Priory, Richard B. 1946–
Richard B. Priory
Former chairman, chief executive officer, and president, Duke Energy Corporation
Born: May 15, 1946, in Lakehurst, New Jersey.
Education: West Virginia Institute of Technology, BS, 1969; Princeton University, MS, 1973; University of Michigan, 1982, graduate utility executive program; Harvard University, 1991, graduate advanced management program.
Family: Son of Joseph Albert Jr. and Betty (Baldwin) Priory; married Joan Ellen O'Rourke, May 30, 1968; children: two.
Career: Union Carbide Corporation, 1969–1972, design engineer and project engineer; University of North Carolina at Charlotte, 1973–1976, assistant professor of structural engineering; Duke Power Company, 1976–1978, design engineer; 1978–1981, principal engineer; 1981–1984, manager, project management division; 1984–1988, vice president, design engineering; 1988–1991, vice president, generation and information services; 1991–1994, executive vice president, generation group; 1994–1997, president and chief operating officer; Duke Energy Corporation, 1997–2003, chairman and chief executive officer.
Awards: Distinguished Service Award, Charlotte Engineers Club, 1998; Ellis Island Medal of Honor, 1999.
■ Using a strategy worthy of a computer gamer, Richard B. Priory transformed Duke Energy from a regional electrical utility company into an integrated energy provider. To achieve his goal, Priory negotiated a number of deals to acquire gas reserves, pipelines, and power plants. A competitive risk-taker, Priory also worked hard to transform the inflexible bureaucratic structure of Duke to keep pace with the constantly changing energy business.
RESPONSIBILITY, FAMILY, EDUCATION, AND CAREER
Priory developed early a work ethic and a sense of responsibility. When his parents separated, Priory, who lived with his mother, took a job selling suits after school to contribute to the household income. He also worked as a carpenter and a mason. Just two weeks after his 22nd birthday, on May 30, 1968, he married Joan Ellen O'Rourke. Priory graduated magna cum laude from West Virginia Institute of Technology in 1969 with a degree in civil engineering. Later that year he took his first job as a design and project engineer at the Union Carbide Corporation, where he remained until 1972.
Priory returned to school, earning a master's degree in engineering from Princeton University in 1973. Between 1973 and 1976 he served as an assistant professor of structural engineering at the University of North Carolina at Charlotte and simultaneously operated a consulting firm. Among his largest clients was Duke Power. Eventually Priory left academics and consulting and went to work for Duke Power full-time, rising steadily through the corporate hierarchy. He became president and chief operating office of Duke Power in 1994 and chairman of the board and chief executive officer of the Duke Energy Corporation in 1997, following the merger with PanEnergy.
Although a talented engineer and a capable administrator, Priory nearly realized his dream to play professional baseball. During the mid-1960s he had a tryout with the New York Mets, but to fill the last spot on the minor league system team, officials selected the outfielder Ron Swoboda instead of Priory. Never losing his competitive spirit, Priory played fast-pitch softball in his forties and remained an avid golfer.
ENERGIZING DUKE POWER
Vince Sorrentino, one of Priory's former colleagues, recalled that when Priory came to work at Duke Power, "most of Duke's engineers were still using slide rules, and in comes Rick knowing how to write computer code in Fortran" (BusinessWeek Online, November 5, 2001). Even while he was a design engineer and product manager at Duke, Priory understood that the energy industry was changing and that the company was not prepared to compete in the approaching deregulated environment. As Priory's responsibilities increased, especially after he became vice president of design engineering in 1984 and then executive vice president for power generation in 1991, he slowly began to alter the corporate culture at Duke. By the middle of the 1990s Priory had become the consensus choice to succeed William H. Grigg as CEO. Once he became CEO in 1997, Priory began easing out senior managers who had what he described as a "civil-service mentality" (BusinessWeek Online, November 5, 2001): they believed that if they stayed with the company long enough, they would eventually but inevitably be promoted. In time Priory replaced 33 percent of Duke managers with administrators who had experienced deregulation in telecommunications and banking. The departure of executives marked the first phase of Priory's strategy to transform Duke Power from a regional utility company into the industry behemoth he thought it had the potential to become.
Priory soon learned, however, that there were only so many managers he could replace and only so many positions he could eliminate. After reducing the workforce from 25,000 to 10,000 employees, Priory found himself at the helm of a slightly more efficient regional utility company that was still posting single-digit annual earnings growth. Rate increases, he knew, would do little to solve the basic problem. By the late-1990s it was clear that the traditional model of operating a power company needed further revision. Priory rose to the challenge with imagination and aplomb.
UNCONVENTIONAL WISDOM AND AN UNORTHODOX APPROACH LEAD TO SUCCESS
Priory devised a business formula elegant in its simplicity. Instead of trying to boost profits by acquiring power plants in underdeveloped countries or investing in unrelated industries, as other power companies were doing at the time, he decided to apply vertical integration to the energy market. Outdated, discredited, and abandoned among most manufacturing firms, the creation of an integrated portfolio of fuel and power assets proved a boon to the energy industry. Priory's original strategy focused on the "convergence" of the markets for electricity and natural gas.
