Tuesday, May 24, 2022

How Duke Energy and Sierra Club settled the coal-ash payout

It’s been seven years ago this month that a pipe busted at a coal ash containment pond at the Duke Energy plant near Eden, allowing 39,000 tons of coal ash into the Dan River. Duke executives, regulators and other energy experts had known that coal ash could become a problem because it’s a nasty, toxic byproduct of burning coal.

Like most problems, it took a crisis to spur action. “Because of the Dan River spill, Duke was forced to make changes on how they deal with coal ash,” says Dave Rogers, who works for the Sierra Club’s Beyond Coal campaign and is based in Durham.

Related to Dan River, Duke pleaded guilty to nine criminal violations of the Clean Water Act, paid a $68 million criminal fine and spent $34 million on environmental and conservation projects to benefit rivers and wetlands in North Carolina and Virginia.

But Duke estimated an eye-popping $8.5 billion tab for cleaning up and closing coal ash basins at its existing and retired coal plants, about half of the cost involving North Carolina operations. The cleanup at 31 N.C. sites will take more than a decade. Who should that pay that bill has been a source of much dispute and litigation for several years.

The matter was largely settled last month in a deal involving Duke, N.C. Attorney General Josh Stein, the N.C. Public Staff and the Sierra. Stein and others presented the deal as a victory for N.C. consumers because they are “only” paying about $3 billion towards the state’s $4 billion tab. But with the N.C. Utilities Commission still needing to ratify that settlement,  it’s worth taking a look at the matter.

A lot of people argued that Duke stockholders should pick up the whole check because it isn’t ratepayers’ fault that the issue wasn’t handled over the decades. Others say that remediation is a cost of doing business and ratepayers — who benefited as Duke avoided spending money to clean up the coal ash — should pay a share.

Environmental groups largely favored the former approach. But they got pragmatic after the Utilities Commission and N.C. Supreme Court made clear that saddling Duke with the whole bill “wasn’t a realistic option,” Rogers says. “Both had opportunities to do that, but neither came close to reaching that solution.”

The Sierra Club reasoned that decision makers would force Duke to pay from zero to half of the cleanup tab, “so a settlement in which they will pay 25% seems like a fair deal,” he adds. The Public Staff, which is charged with representing the public interest in rate cases, had pushed for a 50-50 split, according to the Charlotte Business Journal.

The COVID-19 crisis played a role because the Sierra Club believed that ratepayers need some immediate relief. Rate cases likely to be decided in the next few months will lead to savings for those customers, who otherwise might have to wait for years for a decision, Rogers notes.

The broader issue is whether saddling Duke with a $4 billion expense would be crippling for the giant utility as it tries to make the shift from relying so heavily on coal and natural gas as fuel sources to more alternative energies. The settlement prompted a one-notch cut in the Duke’s credit rating by S&P Global Ratings. Another group, CreditSights, called the settlement a net positive for Duke.

Environmental groups say Duke isn’t closing its coal plants fast enough and continuing to spend too much on natural gas operations instead of making bigger bets on wind, solar and other alternatives. Rogers points to Minneapolis-based Xcel and Merrillville, Ind.-based NiSource as utilities showing leadership in making such a transition.

Duke says it is making aggressive moves but can’t risk its system’s reliability and shortages that could harm the economies in its six-state region. The utility has to juggle demands from industry and the public for low rates with pressure from environmental groups and a Biden Administration focused on climate change.

“For the Sierra Club, our goal isn’t to weaken Duke or other monopoly utilities,” Rogers says. “Our goal is to help them transition to a cleaner future as soon as they can.”

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David Mildenberg
David Mildenberg is editor of Business North Carolina. Reach him at dmildenberg@businessnc.com.

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