March 8, 2014

Duke Energy’s $1 billion cleanup: Who would pay?

The company has tried for years to avoid cleaning up the coal ash pits. It is now likely to ask that ratepayers cover the cost.

As public pressure builds to dig up coal ash from waste lagoons in North Carolina, Duke Energy is facing a potentially massive cleanup bill that the Charlotte electric utility has been trying to dodge.

Early indications suggest Duke’s price tag could approach $1 billion, based on ash removal expenses in South Carolina. Deciding who pays the bill – Duke’s customers or its shareholders – would pose another challenge.

New details on Duke’s coal-ash strategy are expected to emerge this week when the power company responds to a state demand for internal documents detailing options for handling the incinerated waste. The documents, due March 15, will cover specifics on Duke’s cost estimates and other calculations that state officials want to review so they can decide how to deal with ash pits that are contaminating groundwater.

Duke CEO Lynn Good said Friday that Duke would seek to recover the cost through customer rates. Billing Duke’s customers for such an extensive cleanup operation would require approval from the N.C. Utilities Commission. Customer bills wouldn’t be affected immediately, and Good noted it’s an issue “that will unfold over time.

Critics of Duke’s coal-ash storage practices say that customers should be spared and that instead the cost should be borne by Duke and its investors.

“Duke has profited from doing the cheapest thing for decades, and it’s now time for them to pay the bill,” said D.J. Gerken, a lawyer for the Southern Environmental Law Center.

The environmental law center is involved in a pair of lawsuits against Duke over underground contamination seeping from the coal-ash lagoons. On Thursday, a Wake County judge ruled in the law center’s favor in one of the cases, saying Duke must eliminate the source of groundwater contamination at its ash sites.

Republican Gov. Pat McCrory, who had worked at Duke nearly three decades, said last month that the coal ash should be moved as a matter of public safety.

“The answer is probably going to be removing the ash and moving it, but maybe not in every case,” DENR spokesman Drew Elliot acknowledged. “We don’t know what the next problem is, and we don’t want it to sit around and wait – we want to take action.”

A large mess

Hauling ash from several dozen locations across the state is far from the most economical solution to Duke’s problem. Duke has 33 ash waste pits at 14 sites.

As a reference point, the Santee Cooper utility in South Carolina expects to spend $250 million to empty 11 million tons of ash from seven sites. That remediation project would take 10 to 15 years and require excavating a foot of underlying soil.

Duke has nearly 10 times as much ash – 106 million total tons, 84 million soaking in lagoons – that could cost hundreds of millions of dollars more to remove.

Duke would face additional cleanup costs if groundwater contamination under the lagoons is found to have migrated as a toxic plume, flowing off-site to wells or other drinking water sources. The extent of the contamination at Duke’s waste pits is not publicly known, but already in two locations, Asheville and Wilmington, the utility has agreed to provide alternative sources of drinking water to residents where contaminants have reached neighborhoods.

In response to the coal-ash spill in the Dan River last month, Duke quickly promised to clean up the spill damage and to absorb the expense. A collapsed culvert disgorged up to 39,000 tons of coal-ash sludge, coating about 80 miles of the river bottom from Eden to Kerr Lake near the Virginia border.

But Duke is not expected to volunteer to pay the cost of excavating and removing ash from existing pits, said James McLawhorn, who heads the Electric Division of the N.C. Utilities Commission’s Public Staff, the agency that represents consumers in utility rate matters.

McLawhorn said that environmental compliance costs, such as scrubbers and other pollution controls, are typically embedded in utility rates. Good, Duke’s CEO, said that ash-pond expenses are a cost of generating power and would be covered in customer rates.

“Because that ash was created over decades for the generation of electricity, we do believe that ash-pond disposal costs are ultimately a part of our cost structure,” she said.

If the total cost of the ash removal came to $1 billion, the effect on a typical residential bill would not necessarily be onerous. A typical household in the company’s service area would have to pay roughly between 50 cents and 75 cents a month for 10 to 15 years, McLawhorn said.

Then there’s the question of what to do about the contaminated groundwater collecting for decades under Duke’s ash-disposal sites. The utility could potentially avoid the additional economic burden of having to clean it all up, said Lisa Evans, a lawyer for Earthjustice, an environmental group that has litigated over coal-ash storage.

