Coal ash became a front-burner issue in North Carolina after a February 2014 spill of more than 39,000 tons of coal ash from Duke Energy's shuttered Dan River coal plant.
Duke Energy Corp. (NYSE: DUK) will take a pre-tax charge of up to $200 million against third-quarter earnings after the South Carolina Supreme Court agreed its utilities could not charge customers in that state about $180 million in coal-ash cleanup costs.
The S.C. Public Service Commission issued rate case orders in 2019 that rejected about $115 million in Duke Energy Carolinas coal-ash costs and $65 million for Duke Energy Progress. The commission contended those costs were incurred because the N.C. Coal Ash Management Act (CAMA) has stricter environmental requirements than either South Carolina or federal law.
All routine costs for power production on the combined Carolinas system for both utilities are usually divided between the two states on a pro-rata formula based on the number of customers each utility has in each state. The commission held in 2019 that because the additional costs were imposed by North Carolina legislators, they could not be levied against South Carolina.
An opinion written by Acting Chief Justice John Kittredge in which there was a single partial dissent on the five-person court affirmed the commission on all its decisions in the two rate cases.
Finding that CAMA was a rule made to ensure the environmental safety of North Carolina residents and that it only applied to North Carolina coal plants, Kittredge held that the decision of the commission was proper as a matter of law and neither arbitrary nor capricious.
“North Carolina customers benefit — and were intended to benefit — from CAMA's requirements, whereas South Carolina customers do not enjoy a similar, direct benefit,” Kittredge writes in his opinion on Oct. 27. “It is clear from the level of detail set forth in the PSC's orders that it thoroughly and thoughtfully weighed the testimony and evidence prior to reaching its decisions.”
Kittredge also upheld a decision to disallow about $1 million in coal-ash litigation fees and the commission’s ruling disallowing carrying costs for deferred charges involving coal ash.
Duke spokesman Ryan Mosier says the company is still reviewing the order and the accompanying partial dissent by Justice George Few Jr., which contends that Duke should collect the basic coal-ash costs. But he said Duke is disappointed with the ruling.
“We disagreed with the Public Service Commission of South Carolina in these rate cases because we believe the costs in question were appropriate expenses incurred related to the generation of electricity which has served South Carolina customers for decades,” he says. "Our argument before the court and the evidence in the case made that clear.”
It is not clear if there is any route of appeal for Duke, as there would have to be a federal issue involved to bring the case to the federal courts.
The Office of Regulatory Staff, charged with balancing the rights of customers and utilities in the state, welcomed the ruling. ORS director Nanette Edwards says it “represents a victory for Duke Energy’s South Carolina customers.”
“We argued that Duke Energy’s South Carolina ratepayers should not pay for hundreds of millions of dollars in increased environmental clean-up costs attributed to legislation from another state,” she says.
The impact of coal-ash pollution had been a simmering battle for years in the Carolinas. It came to a head in North Carolina in 2014 when a rusted stormwater pipe under a coal-ash pond at Duke Carolina’s shuttered Dan River Steam Station collapsed and spilled up to 39,000 tons of coal ash into the river in Rockingham County.
Duke was charged with felony violations of the federal Clean Water Act in connection with that spill, and eventually agreed to plead to misdemeanor charges in the case. It also paid significant fines imposed by North Carolina environmental regulators for ash storage and groundwater violations at all of its 12 current and former coal plants in the state.
The N.C. General Assembly passed CAMA as a direct response to Duke’s coal-ash issues, which eventually required the company to either excavate and rebury all the ash at the plants in lined landfills or find some “beneficial reuse” for the ash that prevented future pollution.
Duke has agreed to pay $1 billion of the roughly $8.5 billion it expects it will ultimately cost to make its Carolinas coal-ash sites conform to new federal and state regulations.
Duke made a filing with the U.S. Securities and Exchange Commission today that states “as a result of the Court’s opinion, DEC and DEP expect to recognize total estimated pre-tax charges of approximately $100 million to $200 million in the third quarter of 2021 principally related to coal ash remediation at retired coal sites.”
It also says any future earnings impacts from the ruling “are not considered material” to the company’s overall finances.
The court ruling notes that the South Carolina Public Service Commission allowed Duke utilities to collect about $707 million in coal-ash cleanup costs from customers in that state. That was only about half of what the two utilities requested. But most of the costs were disallowed for reasons unrelated to the difference between N.C. regulatory requirements in CAMA and the S.C. and federal environmental requirements.
It is possible the ruling could mean that Duke would be barred from recovering some future costs for cleaning up the coal-ash sites in South Carolina. The court notes that the Edwards’ regulatory staff had successfully argued that regulators had in the past required Duke to allocate special costs to the state that caused those costs to be charged just to customers in the state that imposed the costs. Thus, South Carolina customers have been spared paying costs incurred by North Carolinas’ Clean Smokestacks Act in 2002 and N.C. Renewable Energy Portfolio Standard in 2007. North Carolina customers are not charged costs imposed on Duke by the S.C. Distributed Energy Resources Act, passed in 2014.
With that established, the issue of increased coal-ash costs because of CAMA could come up in future rate cases. Edwards says the new ruling will be cited in future rate cases in South Carolina. But she notes it is possible that Duke would not be barred from recovering future costs if federal coal regulations or South Carolina's own statutes change in ways that bring those costs up to the charges imposed by CAMA.
Duke did not lose on all counts in the rate case or Supreme Court ruling. The S.C. commission allowed Duke to collect $125 million spent on preliminary work on the never-built Lee Nuclear Station. That was the calculation of South Carolina’s share of the $558 million total Duke Carolinas had spent on the project before deciding against construction.
The South Carolina Energy Users Committee had argued in the case before the Supreme Court that Duke should have been barred from collecting that money. But the court affirmed the commission’s decision to allow that recovery.
