdings decided to put a billing center in Greensboro. But he says it didn’t sting when LabCorp’s CEO told a press conference Guilford County’s labor pool was a better fit for the project.

The medical-testing company will invest about $4 million. The center will open by June and create 350 jobs within three years, not including about 50 transferred from other locations. If all goes as planned, LabCorp will get nearly $900,000 in incentives, including $275,000 from the state. The $373,000 from Greensboro and $248,000 from Guilford County is only $17,000 more than Burlington and Alamance County offered.

A big consideration was labor. In announcing the project, CEO David King said company surveys indicated Guilford County might be better because LabCorp already employs the vast majority of Alamance County workers who would be qualified for the jobs.

That comment didn’t bother him, Williams says, because he interpreted the labor issue as one of quantity more than quality, though he admits it was expressed in a way open to other interpretations. Besides, labor wasn’t the only factor. The company wanted to take advantage of a good real-estate opportunity, he says. “I think if I asked David King to sit down with any CEO in the country and help me sell them on bringing an operation here, he would be a big booster of the labor force.”

This wasn’t the first time a homegrown company had spurned Burlington for its larger neighbor. The most famous episode occurred 75 years ago, when Burlington Mills, started 12 years earlier, moved headquarters to Greensboro for better rail access to New York. It became Burlington Industries, the world’s largest textile company before falling into bankruptcy and becoming part of International Textile Group, still based in the Gate City.

With about 3,300 employees in Alamance, LabCorp is the county’s largest private-sector employer. Its operations dominate downtown Burlington, where it opened a new headquarters building less than two years ago. Even as he announced the billing center, King reaffirmed the company’s commitment to the city where it began as Biomedical Laboratories in 1969, praising it and the county for creating a business-friendly environment.

Williams is just glad the project didn’t end up farther away. Greensboro, after all, isn’t a long commute. “Ultimately,” he says, “what’s good for LabCorp is good for us.”

GREENSBORO — The poverty rate in the Greensboro-High Point metro area increased 3.6 percentage points to 16.2% from 2000 to 2008, according to a Brookings Institution study of 95 metros. Charlotte’s rate was up 1.4; Raleigh-Cary’s, 1.6. The high unemployment rate here was cited as a key factor.

WINSTON-SALEM — The downtown minor-league baseball stadium will be known as BB&T Ballpark, after the second-largest bank based in the state. BB&T reached a 15-year naming-rights deal with the Winston-Salem Dash. Terms were not disclosed. The $48.7 million ballpark is scheduled to open this month.

MOUNT AIRYPike Electric cut 79 of 4,500 jobs companywide after a $4.7 million loss in the quarter ended Dec. 31. The company, which provides services for utilities, blamed the housing slowdown but wouldn’t say where the layoffs occurred.

REIDSVILLECommonwealth Brands plans to add 35 jobs by year-end at its local factory, bringing employment to more than 290. The Bowling Green, Ky.-based cigarette maker is adding a line to make tubes used by smokers to roll their own.

WINSTON-SALEM — Federal regulators want more information on three dissolvable smokeless products from R.J. Reynolds Tobacco — Camel Orbs, Camel Sticks and Camel Strips. Regulators requested research on how the products are perceived by users under 25.

WINSTON-SALEM — The city netted about $34,500 by giving Round Rock, Texas-based computer maker Dell a discount for early repayment of local incentives after the company decided to close its local plant. Dell got a $39,000 discount on the $15.5 million repayment, and the city earned $73,500 by investing the money.

DANBURYWake Forest University Baptist Medical Center stopped managing Stokes-Reynolds Memorial Hospital March 1 because the hospital didn’t provide enough referrals of specialty-care patients. It made a similar move last year with Hoots Memorial Hospital in Yadkin County. Kansas City, Mo.-based HMC/CAH now runs Hoots and Stokes-Reynolds.

 

Regional Report Eastern April 2010

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Eastern

N.C. hasn’t had great mileage with biofuel 

In “Up on Cripple Creek,” The Band had another kind of distilled corn in mind — and maybe down the gullet — when it sang of “a drunkard’s dream if I ever did see one.” That might also apply to the Tar Heel ethanol industry’s flight of fancy. The dream hasn’t died, but problems inherent in making it come true have been sobering.

Next month, Clean Burn Fuels LLC will crank up its plant near Raeford, the first in the state to mass-produce ethanol. But North Carolina has a long row to hoe before it lives up to the nickname some ethanol boosters bestowed — “the Saudi Arabia of biomass” — for its potential to produce the gasoline alternative, not only from corn but grass, wood and animal waste.

The Hoke County refinery is designed to produce about 60 million gallons of ethanol a year, just a smidgen of the nation’s 13 billion gallon annual capacity. Most ethanol plants are in the upper Midwest’s corn belt, and North Carolina is no cornucopia: It doesn’t grow enough maize to meet the demands of its cattle and poultry industries. That didn’t daunt those rushing to cash in after a federal law mandated use of renewable fuels in the gasoline supply.

High gas and low corn prices made ethanol profitable for people who got into production early, says Kelly Zering, associate professor of agricultural economics at N.C. State University. The number of plants nationwide zoomed from 81 in early 2005 to 189 in January — most of them in the upper Midwest. Meanwhile in North Carolina, the failures of ethanol speculators sometimes have been literally criminal.

Soon after the Raeford plant began receiving its first corn for testing in February, two investors in an unrelated project in Beaufort County were fined and sentenced to 30 months in prison after pleading guilty to bribing a public official and conspiracy to commit extortion. They had agreed to pay a field officer for the state Department of Environment and Natural Resources about $196,000 to help them get permits.

Other efforts simply petered out. Highly touted projects in Cumberland and Martin counties were abandoned. A proposed plant in Northampton County isn’t dead, but the county’s economic-development director, Greg Brown, says the principals are still arranging financing and evaluating the project.

North Carolina still has appeal, even compared with the big corn-producing states, says Steven Burke, president of the nonprofit, Oxford-based Biofuels Center of North Carolina. Not only does the state have a milder climate but also more variety in fuel stocks. He expects more refineries to follow. He just isn’t sure when or where.

FAYETTEVILLE — Defense contractor Booz Allen Hamilton plans to add 270 jobs here, for a total of 300, by 2012. The company, based in Tysons Corner, Va., wants to be closer to the U.S. Army Forces Command and Reserve Command, which are moving to Fort Bragg next year.

WASHINGTONFountain Powerboat Industries emerged from bankruptcy with about 120 employees and new ownership. Boca Raton, Fla.- based Liberty Associates now holds the majority stake. Founder Reggie Fountain still runs the company.

WILMINGTON — The cost of the Wilmington Convention Center increased 27% to $36.2 million, and completion was pushed back two months until November. Most of the added cost stems from an increase in size approved by the city and removal of contaminated soil.

WILMINGTON — Local developer Lanny Wilson resigned from the state Board of Transportation and the N.C. Turnpike Authority. He had testified before the State Board of Elections that he made contributions to the state Democratic Party, expecting them to be funneled to former Gov. Mike Easley’s campaign — which would violate limits on donations to candidates.

LUMBER BRIDGE — State regulators fined chicken processor Mountaire Farms $27,410 for releasing ammonia gas that killed one worker and injured three last June. They said the Millsboro, Del.-based company failed to properly store and handle the gas.

 

Regional Report Charlotte April 2010

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Charlotte

It’s not whom you know — but what they can tell you 

With prominence comes privilege, often in the guise of access to powerful people. But as one branch of Charlotte’s prestigious Harris clan discovered, rubbing shoulders with fellow power players doesn’t get you the kind of counsel you think you deserve — sometimes only sensible-sounding bad advice that can send a portfolio plummeting.

That’s what Cameron Harris says happened to him. He, wife Dee-Dee and son Gary, longtime Wachovia Corp. shareholders, accuse former CEO Ken Thompson and several other executives of making misleading public — and private — statements about the bank’s health not long before it had to be rescued by regulators and sold on the cheap. Their lawsuit seeks unspecified damages that could reach into the millions.

Harris, grandson of a governor and part of the family that developed much of south Charlotte, says he confided to Thompson on a hunting trip in February 2008 that he was worried about the burgeoning housing crisis and Wachovia’s withering stock price — then about $12. Thompson talked him out of selling, the suit alleges, even though the CEO unloaded some shares that same month, reaping more than $500,000.

The bank’s board booted Thompson that June, but Wachovia continued to struggle until San Francisco-based Wells Fargo & Co. acquired it at the height of the banking crisis. Each Wachovia share fetched less than a fifth of a Wells Fargo share, which meant it was under $6 when the deal closed at year-end. The Harrises owned about 900,000 shares during the period covered by the suit. Many came from Wachovia’s purchase of Cameron M. Harris & Co., an insurance brokerage, in 2002. Harris launched a new brokerage last year.

The suit has some people scratching their heads: What else would Harris expect Thompson to do, give him inside information? For its part, Wachovia contends the family gave up its right to sue in return for the bank stopping collection proceedings in December 2008 after the Harrises fell behind on $12.9 million in debt — part of about $24 million borrowed over the years — and has asked the court to dismiss the case. One thing that had been propping up the loan was the poor-performing Wachovia stock.

The Harrises say the no-sue pact pertained only to the loan. Their attorney, C. Richard Rayburn, says he was assured they weren’t giving up their rights as shareholders. The suit quotes an e-mail from Wachovia lawyer Terri Gardner: “Honest Rick, the Bank would have a most difficult time with any Court in trying to enforce this release in any context other than this loan.”

Siemens generates energy jobs

Charlotte’s largest manufacturing expansion in more than 30 years will bring 825 jobs, a $135 million investment and a big building block for the city’s growing energy sector. Combined with a smaller expansion announced last year, Siemens Energy Inc., part of German industrial giant Siemens AG, will have 1,800 workers in the Queen City within five years, making it Mecklenburg County’s largest manufacturer. The new jobs at its gas-turbine factory will pay an average of $64,000 a year, compared with the county average of $48,776. Some will be taken by transfers from a Siemens plant in Hamilton, Ontario, which will close by the middle of next year. Since late 2007, companies have announced plans for more than 2,000 energy-related jobs in the county.

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CHARLOTTE — Legendary hoops star Michael Jordan bought a majority stake in the Charlotte Bobcats National Basketball Association franchise for $275 million. Former majority owner Bob Johnson bought the team in 2003 for $300 million.

MATTHEWS — For the first time, Wal-Mart Stores copped the biggest share of grocery sales in the six-county local market, pushing aside homegrown Harris Teeter. The Bentonville, Ark.-based discount chain had 29.1% of sales during the third quarter of 2009. Harris Teeter fell from first to second, slipping to 26.5% from 29.1% in the same quarter of 2008.

CHARLOTTEGMAC closed two offices, eliminating about 115 call-center and collections jobs as it shifted work to larger offices. The Detroit-based bank now has about 400 employees here.

CHARLOTTE — Developer Crescent Resources filed a plan that would cut its secured debt by two-thirds — leaving $465 million — and allow it to emerge from Chapter 11 bankruptcy by summer. Secured creditors would get all the company’s equity. Crescent is a joint venture of Duke Energy and New York-based Morgan Stanley Real Estate Funds.

STATESVILLEKewaunee Scientific, which makes furniture and equipment for laboratories, will spend $13 million to expand its 380,000-square-foot factory by 32,000 feet by 2015. It plans to add about 100 jobs, giving it about 570 employees.

CHARLOTTE — Federal officials plan to spend more than $100 million here to redesign tracks to accommodate high-speed passenger and freight trains.

ALBEMARLE — Dallas-based Palm Harbour Homes plans to close its local factory this month, idling about 110, and consolidate production elsewhere.

CHARLOTTE — Former Bank of America and Wachovia executives filed with regulators to start Blue Ridge Holdings. It will buy failed banks in the Southeast. Milton Jones, who was president of BofA’s Georgia market, would be CEO.

On the ball

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On the ball

Making a name with someone else’s, Chris Knott knew he could lose his shirt if his business got too big for its britches.
By Lee Pace
Four years ago — when $300 golf rounds, $500 hotel rooms and $2,000 business suits rarely raised an eyebrow — Chris Knott fidgeted in his chair when industry confidants suggested he raise the prices of the shirts, sweaters, trousers and other accouterments in his Peter Millar line of clothing. “We had a very nice $95 knit shirt, and they were telling me to sell it for $125, $130, even higher. They said we could get it easily. But I just couldn’t go there. It was a gut feeling.”

Knott, 44, has learned to trust his gut over the years because it has been right more often than not. It led him to start his company and eventually leave a gig as sales rep for clothing maker Burberry Ltd. He lifted the name “Peter Millar” from an antique lawn-bowling ball his mom gave him because he thought it and the ball gave him enough of a story to hang a marketing campaign on, and he’s built it into one of the hottest brands in golf apparel. At the PGA Tour’s BMW Championship in Chicago last September, 12% of the competitors wore shirts made by Cary-based Peter Millar LLC, second only to Adidas’ 13%, according to Los Angeles-based Darrell Survey Co.