Because he was an engineer as well as a businessman, Priory understood that in the near future natural gas would replace coal and even nuclear material as the fuel of choice in new power plants. Priory thought that if it were somehow possible to merge Duke with a company that produced natural gas, the new company would enjoy a market environment that was virtually limitless in its flexibility. When the price of natural gas rose, Duke Power could adjust by selling more of it and buying electricity. On the other hand, when the price of natural gas fell, Duke Power could readjust by purchasing natural gas and selling electricity. The key for Priory was to own or control assets in all facets of the business from production to delivery to sales. Vertical integration facilitated such opportunities. "To play the convergence game well," he explained, "you had to integrate along the energy value chain…. And you had to be good at every part of that energy value chain, from gas gathering and processing to selling electricity" (Electric Light & Power, April 4, 2000).
His strategy in place, Priory began the search for a partner. He found one in Paul Anderson, CEO of PanEnergy (formerly Panhandle Eastern), a company based in Houston, Texas, that operated a natural gas pipeline. Priory bought PanEnergy for $9.8 billion in stock and the assumption of company debts. Though at the time Wall Street analysts derided the transaction, as a result of the merger Duke Power became a major force in both the natural gas and the electricity industries. Initial results, however, were financially disappointing. Earnings showed only a minor improvement while Duke Power stock continued to perform below the utility industry average for years after the merger.
OPPORTUNITIES, CHALLENGES, ACCOMPLISHMENTS, AND FAILURES
Priory remained unperturbed and optimistic. Developments took longer to unfold than he had anticipated, but in the end, time and effort vindicated his judgment. The acquisition of PanEnergy was only the beginning. Between 1997 and 2001 Priory completed more than 80 similar transactions, most of them successful, bringing under Duke's control natural gas reserves, pipelines, and power plants. Eventually all of the pieces of the energy jigsaw puzzle that he had assembled began to fit together. By 2002 net income of the massive Duke Energy Corporation, into which Duke Power had grown, had increased 37 percent to $2.15 billion. Operating revenue stood at $68.4 billion. Earnings per share of stock rose to approximately 30 percent, doubling the industry standard. "He took a company with a regional franchise," declared Kit Konolige of Morgan Stanley Dean Witter and Company, "and made it into arguably the biggest and best of the integrated energy companies" (BusinessWeek Online, November 5, 2001).
Gradually Priory adopted a more complicated business formula to address changes in the energy market. He divested the company of some assets as quickly as he acquired others. He sold the pipelines that Duke had attained from PanEnergy, and when overbuilding in the energy industry threatened profits, Priory sold Duke's interests in power plants in Ohio, Indiana, and Texas at prices higher than the costs of construction. He reinvested a substantial percentage of the profits in other ventures, such as the $8.5 billion purchase of Westcoast Energy, which facilitated the entry of Duke Power into West Coast markets.
In the fast-paced energy industry, accurate information was invaluable. Priory insisted that information at Duke Energy flow freely between one division and another. He encouraged employees and managers alike to communicate with one another regularly on a series of issues vital to the entire company. Information, Priory argued, bred knowledge and understanding; knowledge and understanding bred good decisions; good decisions bred the effective actions that were necessary to success. And Priory, as subordinates often noted, had "a bias for action." He attested, "Information is the very life blood of the business" (Electric Light & Power, April 4, 2000). In Priory's view, keeping ahead of market trends, knowing when to buy and sell, and recognizing the moment when the assets of yesterday have become the liabilities of today mark the narrow difference between success and failure.
Throughout his tenure as CEO, the soft-spoken but fiercely competitive Priory was willing to take calculated, rational, and intelligent risks. For the most part he made the right decisions, and his company flourished. But no utility firm, large or small, completely escaped the repercussions that followed the Enron scandal and Enron's ensuing bankruptcy. By the fall of 2003 Duke stock was trading at 50 percent of its 2001 value, and investors feared an imminent reduction in dividend payments. There was nothing Priory could do to reverse the trend or ease shareholders' anxieties. In the wake of the crisis, Priory stepped down as CEO and turned the job over to Anderson, who had been head of PanEnergy when Duke acquired it. Under Priory's guidance, Duke Energy became a global leader in the energy business, ranking among the top 10 energy companies in the United States at the time of his departure.
See also entries on Duke Energy Corporation and Union Carbide Corporation in International Directory of Company Histories.
sources for further information
"Against the Flow at Duke Energy," BusinessWeek Online, November 5, 2001, http://www.businessweek.com/@@D9UJoYQvHuCvRYA/magazine/content/01_45/b3756083.htm.
Burr, Michael T., "Three for the New Millennium," Electric Light & Power, April 4, 2000, p. 15.
Fisher, Daniel, "Trading Places," Forbes.com, January 21, 2002, p. 52.
Haver-Allen, Ann, "The Thrill of Risk Assessment," University Quad: The Alumni Magazine of Princeton University, Fall 2000, http://www.princeton.edu/~seasweb/eqnews/fall00/feature1.html.
Holy, Chris, "Duke Unveils Finance, E-Commerce Ventures, Energy Daily, March 8, 2000.
Palmeri, Christopher, "The Integrated Btu," Forbes, January 24, 2000, p. 90.
"Richard B. Priory," BusinessWeek Online, January 14, 2002, http://www.businessweek.com/magazine/content/02_02/b3765051.htm.
Roman, Monica, "Duke's Chief Ducks Out," BusinessWeek, October 20, 2003, p. 56.