Legal & Regulatory

Duke Energy Reaches $1.1B Deal to Resolve North Carolina Coal Ash Cost Issues

In a milestone settlement that could resolve Duke Energy’s “last remaining major issues” on coal ash management in North Carolina, the utility has agreed to absorb $1.1 billion in cleanup costs anticipated between 2015 and 2030. 

The proposed settlement, which Duke Energy filed with the North Carolina Utilities Commission (NCUC) on Jan. 25, is a major compromise, signaling an end to years of litigation that took shape after the state’s General Assembly enacted the North Carolina Coal Ash Management Act (CAMA) in 2014, in response to Duke Energy Carolina’s February 2014 Dan River coal ash spill

The agreement, which resolves pending issues in North Carolina related to basin closure cost recovery, will provide “immediate and long-term savings for North Carolina customers and certainty to Duke Energy,” the company said. 

View of collapsed coal ash impoundment and closed power plant at Dan River Steam Station (Duke Energy), Eden, North Carolina. The impoundment failure caused the 2014 Dan River coal ash spill. Source: U.S. Environmental Protection Agency

The Cost Dispute

Duke Energy Progress owns eight coal-fired plants and 19 unlined coal ash basins, while Duke Energy Carolinas owns another eight coal plants and 17 unlined coal ash basins. While these Duke Energy subsidiaries began closing their unlined coal ash basins in accordance to requirements set out by federal coal ash rules and CAMA in 2015, the company in 2016 created an Asset Retirement Obligation to account for cleanup costs, which it asserted are “costs related to the operation of a power plant,” and “are typically paid for by customers.” 

In September 2019, Duke Energy Carolinas filed a rate case with the NCUC requesting recovery of $378 million in retail allocation of deferred coal ash costs over five years, and in October 2019, Duke Energy Progress filed a similar rate case requesting recovery of $440 million in deferred coal ash cost retail allocation. NCUC orders in both the utilities’ prior rate cases filed in 2017 ultimately allowed the companies to recover deferred coal ash costs of $554 million for Duke Energy Carolinas and $243 million for Duke Energy Progress. 

In 2017, however, North Carolina’s attorney general, public staff at the NCUC, and the Sierra Club challenged those NCUC orders. In December 2020, North Carolina’s Supreme Court affirmed the challenge in part, though it found that the NCUC did not err by allowing the inclusion of a large majority of the utilities’ coal ash costs in the cost of service used for establishing retail rates.  

Terms of the proposed settlement announced on Monday essentially remand the 2017 and 2019 rate cases, and limit the scope of future rate case proceedings in North Carolina. Specifically, the parties waived all rights until 2030 to assert that coal ash costs can be shared by the company and customers through “equitable sharing” or any other rate base or return adjustment. But the parties also waived their rights to challenge the “reasonableness and prudence” of the Duke Energy’s historical coal ash management practices and costs before March 2020. 

The North Carolina office of the attorney general said that under the settlement, “In the 2019 rate case, Duke Energy will write off more than $485 million in coal ash costs for retail customers.” In future rate cases, Duke Energy “will write off more than $270 million in additional coal ash costs for retail customers.” However, Duke Energy will also reduce its return on equity for cleanup costs, “resulting in additional savings for retail customers of tens of millions of dollars.” Parties to the settlement have also asked the NCUC “to keep in place the $100 million penalty that it ordered in 2017,” it said.

“In total, the settlement is expected to save North Carolina customers more than $1.1 billion between now and 2030. This number is based on the net present value of savings for retail and wholesale customers; the precise amount saved will depend on interest rates and the ultimate amount spent on coal ash cleanup,” the office noted. “The Utilities Commission will render its decision in the coming days and will determine the details of future rates.”

The settlement relates only to payment of coal ash cleanup costs, the attorney general’s office stressed. “It does not change the work that Duke Energy is committed to perform to clean up coal ash under its December 2019 settlement with the Department of Environmental Quality (represented by the Attorney General’s Office), the Sierra Club, and other community groups. The 2019 settlement secures the excavation of more than 80 million tons of coal ash in North Carolina,” it noted. 

Needed Certainty and Confidence for Duke Energy

Duke Energy on Monday said the groups “had a mutual interest in resolving the outstanding litigation in the current rate cases before the NCUC, as well as the North Carolina Supreme Court-ordered review of the 2018 coal ash rate case decisions.”

The settlement will ultimately reduce coal ash costs included in the pending rate requests by 60%, “which would provide immediate customer savings if approved.” And while a resolution may present a financial hit for the company, the milestone settlement will help Duke Energy “maintain its ability to earn a return on the remaining balance, providing greater confidence in achieving its long-term financial goals and its transition to cleaner energy sources,” it noted. 

As POWER has reported, Duke Energy is aggressively pursuing net-zero carbon emissions ambitions. So far, it has announced plans to retire all its coal-only units in North Carolina and South Carolina by 2030. Since 2010, it has already retired 50 coal units—a combined capacity of 6.5 GW. 

The utility’s 10-year capital plan will require substantial near-term investment, but it will provide for a doubling of its enterprise-wide renewable portfolio from 8 GW to 16 GW by 2025 and bring its regulated renewable capacity to 50 GW by 2050. It will also add more than 11 GW of energy storage across its system by 2050. 

In October, the company said its current five-year capital plan will increase by about $2 billion to approximately $58 billion. And beyond that, Duke Energy’s 2025 to 2029 capital plan will be in the range of $65 billion to $75 billion. However, officials said that to keep customer bills affordable, the company will mitigate these capital increases by reducing other costs. 

On Monday, the company noted it is continuing a process to permanently close the remaining coal ash basins in North Carolina with support from the public, regulators, the environmental community, and elected officials. It added: “This settlement affirms that the current closure strategy remains prudent and in the best interests of customers and communities in the Carolinas.” 

“This agreement addresses a shared interest in putting the coal ash debate to rest as we work toward building the cleaner energy future North Carolinians want and deserve,” said Stephen De May, Duke Energy’s North Carolina president. “We were able to reach a balanced compromise that will deliver immediate and long-term savings to customers and provide greater certainty to the company over the next decade.”

Sonal Patel is a POWER senior associate editor (@sonalcpatel@POWERmagazine).

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