Though basic economic principle says prices rise with demand, Knott’s conservative approach has worked. After he started the business in his garage nine years ago, it grew to nearly $10 million in sales by 2005 and expects to gross more than $30 million this year. Peter Millar clothing is available in just over a thousand stores, with a goal of maxing out at about 1,500 by the end of next year. Its bedrock is colorful cashmere sweaters and knit shirts, and it’s been expanding offerings — from boxers to formal wear — in hopes of claiming a bigger share of every well-dressed man’s closet.

But unless you shop at Nordstrom, you won’t find Peter Millar in your favorite department store anytime soon. Knott, who focuses on design, and CEO Scott Mahoney have turned down $3 million orders because they think golf shops and other specialty stores are their best bets to protect their margins, cachet and focus.

It’s not a wildly popular strategy for coping with a weak economy, Knott admits. “In these tough times, to not take a $3 million order — nobody is doing that, that I know of.” But company executives worry about what will happen to their brand and their cozy niche if they get into a high-volume slugfest. “If you live for the minute,” Mahoney says, “and you take that $3 million order without understanding the impact it has on you two years down the road, you lose.”

Some people go their whole life without knowing what they really want to do with it. Many wait until college to make up their minds. Not Knott. He grew up on a tobacco farm near Fuquay-Varina, which was then “a lot like Mayberry.” By the time he was a teenager, he had learned to sucker and to pull a plant bed. That taught him the value of hard work and the reward it could bring, but it was hot and dirty in the fields and warehouses. He was drawn more to the world he saw each August when his mother took him to shop for school clothes at Ashworth’s Clothing, a family business that has been on Main Street since 1937. “That’s when the clothing business caught my eye.”

In his teens, he worked at the store after school and on weekends. “The Ashworth family instilled in me the idea of value and quality. They never chased a bubble, either. I was 16 years old and going with Steve Ashworth to New York on buying trips. We’d bunk with sales reps and go for $300 for the week. Today, you spend that in one day. I was lucky to see the industry at a very young age and said, ‘This is where I’ll be happy.’”

After earning a bachelor’s in merchandising at East Carolina University in 1987 — while working part time at a Greenville haberdashery, Coffman’s Menswear — he spent more than 10 years as a sales rep for lines such as Hugo Boss and Joseph Abboud. In 2001, while working as an independent contractor for Burberry, he found an underserved niche — cashmere sweaters priced below the market. In early 2002, he formed Barcelona LLC — he saw the word in a magazine and liked the way it looked and sounded — designed the sweaters and had them made in China. He shipped his first batch that August. They retailed for $250 to $275, undercutting British-made sweaters that sold for about $395. “I found a market but very quickly figured out that if you ship sweaters for fall, you don’t have any money coming in for spring.”

But spring is a fine time for knit shirts. Most of the good ones were from Italy and very expensive. “I saw the need for a knit shirt that washed the right way, looked the right way, was priced right, fit me the right way. I couldn’t find a knit I liked, so the next venture was into knit shirts.”

Many of the brand names he considered when starting his company were already in use or claimed by URL and trademark speculators. He had used the bowling ball as a prop for clothing shows as a sales rep and decided to use the name on it. He doesn’t know why the name was on the ball or who Peter Millar was, but, as with Barcelona, he liked the image it projected. One of the company’s early advertisements and promotional pieces featured well-dressed golfers on a seaside course with a hundred words of text that built on the idea that “Peter Millar was the emblem of an era. He was worldly, sophisticated, honest and unflappable. A modern renaissance man.”

Knott decided to sell his wares in stores like the ones he knew in his youth — Ashworth’s in Fuquay-Varina and Coffman’s in Greenville. But several of his sales reps around the country placed the shirts and sweaters in high-end golf resorts and pro shops, and the merchandise moved. “They’ve been right on target,” says Chris Dalrymple, the proprietor of The Gentlemen’s Corner in Pinehurst. “They understand their customer. They use color very well. I like to believe I sell nice clothes a man can play golf in. That’s what they do as well.”

The fashion world took notice — and so did Mahoney, then vice president for golf and tennis at New York-based Polo Ralph Lauren Corp. “Peter Millar seemed to crop up everywhere. They did surprising things — a cashmere outerwear vest, golf shirts styled differently from what everyone else was doing.” Mahoney liked the business and brand so much that in 2005 he joined Knott as a partner. That same year, Knott sold a 60% stake in the business to Sea Island Co., a real-estate and resort-management company in Sea Island, Ga. He and Mahoney split the remaining 40%, though they won’t say how it’s divided. The company name changed to Luxury Apparel Group LLC.

Last year, Sea Island sold its stake for an undisclosed price to Winona Capital Management LLC, a Chicago private-equity firm, and Luxury Apparel Group became Peter Millar LLC. In Winona, Peter Millar found a partner that didn’t want to change the apparel maker’s distribution strategy, Mahoney says. “One group that looked at buying Sea Island’s stake said that in six months they wanted to blow this thing out in major department stores. That’s not want we want to do.”

Recession hits specialty stores particularly hard, says Erin Ashley Smith, a retail analyst with Argus Research Co. in New York. But manufacturers can command higher prices and bigger margins there than in the major chains. “You’re kind of at the mercy of the big-box players. They’re going to say, ‘We’ll pay this amount.’ And if you want your product there, you have to go with it.”

Selling clothes through a specialty shop also gives manufacturers more ability to shape their image. They have more control over how products are displayed and more sales support in the store. “If you sell $39 fleece sweats, you can sell them anywhere, because kids can buy them,” Knott says. “But if you’re like Peter Millar and you’re selling $100 woven shirts, you have to be in places where the salespeople can romance the product a little bit. They can’t do that in a big-box store. They don’t have the wherewithal to do that.”

In building his brand, Knott tried to correct many of the irritants he had endured over the years. The company ships its shirts with stainless-steel clips instead of pins, and the pearl-colored shirt buttons are unbreakable. Labels for men’s boxers are sewn on the outside of the leg.

The company has worked hard to distinguish itself among its retailers, too. Boxes with Peter Millar shipments contain a mint and sometimes a voucher for a free cashmere sweater for whoever opens the box. “We want the guy in the stockroom or the shop owner to open our box first and get the product on display,” Mahoney says. “We work hard to make sure our paperwork is perfect. If the paperwork is screwed up, the guy in the stockroom will put off dealing with it. The magic’s in the little details.”

