Duke Energy’s Regulators Tighten Screws Amid Federal Inquiry

North Carolina environmental regulators are cranking up pressure on Duke Energy Corp. to clean up 33 toxic coal ash ponds in the state as a federal grand jury meets to investigate state oversight of the power company.

The North Carolina Department of Environment and Natural Resources rejected as “inadequate” a March 12 plan by Duke to eliminate the risk of ash spills, in part because it may take more than four years. It warned Duke March 14 they it may force the company to move coal ash from two plants and accelerate closing of ponds at a third following the spill of as much as 39,000 tons of ash into the Dan River from a Duke plant near Eden, North Carolina Feb. 3.

The largest U.S. utility owner, Duke operates seven coal-burning power plants in North Carolina. It owns seven other sites, including the one at Eden, with ash ponds remaining after plants were retired or replaced with generators burning natural gas.

“Moving all the coal ash ponds could be a substantial cost,” said Kit Konolige, a New York-based analyst for BGC Partners LP who rates Duke shares at buy and owns none. Shareholders could carry the burden of that clean-up, instead of customers, if regulators feel pressured by politics to settle blame on the company for inadequate handling of the sites, he said.

Who Pays

While shareholders expect Duke will bear the cost for cleaning up the Dan River, the utilities’ customers should pay for the permanent disposal of ash at remaining sites because it’s a routine part of the cost of generating power, Konolige said.

Duke, based in Charlotte, has underperformed the 30-company Standard & Poor’s 500 Utility Index by 5.5 percent since the Dan River spill, according to data compiled by Bloomberg. It lagged 7.8 percent behind the S&P 500. Over the previous five years, Duke had outperformed the index of peers by about 67 percent.

U.S. Attorney Dan Walker subpoenaed state documents on inspections, leaks and discharges from Duke’s coal ash ponds last month, Sam Watson, general counsel for the North Carolina Utilities Commission, said March 13. Walker also subpoenaed current and former officials of Duke and the state’s environmental agency. That evidence is expected to be presented to a grand jury meeting in Raleigh today through Thursday.

Environmental groups including Greenpeace have accused North Carolina Pat McCrory, a former Duke employee, and state regulators of going too easy on Duke.

‘Disturbingly Cozy’

“It’s about time someone took a hard look at the disturbingly cozy relationship that Duke Energy has been buying from its regulators in North Carolina and elsewhere,” Gabriel Wisniewski, energy campaign director for Greenpeace, said in a Feb. 13 statement.

Power plants sluice coal ash into ponds, where solids can settle, according to a Feb. 17 report to North Carolina legislators. Plants are allowed to discharge pond water into rivers and streams, so long as it meets pollutant limits, according to the report.

Oversight of ash-pond waste sites shifted from the utilities commission to the Department of Environment and Natural Resources in 2010, Watson said. No federal regulations currently govern coal ash, although the U.S. Environmental Protection Agency is expected to publish rules in December.

Contaminated water and ash begin spilling into the Dan River last month when a corrugated metal storm water drainage pipe under a pond ruptured, according to state records. Duke said it plugged the pipe Feb. 8. Dredging to remove ash from the river is ongoing, said David Scanzoni, a Duke spokesman.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE