Statement of Issue: On December 22, 2008 the TVA Kingston (TN) Fossil Plant coal fly ash slurry spill occurred when a holding dike ruptured sending 1.1 billion gallons of coal fly ash slurry into the Clinch and Emory Rivers before ultimately reaching the Tennessee River. This was the largest coal fly ash slurry spill in the United States history. This led many within our state to question-could this happen in North Carolina? On February 2, 2014, Duke Energy’s Dan River Coal Plant near Eden leaked 39,000 tons of toxic coal slurry coating 70 miles of the Dan River with grey toxic sludge. The Dan River Spill was the third largest coal fly ash slurry spill in US history. In August 2014, the General Assembly took the historic step in creating sweeping legislation that will regulate all thirty-two coal ash dumps across the state. This new law was drafted and ratified during the “Short Session” which was very unusual for such a high profile piece of legislation. In accomplishing this feat several influential state legislators have characterized this bill as “ a work in progress.”
Need for Legislative Action: The ratified bill explicitly states that public utilities are prohibited from recovering from retail customers costs relating to unlawful discharges to surface water occurring after January 1, 2014, meaning that Duke Energy cannot recover Dan River cleanup costs in its rate base. However, the law is silent on a public utility’s right to recover costs associated with closure of a pond, meaning that decision will be left to the North Carolina Utilities Commission. North Carolina utility customers should not have to choose between a healthy environment and affordable utility bills. In the 2015 “Long Session” the Senate needs to revise SL 2014-122 (SB 729) to include a polluter pays amendment.
Financial Burden: McGuireWoods, national public affairs consulting firm has already identified who pays for coal ash clean up as a top issue to watch for in 2015 Legislative Session. They cite Duke Energy’s estimates that the excavation and off-site disposal along with conversion of its North Carolina facilities to a dry system could cost as much as $10 billion. Obviously Duke Energy would like to share or pass on as much of this regulatory burden to their utility customers as possible. As utility companies have coal ash ponds across the country, other states likely will consider and many may pass similar legislation making what North Carolina’s General Assembly decides to do impactful on a national scale.
Policy Alternative 1:
• Amend SL 2014-122 to include the principles of a Polluter Pays Mandate.
o Advantages
• This allows the General Assembly the opportunity to continue to put North Carolina’s People and Environment first.
• This recommendation emphasizes to all North Carolina residents and businesses that bad actors that diminish our state’s quality of health, safety and welfare will not be tolerated.
o Disadvantages
• Clean up costs are $10 Billion. Duke may blame regulatory legislation for outdated technology and equipment that could cause inefficiencies in the state’s power grid.
Policy Alternative 2:
• Establish a utility customer “cap rate” that the Utility Commission cannot exceed when (not if) Duke Energy asks for public assistance in paying for the clean up efforts. This cap rate should not exceed 1/3 of total mitigation costs.
o Advantages
• This allows Duke Energy to receive some public rate dollars to assist in mitigation efforts. This allows the state and its largest energy provider to continue their positive working relationship.
• Allowing additional dollars to flow into the mitigation process may allow Duke Energy to complete their clean up efforts sooner than required
o Disadvantages
• Sends a wrong message to bad actors within the state that believe that regardless of the environmental degradation that they commit they will never fully be held accountable.
Policy Alternative 3:
• The “do nothing” alternative. The law would stay intact, unchanged. This allows Duke Energy to seek the entire cost ($10 Billion) of coal ash pond closures from its current utility rate customers.
o Advantages
• This allows Duke Energy to maintain its current level of service and plan for expanded service efficiencies
• This allows the General Assembly to “pass the buck” onto the Public Utility Commission about what is a fair and just way to pay for coal ash pond mitigation.
o Disadvantages
• This could potentially destroy the public’s trust in the General Assembly. The composition of the General Assembly is virtually the same for the upcoming 2015-2016 session as the previous 2014-2015 session demonstrating that the public has faith in the legislature’s prior decision making.
• Not taking action to revise SL 2014-122 may indicate to the voting population that you are demonstrating a number of clichés yet true feelings of the voting electorate such as: shareholder profits ahead of people, corporate bottom lines ahead of productive ecosystems and that breaking the rules does pay off.