Though sales have flattened some in recent years, Peter Millar has held up better than many clothing makers, partly because of its consistency, Mahoney says. “A lot of companies are pigs with their margins. Chris priced everything below these Italian companies that were thriving in a hot economy, and he sourced things incredibly well. Then the last 18 months, the super-luxury world has plummeted. We’ve been positioned in this little sweet spot the whole time.”

Today, Peter Millar has 30 employees and operates out of a 27,000-square-foot office and warehouse. Its headquarters bustles with energy from the youngish staff and exudes an informality that fits a company marching to its own beat. Flip-flops are fine, and employees get summer Fridays off to go to the beach or mountains. Mahoney and Knott are comfortable pitching their wares to sophisticated buyers in a formal club setting but also kicking back and having a sandwich with the guys in the shipping room.

But they can’t relax too often or too long. Though the economy seems to be on the mend and the company’s spring sales are projected to grow 30% over last year, Knott hasn’t forgotten something Dalrymple, a mentor and longtime customer, once told him: It’s not the bad times that will kill you — it’s the good times. “What he meant was that when things are good and you’re riding the wave, you don’t pay attention to the details. You lose sight of what made you good in the first place. Then when things turn sour, you’re in trouble.”

Lee Pace is a Chapel Hill freelance writer.

Learned behavior

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Fine Print – April 2010

Learned behavior
By G.D. Gearino

It is an article of faith in Wake County, where I live, that the Triangle’s economic vitality is due in no small measure to its progressive, nationally lauded school system. It naturally follows, then, that the recent election of a conservative-leaning school-board majority is a threat to that economic vitality — one so menacing that almost before the new board chairman had broken in his gavel, a group called Great Schools in Wake Coalition was formed to oppose the fresh majority’s revanchist drift. One of the coalition’s stated aims is to “examine how proposals of the new [board] might affect the economic growth of Wake County and our ability to attract new business.”

It’s certainly true that no economic good results from socio-political strife in a public school system. But the inverse of that fact — that economic growth flowers in areas where school boards are calm and the grades are good — strikes me as a shaky claim. And if I were so foolish as to take a swan dive into the particulars of the longstanding (and now endangered) Wake schools policy of busing students all over the county in the name of economic diversity, I would note that whatever industrial-recruitment benefit is gained from that progressive stance is likely balanced, and maybe even outweighed, by a hesitancy among corporate types to move to a place where their children, well, might be bused all over the county. But I don’t propose to adjudicate the wisdom of either the established diversity policy or the effort to overturn it. Instead, let’s ponder the school/business connection.

Wake County’s school system indeed is considered among the state’s finest. And it’s true that the Triangle has enjoyed a long period of economic prosperity, being awarded over the years the top spot on so many lists of the best places to [start a business, launch a career, etc.] that the local media long ago adopted a sardonic, yawn-we-made-another-list attitude every time a new ranking was reported. But the exact relationship between those two facts is elusive. It’s something akin to the connection between a smile and a seduction: The first seems to lead to the second, but there are way too many other factors to be sure. Besides, if Wake schools are better than most others in the state performancewise, couldn’t it be because the offspring of knowledge workers who’ve migrated to the Triangle boosted that performance? The relationship between the school system and business development might be, in fact, the mirror image of the one being promoted by school boosters.

Moreover, the North Carolina educational system that is used by some in Wake County as an example of one not to emulate — Charlotte-Mecklenburg Schools, which in 2002 dismantled its own busing-for-diversity plan — can hardly be accused of sparking economic hardship in the Queen City. Unless the argument is that Charlotte could today be the size of, say, Tokyo were it not for the school system’s burdensome decision eight years ago, that whole line of thought collapses under the weight of Mecklenburg County’s relentless prosperity.

Need more? OK, ponder this: When Dell was searching for a location in North Carolina for a computer-assembly plant and when Google was likewise looking around the state for a new server-farm site, they eventually settled on Winston-Salem and Lenoir, respectively. They conspicuously bypassed the Triangle, which not only has a laudable school system but also happens to be the state’s technology center. Maybe this was because the school systems in those other places were even more progressively dedicated to economic diversity than was Wake’s system. (Don’t laugh. It’s possible.) Or maybe it simply was because there were many other good reasons to locate their business operations in those places.

Everything above is theory and supposition, though. Because it’s always best to hear directly from the parties involved, I posed a question to a spokesman for Garmin International Inc., the Kansas-based manufacturer of GPS devices that announced in February it was opening an office in the Triangle: Why, I asked, did the company choose Wake County? The spokesman cited two reasons — the concentration of wireless engineers in the area, and the availability of office space. What about the schools? I asked. He didn’t know a thing about Wake schools and the current woes. That issue wasn’t even on Garmin’s radar.

Again, none of this is a judgment on Wake’s practice of shuffling students around in the name of diversity. Running the state’s largest school system is tough work. When other complications are added into the administrative algebra — budget pressures, philosophical quibbles, electoral shifts, the specter of resegregation, etc. — that job becomes monstrously difficult. In light of that, it’s a mystery why pro-diversity partisans would want to pile responsibility for economic development on the school system’s shoulders. Consider this a public service, then. We can take that argument off the table.

Eye of the needle

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Up Front: April 2010

Eye of the needle

Scars fleck my flesh. Many were inflicted by folly, like the now nearly invisible one at the corner of my right eye, etched when I toppled into a toy box as a toddler. (A man’s reach should, indeed, exceed his grasp but not a 1-year-old’s.) Others, more precise, linger where scalpels once sliced skin. That both my hands don’t bear these in abundance is a testament to a surgeon’s curiosity, compassion and skill, but they make a mockery of the economics underlying American medicine.

Among the afflictions I’m heir to is one called Dupuytren’s contracture, which causes the fascia, a layer of tissue just beneath the skin of the palm, to harden and shrink, forming lateral cords that keep the fingers, especially ring and pinkie, from straightening. Eventually they bend, curling like claws. Rarely painful, it’s not malignant, but if you make a living with your hands — or as I’m doing now, pecking a keyboard — it becomes a major pain in another part of your anatomy. Even putting your hand in your pocket can be a trial.

Standard surgery involves cutting open the palm to excise the fibrous tissue. This not only requires stitches, splints and postoperative therapy but risks complications such as infection and nerve damage. Because there is a 50/50 chance the nodes will grow back, the resulting scar tissue makes another fasciectomy even more difficult. The first hand surgeon I consulted cautioned me to wait. Over the course of a decade, I watched my fingers — first on my left, then my right — tick down like the minute hand on a clock as the quarter-hour approaches.

