A federal judge ordered Duke Energy to pay a record $102 million criminal penalty Thursday for a humbling litany of ignored warnings that preceded last year’s coal ash spill into the Dan River.
The penalty is the largest criminal fine in North Carolina’s federal courts, Senior U.S. District Judge Malcolm Howard said in accepting a plea agreement between Duke and prosecutors.
“It is our hope this prosecution speaks loudly,” said U.S. Attorney Thomas Walker of Raleigh, whose office convened the grand jury that led to Duke’s guilty pleas to nine misdemeanors. “Today we said that big companies will be held accountable.”
Duke will pay $68 million in fines and $34 million for environmental projects in North Carolina and Virginia – none of it recoverable from customers. It will serve five years of probation under a court-appointed monitor.
The charges include illegally channeling contaminated seepage from coal ash ponds at three power plants, including Riverbend west of Charlotte. Duke also pleaded guilty to not maintaining ash pond structures at its Cape Fear plant in Chatham County that leaked into the Cape Fear River.
But half the fines stemmed from the February 2014 ash spill into the Dan River.
Among Duke’s most glaring failures there, prosecutors said: twice refusing to spend $20,000 on internal pipe inspections three years before a 48-inch stormwater pipe failed under a 27-acre coal ash pond.
Up to 39,000 tons of ash dropped into the Dan River. Neither of the other two larger spills, in Tennessee and Pennsylvania, resulted in criminal investigations.
The inspections would have revealed that the pipe was made of 60-year-old corrugated metal, not the concrete that Duke engineers supposed, prosecutors said.
“It took the third-largest ash spill in the nation’s history to bring about that action,” Banu Rangarajan, a federal prosecutor from Raleigh, told Howard.
Duke agreed in court filings that for years it failed to act on other recommendations to monitor pipes for leakage from the ash ponds.
Duke had repaired water leaks in both pipes in 1979. Independent consultants had identified the aging pipes as potential problems since 1981.
But Duke didn’t measure the water flowing from the pipes, to detect leaks, as a consultant recommended in 1986. No inspections of the flow from the larger pipe were done for nine years because of heavy undergrowth and snakes.
“We hold high expectations for ourselves, and with the Dan River spill we didn’t meet those expectations,” Duke’s chief legal officer, Julia Janson, told the judge. Chief Executive Lynn Good did not appear in court.
But the government accepted pleas that attributed those problems to negligence, not willful violations. “This was an accident,” John Cruden, an assistant attorney general in the Justice Department, said of the Dan River spill.
By pleading guilty to misdemeanors, charges that reflect only negligence, Duke avoided felony convictions. Felonies would tarnish its standing with regulators and could keep the company from winning government contracts.
“Today was about accepting responsibility and moving forward differently in the future,” Charlotte attorney Jim Cooney, who represented Duke, said after the hearing. “The pleas mean Duke is a different company.”
Cooney also suggested in arguments before the judge that Duke was not solely at fault for the spill.
A manufacturing defect in the broken pipe contributed to its abrupt failure, Cooney said – a prospect neither the company nor outside experts thought could happen. Duke didn’t do the recommended video inspections of the pipe because it was expected to be removed soon after the Dan River power plant’s coal unit was retired in 2012.
Duke’s lawyers cited its “extraordinary” cooperation with prosecutors, including producing 1.6 million pages of documents over the yearlong investigation.
The company emphasized the steps it has taken since the spill. Those include an overhaul of coal ash management, including the naming of an outside advisory board. State legislators have ordered Duke to close all 32 of its ash ponds by 2029.
Combined with the $3.4 billion Duke says it will cost to close the ponds, the federal penalty imposed Thursday is the second-largest criminal fine under the 43-year-old Clean Water Act.
Duke, the nation’s biggest electric utility, earned nearly $1.9 billion in 2014.
While the federal case does not resolve state violations, it can’t further penalize past incidents and doesn’t force Duke to take more action than required by state law.
“What it doesn’t do is clean up the coal ash that continues to leak into water supplies, into rivers,” said John Suttles, an attorney with the Southern Environmental Law Center, which has sued Duke over ash contamination.
Duke has reported more than 200 seeps from its ash ponds that, together, leak about 3 million gallons a day. Tests of private wells near those ponds have found high levels of contamination – 152 of 163 results reported by April 30 showed exceedances of state groundwater or interim standards.
Duke says state and federal officials knew for years about the seeps and the groundwater contamination that has been found at all 14 of its North Carolina coal plants.
Top officials with the Environmental Protection Agency and Justice Department attended the five-hour hearing Thursday.
“We are serious about making sure this company turns the corner and does things right,” EPA Assistant Administrator Cynthia Giles said.
While the pleas resolve the federal criminal charges against Duke, government officials pointedly did not declare the coal ash investigation over.
Walker’s subpoenas also went to 18 past or current officials of the state Department of Environment and Natural Resources, although none have been charged.
The settlement also doesn’t resolve state investigations. Duke is fighting a $25 million state fine levied in March for contamination at the Sutton power plant in Wilmington. The state has also cited Duke for violations at its Asheville plant but has not issued a fine.
Duke also faces more than a dozen lawsuits over ash contamination filed by North Carolina and advocacy groups, and six shareholder suits claiming company officers and directors placed Duke at financial risk.