The key to stopping the source of groundwater contamination is scooping out the ash and allowing the contamination to diminish naturally over time, she said.

“Generally when you take away the source of the contamination, there’s no further treatment needed to the groundwater,” Evans said. “These are not complicated cleanups. This is earth-moving with testing to make sure the contamination isn’t spreading.”

Where will it go?

Digging out the waterlogged ash and trucking it away has never been Duke’s optimum way of dealing with the waste. Hauling ash from the giant open pits would require building modern, lined landfills to store the ash in dry form.

Some utilities, such as We Energies in Wisconsin, were able to recycle coal ash as a supplemental fuel in 2000 and 2001. That’s because ash can contain a substantial amount of coal dust that didn’t burn the first time.

The preferred option is to sell the ash to the construction industry to make cinder blocks, concrete and other building materials. However, electric utilities typically generate more ash than they can sell, hence the need for on-site storage in pits and lagoons.

A year before the coal-ash spill into the Dan River, Duke had operated under the assumption that most of the ash could remain in the utility’s unlined ash-waste lagoons for an indefinite period.

Communications between Duke and the N.C. Department of Environment and Natural Resources show that as environmentalists were intensifying their call to remove the ash waste, Duke officials were plotting a different course.

Duke intended to leave ash mounds in place at its W.H. Weatherspoon Power Plant near Lumberton in the aftermath of mothballing its coal-burning power plant there in 2011. Weatherspoon was the first ash-storage facility queued up for decommissioning since the pit was no longer taking ash.

The power plant and accompanying ash pit had been owned by Progress Energy and was acquired by Duke as part of the 2012 merger of the two companies.

Duke updated state officials at a February 2013 meeting that the decades of accumulated ash could be dried out, covered with a layer of soil as a “geomembrane cap” and then left as is.

“Those sites are unique from the standpoint of the (contaminant) type and the fact that much or most of the waste will be left in place,” wrote Stephen Barnhardt, now a DENR section chief in the agency’s Waste Management Underground Storage Tanks Section, in a January 2013 email to other agency officials who were developing “Guidelines for the Closure of Ash Ponds.”

This approach is accepted by the industry and is being adopted by TVA, the Tennessee utility that is now headed by former Progress Energy CEO Bill Johnson. In 2008, TVA experienced the nation’s biggest coal-ash accident, spilling more than 1 billion gallons and flooding 300 acres with slurry and sludge.

Duke had planned to file a permit application to DENR in May to decommission the Weatherspoon ash pit, but the review process stalled in March when DENR filed its first lawsuit against Duke over coal-ash pollution, said Debra Watts, the supervisor at the Groundwater Protection Branch within DENR’s Water Quality Regional Operations Section.

The agency now has several lawsuits pending against all 14 Duke ash-storage sites. The case is pending before the same Wake County judge who ruled last week that Duke has to stop the contamination at those sites.

Duke and DENR now say they are reassessing all options for safe handling of coal ash.

High arsenic levels

The groundwater contamination at Duke’s coal ash facilities includes chemical elements and heavy metals such as iron, manganese, selenium, thallium, boron, sulfate and antimony.

Gerald LeBlanc, director of N.C. State’s Environmental and Molecular Toxicology Program, reviewed the lab test results from groundwater samples that DENR included in its lawsuit against Duke.

He said that in many cases, the violations appear as trace elements that wouldn’t cause a health problem for most people from limited exposure. In some cases, the excess levels of iron and manganese are equivalent to daily vitamin pills, he said.

“I don’t want to underplay the potential risk,” LeBlanc said. “The great majority of the population can tolerate one vitamin pill a day, but some can’t tolerate two, and they get sick.

“If I had a well that had the higher numbers that we’re looking at here, I would not drink it,” he said.

LeBlanc noted that the most serious problems are the high arsenic levels at the H.F. Lee plant in Goldsboro, where arsenic concentrations in groundwater have been recorded at 66 times the recommended maximum level for drinking water.

Arsenic concentrations at those levels are associated with increased incidence of some cancers, vascular diseases and diabetes, LeBlanc said.

“I would be concerned if anyone is at risk of drinking water at the higher levels,” he said. Charlotte Observer staff writer Bruce Henderson contributed.

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