Prowling the Internet, I read everything I could find about Dupuytren’s. That’s how I learned about needle aponeurotomy. Pioneered by a rheumatologist in Paris, the procedure is performed by few doctors in this country. Simply put, it involves poking a small-gauge hypodermic needle into the cords, fraying them until they can be snapped by straightening the fingers. A clinic in West Palm Beach, Fla., was not only doing it but training others. Clicking through its site, I came across a photo of Dr. Richard D. Goldner, an orthopedic surgeon at Duke University Medical Center. (Ironically, I could have found him in the pages of BNC, in our annual listing of the state’s best doctors. For the latest, see our November issue.)

In the fall of 2008, he spent nearly four hours freeing the fingers of my left hand. Last October, he spent two more on my right as we chatted — the procedure requires only local anesthetic, numbing just the skin — about the pros and cons of Obamacare. Then I drove to my brother’s house outside Hillsborough and, the next morning, home to Charlotte, losing only a day of work.

Needle aponeurotomy is tedious, especially for a surgeon of Dr. Goldner’s caliber, and it pays poorly. I know, because just the other day my insurance company sent a letter informing me, five months later, that it was my responsibility, as part of my annual deductible, to pay the provider the $285 it had approved of the $1,712 that was billed. If money had mattered that much to him, Dr. Goldner would have had an economic incentive to flay open my palms, a fasciectomy being much more lucrative for him and the hospital.

So with straightened hand, I salute such healers. But this I must confess: I sometimes catch myself yearning to use it to slap the mouths of those who say this flawed health-care system is the best there is and that we should just let it be.

 

Due to a data-entry error by the North Carolina Golf Panel, Hope Valley Country Club in Durham was omitted from the top 100 golf courses in the March issue. It ranks 53rd. The corrected list can be viewed at www.ncgolfpanel.com.

 

Executives’ power won’t wane

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Capital Goods – April 2010

Executives’ power won’t wane
By Scott Mooneyham

For several years, John Davis has been saying that the General Assembly is becoming less friendly to business. It’s easy to dismiss such talk from the man who once headed NCFREE, at one time big business’s go-to organization for political analysis and advocacy in Raleigh. Centrist Democrats still dominate the legislature, particularly the Senate. President Pro Tem Marc Basnight, arguably the state’s most powerful politician the last two decades, has been a champion of business interests, as have his key lieutenants in the chamber.

Now, those lieutenants have departed or are leaving, and Basnight, who will turn 63 next month, has health problems, a nerve disorder that affects his balance and has slowed his speech. Even as he continues to plot Democratic strategy and immerse himself in his favorite pastime, reading early-American history, the Basnight era may be drawing to a close. Could Davis’ view of the place finally havesome validity? Could those moderate, business-friendly Democrats walking into the marble maze that is the Legislative Building find that they no longer hold sway over what happens within its walls?

Davis argues that the shift has been under way for some time, that the Senate’s leadership has been the only thing ensuring that legislation takes place with the larger interests of the state’s business community in mind. “That leadership is what has kept things in balance,” he says. In his view, the rank and file are no longer predictable allies for a simple reason: Since the 1980s, fewer of them have run a business. “We determined in the 1980s that the No. 1 predictor of an ally is occupation,” Davis says. “It didn’t matter about race. It didn’t matter about gender. If you ran a business, you were going to be a predictable ally.” He’s not saying that the legislature has suddenly become populated by tree-hugging lefties out to do in the business world. Anyone taking in a typical House or Senate floor session, with its staid debate and even more staid dress, would laugh at the notion.

But he is saying that many of the Democrats in positions of power — outside of Basnight and his inner circle — aren’t thinking about business first. Other than Basnight, Gastonia businessman David Hoyle and Fayetteville lawyer Tony Rand have been the Senate’s key power brokers over the last decade. Hoyle, co-chair of its powerful Finance Committee, is a developer with global business interests. Rand, who has been the chamber’s majority leader and architect of the state budget, made a fortune as partner in a company that goes around the state zapping people’s kidney stones.

Rand is gone, vacating his Senate seat to head the state parole commission. Hoyle says he has had enough and won’t run for another term. Basnight will. With 13 terms under his belt, the Manteo restaurateur says he’s good for another five. But he isn’t just losing a lieutenant in Hoyle. They’re close friends. Rand’s replacement as majority leader is Martin Nesbitt, an Asheville lawyer who approaches politics with a streak of mountain populism. Last year, he was joined in the Senate by an old friend of his own, former House Speaker Dan Blue. The Raleigh lawyer is the only African-American to hold the office. It didn’t take long for the chatter to begin about whether they might be on their way to becoming the new power team in the Senate.

But even if that scenario plays out — if Basnight steps aside in the near future and Democrats hang on to their majorities in both chambers despite an uneasy electorate and an invigorated Republican Party — would some seismic shift take place? Would bankers and utility execs suddenly find doors shut in their face? Hardly. Just look at what happened in the House when a liberal lawyer from Orange County named Joe Hackney took up residence in the speaker’s office. During the session, lobbyists representing businesses of all shapes and forms still wait patiently outside that door. Hackney still allows them inside to make their case about this bill or that. Quite often, their arguments hold sway. The reason that they’ll continue to succeed has nothing to do with liberal or conservative. It’s because often what’s good for business is good for labor. Politicians of all stripes understand jobs.

Davis is correct that the legislature is changing. But the most significant shift is that it’s getting older, filled with retirees who have the time and means to actually do the job for the pittance legislators are paid. As the Basnight reign inevitably winds down, other changes will come, too. But predicting what that world will look like, how the new leadership will behave, is a tricky game, with the rules more complicated than someone’s bio or whether there’s a D or R beside the name.

Scott Mooneyham is the editor of The Insider, www.ncinsider.com.

The passionate pragmatist

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The passionate pragmatist

By Lisa Davis
People filing into the Charlotte Convention Center make their way around a small commotion. A woman robed as Lady Justice, glowing with gold paint, points her sword at a few chunks of coal on the sidewalk. Other protesters with signs and a megaphone denounce “the Hypocrite of the Year” about to be honored inside. The target of their ire: Jim Rogers, chairman, president and CEO of Duke Energy Corp., the Charlotte-based utility that is expanding a power plant an hour’s drive away in Cliffside. The plant burns coal, which is cheap and abundant but releases a noxious mix of pollutants, including carbon dioxide, a prime culprit in global warming. Down the sidewalk is another group that isn’t happy with him. It’s protesting his efforts to promote a mandatory cap on carbon emissions. That could prove especially costly to one of the nation’s largest electric utilities — which produces more than 60% of its U.S. power from coal — and its 4 million customers in the Carolinas and the Midwest.

