Good times

 In 2015-11

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There’s so much to love about the fall in North Carolina. The leaves turn. The humidity drops. And don’t even get me started about the sheer joy of casting in the surf at Cape Lookout. But at the top of my list is this: It marks a short period when neither my air conditioner nor my heater needs to run, and so for a few glorious weeks I can pretend that I don’t need the utility companies.

Pretend is the key word. I need them. We all do. And in much of North Carolina, to need a utility is to need Duke Energy, the behemoth that controls nearly all our grid. To take it all one step further is to acknowledge that we are now largely dependent on the drive and vision of Duke’s CEO, Lynn Good, to figure out our state’s energy challenges.

Until the summer of 2013, Good was the CFO at Duke, working with then-CEO Jim Rogers to build his shiny empire. He was the raconteur and bon vivant, master of the rate case and globetrotting evangelist for clean coal. She was the sober number-cruncher who made sure the bills got paid and there was enough left over to keep the shareholders happy. Not quite Tracy and Hepburn, but it worked. Things changed after Duke completed its merger with Progress Energy in 2012 and the new board bounced incoming CEO Bill Johnson after a day at the helm. A year later, in July 2013, Good succeeded Rogers. Since then, it’s fair to say that she has had a trial by fire.

She was seven months into the job when an improperly maintained pipe beneath a coal-ash pond near Eden failed, sending 27 million gallons of coal-ash wastewater and more than 30,000 tons of coal ash into the Dan River. Overnight, she was the face of a company that had betrayed the public’s trust. Good is whip smart, poised and polite, but when I saw Lesley Stahl grill her on 60 Minutes last December, I wasn’t sure she was quite ready for prime time.

I was wrong.

The Duke Energy she is building or remodeling, depending on which part of the hammer you like to wield, is a different animal than the one she took over. It’s still the nation’s largest utility, but it’s becoming more traditional. Under Good’s watch, Duke has sold off a huge chunk of its commercial generation business and bought the generating assets of ElectriCities, the group of cities that helped finance our state’s nuclear plants. These deals move the house money from the mercy of the markets to safer, more predictable shoals. The result is a company more dependent on the regulated side of the business and therefore probably less imperious with the regulators and the public, which elects the folks who make the appointments to the regulatory boards.

None of this is perfect. The$102 million plea deal that the company took with federal prosecutors in May underscores the room for improvement and the need to deliver both operationally and financially.

Duke’s stock has been on a Carowinds-size roller coaster of late. It’s now running in the $70 range, which is a helluva number for a round of golf but less so for a stock that traded as high as nearly $90 in January.  Like many utilities, Duke is a bit of a dividend play. In a world of low interest rates, its recent payout of 4.75% would seem to make it a safe place to park money and get a nice return. So the share price follows the dividend, and the dividend follows the earnings, and the earnings follow the rate cases, and the rate cases? Well, eventually, they are going to follow the coal ash.

Duke’s balance sheet contains a euphemistic liability called “asset retirement obligations.” Traditionally, this was the expected cost of tearing down a power plant. But because of the response to coal ash by state and federal lawmakers, this line item has ballooned, from $4.95 billion at the end of last year to nearly $9.5 billion.

Good and her team are doing the politic thing, which is to hold off on asking its customers to pay for the cleanup, letting the dust — so to speak — settle. Speaking to analysts this summer, company officials were fuzzy about the timing. But Good’s viewpoint is clear: She expects us to pay.

North Carolina regulators have historically understood that utilities must recover mandated costs that accumulate over lengthy periods, she said. “And certainly coal ash, whether it’s at a state level or federal level, those are required costs of decommissioning the plants.”

In North Carolina alone, coal-ash obligations are estimated at $3.5 billion. To put that in context, construction of Duke’s Cliffside Steam Station cost $1.8 billion. Duke expects its coal-ash remediation to continue until 2029, and my guess is that the program and its expenses will run longer and larger.

You can call this the price of regulation and environmental stewardship. You can call this a transfer of wealth. Of course it’s both, a gift that keeps on giving and keeps on taking, just one more cost of keeping the AC running and the lights on.

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