Policy Recommendation: Policy Alternative 1, the polluter pays mandate, is the best course of action that can be taken in the 2015 Session as the General Assembly seeks to improve SL 2014-22. The polluter pays mandate is based upon a basic economics term that states, “corporations should pay for the cost of the negative externality they create. The polluter pays principle usually refers to environmental costs, but it could be extended to any external cost. ” In this case, Duke Energy’s North Carolina customers should not have to sacrifice their desire for a well-managed environment or a stable personal economy due to Duke Energy’s operational mismanagement. When the New York Stock Exchange closed trading on August 20, 2014 the same date as SL 2014-122 became law, Duke Energy’s stock price per share was $72.76. In contrast the company’s stock price on August 20, 1970, the average age of Duke’s coal fired power plants was $9.01. They have consistently rewarded their shareholders while doing very little to improve the safety of their coal ash management practices. It is time that the General Assembly beginning with the Senate Committee on Agriculture/Environment/Natural Resources begin to protect the people of North Carolina by installing a polluter pays mandate within the Coal Ash Management Act of 2014 ensuring that utility companies not the utility rate customers are financially responsible for implementing the requirements dictated by SL 2014-122.
To: Senator Stan Bingham-Co Chairman
Senator Andrew C. Brock- Co Chairman
Senate Committee on Agriculture/Environment/Natural Resources
From: Nathan Clark, Environmental Policy Analyst
Date: December 5, 2014
Re: “Polluter Pays” Amendment to SL 2014-122 Implementation Strategy
Since drafting my original policy recommendation memo dated November 23, 2014 I have discussed the polluter pays principle amendment with several important stakeholder and as a result of these conversation have developed a series of implementation strategies.
Duke Energy
Shortly before Thanksgiving, I had the opportunity to discuss the “polluter pays” mandate theory with Heath Shuler who currently serves as Vice President for Government Affairs for Duke Energy. He indicated to me that Duke Energy feels this type of amendment is completely unacceptable and if implemented could negatively effective the same rate customers that the amendment is striving to protect. Mr. Shuler provided me with a basic anecdote why Duke Energy feels that utility rate customers should pay some of the burden of shuttering 32 coal ash ponds across the state. In his view, these ponds were built in the 1960s, where the information available on risk and liability was not well known. If it had been, Duke would have built the ponds better, the cost difference would have been built into their rate structure over the past 50 years. Unfortunately, Duke Energy believes that it would be unfair to impose the entire clean up cost on their corporation while the customer enjoys the benefit of affordable energy prices and a cleaner environment. Mr. Shuler suggested if the “polluter pays” amendment is adopted then utility costumers can expect deteriorating reliability and service from their electric utility services.
Sierra Club-North Carolina Chapter
The Sierra Club, often viewed as North Carolina’s environmental and social justice advocate strongly supports the polluter pays principle amendment. The Sierra Club believes that polluter pays principle is the only method of ensuring corporations end reckless practices of environmental degradation and that corporations not citizen be held financial responsible for their behavior.
POLICY RECOMMENDATION: POLLUTER PAYS AMENDMENT
My recommendation to you remains that same as stated in the November 23, 2014 memo. A polluter pays amendment makes the most sense from both an environmental and social justice perspective. However, I will add a caveat to that recommendation. I was unprepared for Duke Energy’s adamant opposition to the possibility of this amendment. This signals to me that they are prepared to launch a “blitz offensive” targeting major media markets and influential members of the General Assembly. If Duke is successful in mobilizing a vocal, yet effective minority be prepared to switch to Policy Recommendation 2 that allowed the utility commission to cap costs that utility rate costumers at one-third. Although not the most desirable outcome Recommendation 2 still provides consumer protection and ultimately holds Duke Energy accountable for their business practices. Using Recommendation 2 should only be considered a viable option if you believe that you no longer possess the votes in both House and Senate to adopt Recommendation 1 the “Polluter Pays Amendment.” It is better to resolve this issue now with either alternative than allowing the status quo to remain.
Next Steps:
Poll members of Agriculture/Environment/Natural Resources on how they would react to a “Polluter Pays Amendment.”
• If a majority of committee members do not support “Polluter Pays” then float Recommendation 2 “1/3 Cap Amendment.”
• Without a majority, and would prefer super majority, the amendment has little chance to become law.
Bill Drafting
• Begin working with Bill Drafting and the Senate Research Office to formulate a clearly written amendment that would concisely achieve the goals outlined in the policy brief.
• Having both version of the amendment available will be valuable if the “Polluter Pays” amendment fails to gain the necessary traction within committee hearings and full chambers.
Public Relations-Social Media
• Duke Energy is committed to defeat the “Polluter Pays” amendment at any cost.
• There is a diverse network of environmental and consumer advocates that are proponents of Polluter Pays; enlist their assistance in effectively communicating the merits of polluter pays Amendment.
THE STATUS QUO OPTION IS NOT ACCEPTABLE. THE CURRENT LAW DOES NOT OFFER ANY TYPE OF UTILITY CONSUMER PROTECTION. PLEASE FIGHT FOR RECOMMENDATION ONE HOWEVER AT ANYTIME IF POLLUTER PAYS SEEMS DOOMED; REMEMBER RECOMMENDATION (1/3 CAP) AS A POSTIVE ALTERNATIVE.