His critics claim that Rogers is talking out of both sides of his mouth. Inside, accepting an award from the Charlotte Chamber, he puts it another way. “I am where I need to be,” he tells the crowd. “In the middle of the road.” He knows what direction that road is headed: to a “low-carbon world.” And he’s determined that Duke will have a say on the best way to get there. It’s not going to be an easy journey. Investing in new, cleaner power generation is putting pressure on its low rates. Complicating matters is an economic downturn that has pummeled industrial sales. He describes himself as “a passionate pragmatist.” To him, building Cliffside, promoting carbon legislation, developing smart-grid technology — it is all of a piece. “I’m pragmatic about the tradeoffs that have to be made.”

Our carbon footprint as a company is defined by three numbers — three, 12 and 41. We’re the third-largest emitter of CO2 in the U.S. We are the 12th-largest in the world. If we were a country, we’d be 41st.” This is how Rogers, 62, begins many speeches. “It’s almost confessional,” he admits. “‘Yes, I have a huge carbon footprint. I am for carbon regulation, and this is how we want to go about doing it.’ It gives you credibility to talk about it.” He’s talked about it in just about every place people are discussing clean energy — from the Copenhagen climate summit to the halls of Congress. This winter morning he’s ready to talk about it again, albeit on little sleep. He had flown in late the night before from Washington, where he’d had dinner with former Treasury Secretary Lawrence Summers, a top adviser to President Obama. That’s the sort of company Rogers keeps these days. He has spent much of his four years as Duke CEO trying to shape carbon legislation. “It’s the single largest issue facing our customers and the future of our company.”

To prepare for a speech he will give in a few hours, he has been jotting down ideas he got at dinner last night. He settles into an upholstered chair in an office he’ll be leaving later this year when Duke moves from its bunkerlike headquarters to a 48-story tower going up across the street. The utility will be leasing 21 floors from Wells Fargo & Co. — what was going to be Wachovia Corp. headquarters soon will be Duke Energy Center. It’s a high-profile move for the utility, whose CEO is always moving at full speed. Rogers “seems like a man on a mission,” says John Gartner, senior analyst with Pike Research. “He values his legacy and wants to be seen as someone who helped lead the company into a key transition. … He wants to be perceived as an agent of change.”

Rogers jumps up to retrieve his Blackberry from his desk. “This is another way to think about us,” he says, punching buttons. He finds the numbers he’s looking for: Duke is third in the Americas in producing carbon-free electricity — thanks to its international hydroelectric plants, three nuclear plants and small but growing wind-power production. That’s going into his speeches, he says with a smile. “I’m constantly recutting the numbers, retelling the story.”

Burning fossil fuels such as coal spews out sulfur dioxide, mercury, fine particles and other pollutants that can create smog, damage health and fall to the ground as acid rain. State and federal laws have tried to rein in air polluters. In the late ’80s, as a utility CEO in Indiana, Rogers stood apart from his industry to support national Clean Air Act amendments that required utilities to cut sulfur-dioxide emissions. He liked the market-based, cap-and-trade approach to regulation in which total emissions of a pollutant are set and companies get credits to emit a certain amount. Companies that cut emissions below their allowances can sell the excess to others. Supporting the legislation turned out to be a good move, he says. Emitters got room to maneuver as they installed costly pollution scrubbers, and acid rain lessened.

Attention turned to greenhouse gases, such as carbon dioxide, that trap heat in the atmosphere. The scientific evidence was mounting that they were causing potentially disastrous climate change. But technology to remove and store carbon is years away from being workable, if it ever will be. Even coal plants with the latest pollution controls pump tons of carbon into the air every year. It seemed to Rogers just a matter of time before legislators or regulators take action. Maybe what was done with sulfur dioxide could be repeated with carbon — a cap-and-trade system that would be good for the environment and, if he and his industry could work it right, not a costly nightmare for them. Rogers began calling for a cap on carbon. Better to do it sooner than later, he says, because uncertainty is bad for business. Utilities will have to develop new technologies and energy sources, and that takes time.

These days, he is no longer alone. Other utility leaders are also pushing for legislation and planning accordingly. But none has sought the spotlight like Rogers. That doesn’t endear him to colleagues, says analyst Roger Gale, CEO of GF Energy LLC. “He is insightful and does see the future better than a lot of the CEOs do. But most of them dislike him pretty intensely because he’s always got to be right. He’s got to be ahead of everyone else.” As Rogers sees it, if this is the journey utilities have to take, he wants to be in the driver’s seat. “He doesn’t like to leave stuff to chance,” Duke spokesman Tom Williams says.

When Obama came out last year in favor of a cap-and-trade system in which carbon emitters would have to buy all their allowances, Rogers hit the airwaves in protest. He popped up on Larry Kudlow’s show on CNBC and Rachel Maddow’s on MSNBC to plead his case for free allowances. Critics say this would reward major polluters such as Duke. Rogers counters that forcing coal burners to buy allowances at auction would drive up electricity prices sharply. Free, diminishing allowances would give utilities time to transition away from emitting carbon.

He has joined with other CEOs and environmental leaders to form the U.S. Climate Action Partnership. It put together a policy framework that served as a basis for the energy bill the U.S. House passed last June. Through USCAP, Rogers works with allies such as Fred Krupp, president of the Environmental Defense Fund. Duke and EDF have battled on many fronts — even to the Supreme Court, which ruled unanimously three years ago that Duke had violated the Clean Air Act by failing to install pollution controls when it upgraded some coal-fired units. “I appreciate that Jim represents the company’s interest, which is different from EDF’s,” Krupp says. But where their interests unite, they come together. The coal burner and the environmentalist have paid visits to Congress members to pitch carbon caps, timelines and free allowances. “It gets back to, let’s get something done, OK?” Rogers says. “And they want to get something done.”

Another USCAP member, Eileen Claussen, president of the Pew Center on Global Change, got a call from Rogers, who had been home sick and done a lot of thinking, he told her. Now he wanted to bounce ideas off her. Such a call isn’t unusual, she says with a laugh. “He’s always thinking about, is there a new way to frame this issue? Is there a new way to talk about this? What are the practical realities not only for my company but also for other companies? He asks himself questions all the time about whether the path he’s on is the best path.”

