Top NC environmental official wanted to fine Duke Energy $50 million over coal ash

“If it was up to me, it would have been about $50 million,” Thomas Reeder, North Carolina’s assistant secretary for the environment, said in court filings.
“If it was up to me, it would have been about $50 million,” Thomas Reeder, North Carolina’s assistant secretary for the environment, said in court filings.

Two months after state environmental regulators socked Duke Energy with a $25.1 million fine for years of coal ash violations, a top ranking agency official expressed regrets.

For not taking a harder line.

“If it was up to me, it would have been about $50 million,” Thomas Reeder, North Carolina’s assistant secretary for the environment, said in court filings.

“They’ve nuked this whole drinking water source for the Wilmington area,” Reeder said. “Haven’t done anything about it. Haven’t owned up to it. So in my opinion, the penalty should have been a lot more severe than it was.”

Reeder’s blustery comments, made to Duke’s lawyers in a June court deposition, reveal the growing frustration at the N.C. Department of Environmental Quality, prompting the agency to levy the largest – albeit short-lived – environmental fine in the state’s history, against Charlotte-based Duke in March.

At the time, Reeder expected the fine would be the first in a string of large penalties against Duke.

Instead, the power company and the state settled the lawsuit last week for $7 million, averting a trial. The settlement resolved coal ash-related groundwater contamination issues at all 14 Duke sites across the state, amounting to $500,000 per site.

The voluminous depositions of Department of Environmental Quality officials, piled in boxes at the Office of Administrative Hearings in Raleigh, hint at the direction the trial would have taken, as both sides amassed evidence and questioned 25 potential witnesses. The depositions expose the strategy sessions and political sensitivities within the environmental agency as state officials faced public scrutiny over their handling of a mounting coal ash liability.

“Everybody in the newspapers wants to talk about our cozy relationship with Duke,” said Reeder, a U.S. Marine Corps veteran and engineer who joined the agency in 1998. “I could give a damn less about Duke.”

What put environmental officials over the edge, according to Reeder’s account, was Duke’s agreement to pay a $102 million criminal fine to the U.S. Environmental Protection Agency in February, just weeks before the state pressed ahead with its fine. As the feds basked in their triumph against the nation’s largest electric utility company, environmental advocates derided North Carolina’s environmental regulators as little leaguers.

Reeder was stunned by Duke’s acquiescence to the EPA.

“You rolled over for the feds and wrote them a check for $100 million and plead guilty to crimes that technically weren’t even crimes,” Reeder told Duke’s lawyers. “You’re not writing us a check. You write the feds a check. You cop a plea. Us, you’re going to take us to court and fight us, when you actually did damage here.”

Thousands of pages of depositions show that the state agency was poised to paint Duke as a chronic corporate polluter long accustomed to special treatment. For their marquee fine, state regulators picked Duke’s L.V. Sutton power plant site near Wilmington, where elevated levels of boron in groundwater prompted the power company to spend $1.8 million to pipe municipal drinking water to a low-income community.

Violations tied to bonuses

Coal ash problems in the state go back decades, when electric utilities dumped the ash from coal-burning power plants into large open pits. Only in recent years has public awareness caught up with the ecological shortsightedness of depositing carcinogens and other toxic waste near drinking water sources.

North Carolina’s legislature last year passed a comprehensive coal ash management law, and Duke is now on track to shut down and clean up seven of its 14 sites where coal ash is stored, with the remaining seven sites under review.

The court depositions also show that utility managers may have been motivated to delay disclosing groundwater contamination. According to environmental engineer John Toepfer, workers at Progress Energy risked losing their annual bonuses if the Department of Environmental Quality cited the utility for coal ash violations that had been decades in the making. Toepfer, a Duke witness, was deposed by the department’s lawyers.

“We took compliance very seriously, so much so that (violations) and penalties and those types of things could affect potential bonuses,” said Toepfer, now a Duke employee. “It doesn’t seem to be fair to penalize employees for potential sins that may have been created 40, 50 years ago at these ash basins.”

The Sutton site, formerly owned by Progress Energy and acquired by Duke in 2012 as part of the Duke-Progress merger, has exceeded groundwater standards for a number of constituents, including arsenic and thallium, a onetime ingredient in rat poison long since banned in this country.

Initially state environmental regulators calculated a fine of $27,400, based on 27 days of groundwater lab samples, according to Duke’s reconstruction of events. Dissatisfied with that meager result, the agency opted for a more aggressive method, extrapolating the violations to 1,822 days, which netted a $25.1 million fine.

Duke’s investigation focused on whether department Secretary Donald van der Vaart instructed his staff to disregard established rules and improvise new policies. Duke alleged van der Vaart was trying to defuse criticism that his agency was providing political cover for Republican Gov. Pat McCrory. A former Duke employee of 29 years, McCrory appointed van der Vaart as the state’s top environmental regulator in January.

Duke never proved a direct link between van der Vaart’s actions and McCrory, but the company had still not received thousands of internal agency documents at the time the case settled last week.

Contamination levels disputed

In his daylong deposition on Aug. 27, van der Vaart distanced himself from the penalty calculation, saying he delegated the technical details to Reeder and other agency staff. Van der Vaart, a chemical engineer with a law degree, deflected questions from Duke’s lawyers at least 150 times by saying he couldn’t remember, didn’t know, wasn’t sure or didn’t understand the question.

“My belief is that the violations that we cited Sutton for were long overdue,” van der Vaart said. “What I believe was unique was the very long time over which Duke was cognizant of violations that were ongoing.”

Reeder’s frustrations overflowed during his deposition.

“Duke has never owned up to actually contaminating this groundwater,” he told Duke’s lawyers. “They still have never publicly said they’ve contaminated it, but yet you plead guilty to federal charges that aren’t really even a crime. So that’s where I get the $50 million from.”

Duke has characterized the groundwater contamination at the Sutton site as “trace amounts” that don’t pose a public health threat.

State records show that, at their highest recorded levels, arsenic was more than four times higher than the state groundwater safety standard. Boron was five times higher than the standard and thallium three times higher, as measured in parts per billion.

Even when contaminants exceed allowable limits at a monitoring well, those chemicals dissipate in the groundwater as it flows away from the coal ash, Duke has said.

Duke also contends that many of the contaminants are naturally present in groundwater and shouldn’t be automatically blamed on the coal ash dumps. For example, 39.9 percent of private wells sampled in the state exceed state manganese standards, and 57.6 percent of private wells exceed the state standard for iron, Duke’s lawyers said during depositions.

Under questioning from Duke’s lawyers, Reeder acknowledged that Wilmington’s water is safe to drink.

But four months before the state settled the case, Reeder said Duke’s Sutton fine was no fluke. He said the environmental agency was just getting started.

“We’ve got contamination at all 14 of these facilities,” Reeder said. “So this is just No. 1. We’ve got 13 of these left to go.”

John Murawski: 919-829-8932, @johnmurawski