His company’s path began more than a century ago on the Catawba River, where tobacco tycoon James B. Duke and his partners produced hydroelectric power for the region’s textile mills. As demand heated up, Duke Power Co. built coal-fired plants that provided low-cost electricity to the Piedmont’s growing post-World War II economy. In the ’70s, Duke added its first nuclear plant. As CEO, the late Bill Lee — grandson of the company’s original engineer — was a champion of nuclear power. The company’s 1997 merger with PanEnergy Corp., a natural-gas distributor, brought a new name — Duke Energy — and the first step to becoming a broad-based energy company. But when industry deregulation derailed, Duke’s aspirations under Rick Priory to be a global powerhouse flickered out. In financial trouble, it brought in Paul Anderson, who cut loose ambitious ventures such as energy trading to refocus on the core power business. Anderson soon began looking for a like-minded CEO to team with.

He found him in Rogers, then chief executive of Cincinnati-based Cinergy Corp., whose coal-fired plants powered a slice of the industrial Midwest. “We saw a convergence of ideas and philosophies,” Anderson says. They both saw a consolidating industry, a tough future for coal and a potentially bright one for nuclear. They merged companies, and Rogers succeeded Anderson, who left to run the spun-off natural-gas operation. Within days of the merger announcement, Duke had issued another release: It planned to build two coal units at Cliffside. This was in the works before Rogers’ arrival, but he decided to go forward with it, and the N.C. Utilities Commission green-lighted one unit. As other utilities abandoned similar plans because of increasing costs and looming carbon restrictions, the green-talking utility CEO embarked on building a coal-fired unit.

Near a tiny town tucked in the foothills on the Rutherford-Cleveland county line, big trucks rumble down the road past a redbrick shell of an abandoned textile mill. They are headed to a construction site carved out of the woods along the Broad River. Beyond the large fields of metal parts and arching cranes rises the hull of a new coal boiler at Cliffside Steam Station. Here, some 2,200 workers, whose numbers will swell to more than 3,000 this summer are building unit No. 6, which towers over four older, soon-to-be-retired units nearby.

Cliffside has become a flash point for Rogers’ critics, who say it contradicts his claims that he wants to clamp down on carbon. Protestors have picketed Duke’s headquarters and even gathered on the lawn of Rogers’ home. Environmental watchdog groups have taken the fight to the Utilities Commission and to court. Rogers defends the $2.4 billion project: Duke hasn’t built a base-load coal or nuclear plant — the backbone of its power generation — in more than two decades. The goal, he says, is to “modernize and decarbonize.” By 2050, as its plants age and pollution limits become more stringent, “every power plant we operate today will have to be retired and replaced. So the question is, what is the right sequence?” No. 6 will boost output at Cliffside while reducing many of its toxic emissions. “The simple fact is, we build [a unit producing 825] megawatts that is far more efficient and shut down 1,000 megawatts. Our pollution footprint is much smaller because of that.”

But even with its pollution controls, Cliffside is still a traditional coal-burning plant that comes with what that entails — such as coal-ash ponds that can threaten water supplies, damage to the Appalachian mountaintops where coal is mined and the release of tons of carbon dioxide. The Southern Environmental Law Center has sued Duke, challenging its air-quality permit. “We are definitely in favor of seeing older coal plants retired,” says Gudrun Thompson, a senior attorney with the center. “But we think there are cleaner alternatives than building a new coal plant that’s going to lock in 40 or 50 years of very high emissions of carbon dioxide and other pollutants.”

One alternative is natural gas, which pollutes less than coal. Raleigh-based Progress Energy Inc. is shifting from coal to natural gas. But natural-gas prices are volatile, Rogers argues, and Duke is already building two units at its Buck plant in Rowan County and Dan River plant in Rockingham County as part of its modernization plan. At the core of that effort are two coal-fired units, one in Indiana that will convert coal to a cleaner synthetic gas, the other at Cliffside. When they open in 2012, Duke will shut down some older coal units. Duke is investing up to $15.2 billion over three years in capital expenditures, committing much of that capital to finishing the new plants, adding pollution controls to older ones and projects such as installing smart-grid technology.

New nuclear power is also in the works. Duke has filed for a federal license to build two reactors near Gaffney, S.C., and is evaluating sites for another in Ohio. Rogers sees nuclear as key to a low-carbon world. Duke hopes to have the South Carolina plant running by 2021, although the challenges are big — both regulatory and financial. The price tag to build both reactors could reach $12 billion, and finding financing will be difficult. It’s looking for partners to split costs.

The long-term investments are banging up against a hard here-and-now. A dwindling manufacturing base and sluggish economy are dampening demand for electricity. Last year, sales slipped 4%, with those to industry dropping 14%. Industrial demand seems to be steadying, but Duke doesn’t see a rebound anytime soon. It’s also being squeezed by competitive pressures in Ohio, where it has lost customers. The company earned $1.1 billion last year, down from $1.4 billion the year before. To ease the pinch, it cut expenses by $150 million. This year, it is offering employee buyouts and streamlining corporate operations to trim $200 million in costs.

Duke is not waiting to flip the switch on its new plants to start recovering costs from customers. An N.C. law it lobbied for three years ago allows it to earn off its investment in plants while they are under construction. In December, Duke got approval for its first base-rate increase in North Carolina in nearly two decades, in part to cover costs for Cliffside. South Carolina and Kentucky also have approved rate hikes. And more are coming. A priority this year — and crucial to going forward with its nuclear plant, Duke says — is pushing for legislation in North Carolina that will allow it to recover nuclear-plant financing costs from customers without having to request a general rate increase. And Rogers has more change in mind. “I think we need to totally rethink how we’re regulated,” he told analysts at Duke’s investor conference in February. In each state, Duke will consider pressing for regulatory changes that could boost returns.

On top of all that, it might be digesting an acquisition soon. It’s rumored to be a bidder for two Kentucky utilities put on the block by their German owner. Such a deal would fill in Duke’s footprint, but it won’t comment.

Spread across the flat top of a National Gypsum Co. wallboard factory in Mount Holly are some 5,000 solar panels. When it’s sunny, they can generate 1.2 megawatts of electricity, enough to power 700 homes. Duke leased the space and installed the panels as part of its distributed-generation pilot project, one of the largest in the nation. By next year, the company expects to generate 10 megawatts of power from the rooftops and grounds of homes, offices and factories around the state. With projects like this, Duke is building its renewable-energy portfolio, which must reach a state-mandated 12.5% of its production by 2021. Duke’s wind farms, primarily out West, are expected to produce about 1,000 megawatts this year.

Duke also has stepped up energy-efficiency efforts. The problem, however, is motivating a company that sells energy to sell less of it. Rogers thinks he has found a way around that with Duke’s save-a-watt program, versions of which have been approved in four of the five states it operates in. What separates save-a-watt from many utilities’ plans is its “avoided cost” model. As it helps customers reduce energy use, Duke will earn a return off a portion of the cost of the power plants it won’t need to build. The savings will be independently confirmed, and customers will see a monthly charge on their bills. “I am trying to change the regulatory paradigm,” Rogers says, “where we make as much money investing in energy efficiency as we do a power plant.”

The part about changing the regulatory paradigm concerns Richard Sedano, a director of The Regulatory Assistance Project, which advises public officials on energy issues. How do you fairly determine what an avoided cost is? Would a utility have built a coal plant or a nuclear plant? Added a transmission line? “There’s a huge amount of uncertainty that you don’t have if you simply say, ‘OK, we are going to compensate you based on your costs.’” When Duke proposed save-a-watt, it was slammed by critics who said it would earn too much for a meager effort. But Rogers campaigned loudly for it. “He’s willing to come up with an idea that’s unusual and put himself out there to test it,” Sedano says. “He’s willing to be a lightning rod.” Duke reworked the North Carolina plan with the Utilities Commission’s Public Staff, representing consumers’ concerns, and with environmental groups. The settlement kept the avoided-cost model but limited Duke’s return and tied it to meeting its targets.

Under save-a-watt, Duke could reduce North Carolina energy sales close to 2% over four years and up to 8% in the next decade. That would be a big leap for Duke, Thompson says. “By setting these goals, they are positioning themselves to be as aggressive as utilities that are leaders in the industry who have been achieving some substantial energy savings already.” Some of what Rogers envisions for Duke consumers can be found in the houses of about three dozen families in the McAlpine neighborhood of Charlotte. In a pilot project, devices were installed that could communicate with their appliances, delaying the dishwasher’s start for a few seconds, for example, or cycling down the refrigerator. The families were surveyed weekly and saw no change in the quality of service while reducing their energy usage 20%. Rogers “is propounding the vision of the utility as a service company,” Sedano says, “in a way that stretches our imagination.”

As an assistant attorney general in Kentucky, Rogers opposed a local utility’s request to put a pollution scrubber on the back end of its coal plant. His job was to be a consumer advocate, and this was the ’70s, before federal regulations required emission controls. It seemed too high a price for the utility’s customers to pay. He lost the case, but it got him thinking.

Son of a Kentucky lawyer, he had worked his way through the University of Kentucky writing for the local newspaper and also earned a law degree there. He soon headed to Washington, where he worked at the Federal Energy Regulatory Commission and in private practice. Rogers left law to manage the gas-pipeline business for Enron Corp. in Houston. In 1988, his career took another turn. PSI Energy Inc., an Indiana-based utility, was reeling from its $2.7 billion write-off of a scrapped nuclear plant. Earnings were tanking, and morale was low, recalls Larry Thomas, a PSI executive then. “We did not know what our future was going to be.” In came Rogers as CEO, a 41-year-old lawyer from the gas industry with no experience managing an electric utility. “He was the right guy at the right time,” Thomas says. “… Other companies with a failed nuclear plant had either gone into bankruptcy or had to lay off people. We did neither.”

Rogers negotiated with regulators and bankers, engaging anyone who would help determine PSI’s fate. Jim Turner, a young consumer advocate in Indiana, got a call from Rogers. A huge ice storm had hit, knocking out power to several hundred PSI customers. Would Turner like to take a helicopter ride with him to see the damage? Yes, he would. Turner still fought PSI’s attempt to recover its storm costs, but he was impressed by Rogers’ openness, which filtered down the ranks. “It was just a different feel that you got from [PSI], and that really served him well,” says Turner, who is now president and chief operating officer of Duke’s U.S. franchised electric and gas business. That engagement was invaluable when Rogers began trying to merge PSI with Cincinnati Gas & Electric Co. An Indianapolis utility offered a higher price, but Rogers worked his relationship with investors, consumer advocates and others to fend off the hostile bid and get the deal he wanted. In 1994, he took the top job at the newly merged Cinergy.

Over his two decades as a CEO, Rogers has honed an unorthodox management style. To keep his staff challenged, he likes to shuffle the organizational charts. “It’s very unsettling for some people in the management team,” Turner says. “And I have to admit there have been times it’s been unsettling for me.” He was moving up the ranks at Cinergy when Rogers invited him to investor road shows to talk about regulatory strategy. Then Rogers named Turner — a lawyer with no financial background — chief financial officer. At first, Turner admits, “it scared the hell out of me.” It turned out to be an event-filled year — Cinergy began holding quarterly earnings calls, issued $200 million in new equity and prepared to merge with Duke. “It’s made me a much better executive for having gone through that experience,” Turner says.

Rogers employs what he calls scouts — consultants who report directly to him — to bring him the latest thinking. And he doesn’t hesitate to pick up the phone and call someone four layers down to talk him through some issue. Inspired by a book — Rogers has given his senior staff Kindles so that they can download his constant stream of reading suggestions — he wrote a letter last year to his board of directors asking: What if I’m dead wrong? What if carbon emissions aren’t causing climate change and the EPA or Congress never limit them? What would Duke Energy do differently over the next five years? Not much, he concluded, perhaps unsurprisingly. He would still be retiring and replacing his plants and investing in energy efficiency and renewable energy, he says, because the battle over scarce global resources will only increase. The exercise, he says, “gave me as a businessperson more confidence about our strategy, because it was robust enough to stand if you took carbon off the table.”

Rogers glances behind his chair to where a painting used to be. He traveled to China last year and came away with deals to collaborate on commercial solar-power projects and clean-energy technology. He gave one of his Chinese partners the painting — of Menlo Park, home of Thomas Edison’s idea factory. Rogers says he is going to have a new one done. “I’ve always liked the idea of thinking of myself as an inventor, someone who is innovating in public policy.”

Carbon isn’t coming off the table, he says, and the faster the country addresses it, the better off Duke and its customers will be. Rogers knows the chances of a cap-and-trade bill passing the Senate this year are low, but he is still strategizing, still making his pitch. “He has this burning sense of urgency inside him,” Turner says. “I think he’s feeling that the changes that are on us, the transformation that the industry has embarked upon is sooner than we think.”