John Locke Update / Research Brief

Stein’s coal-ash settlement agreement means even higher rates for Duke customers

posted on in Economics, Economics & Environment, Energy & Environment, Law & Regulation
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  • Weeks after declaring an NC Supreme Court ruling over coal ash cleanup costs was a “major win for electricity consumers,” NC Attorney General Josh Stein announced a settlement with Duke Energy burdening consumers, not shareholders, with the lion’s share of the $4 billion cleanup charges
  • The market response on the announcement suggests that customers would be stuck paying $1.4 billion too much
  • Prior to becoming governor, AG Roy Cooper spoke strongly against consumers being made to pay coal ash cleanup costs, but under his governorship and two settlement agreements later, consumers appear to be on the hook for almost 90 percent of the $9 billion cleanup costs

On Jan. 25, North Carolina Attorney General Josh Stein announced that he had reached a settlement with Duke Energy on who should pay for the cleanup of the first group of coal ash basins covered by the Coal Ash Management Act (CAMA).

The question of who should pay for cleaning up this initial group of basins was ultimately left to the Public Utilities Commission. When Duke first came to the Commission seeking reimbursement of work they had completed since CAMA became law, the Commission essentially agreed that the ratepayers could be charged for the cleanup. A number of groups challenged that decision, as did Stein.

The NC Supreme Court returned a decision in December that seemed to be a mixed bag. Stein referred to it as “a major win for electricity consumers on coal ash cleanup costs.” If so, then why did the attorney general decide to settle?

Under the settlement announced by Stein, approximately 25 percent of the $4 billion in estimated cleanup costs be charged to Duke’s shareholders rather than Duke’s customers. The lion’s share of the costs would still be the responsibility of ratepayers.

Was that a good deal? It depends on what the Utilities Commission would ultimately have decided. It’s clear Duke wouldn’t have signed onto a settlement that they believed would put too much of the costs on their shareholders.

One indication about the deal could be gleaned from the market response to the announcement. At 9:29 a.m. on the morning of Jan. 25, the advance copy of the announcement went out to the media outlets. Here is the share price during this period:

Duke’s share price jumped up from about $90 to $92 beginning at 9:30 a.m. That $2 increase, roughly calculated based on approximately 700 million outstanding shares for Duke Energy, represents about $1.4 billion. From that, some may argue that the market believed the cleanup settlement’s burden of cost upon Duke’s shareholders was $1.4 billion too low.

In other words, Stein left $1.4 billion on the table. If true, it would mean that, thanks to Stein, customers would be stuck paying $1.4 billion too much for their share of the cleanup costs. No wonder Duke signed.

The Cooper administration has customers now forced to bear nearly all coal ash cleanup

Remember when Cooper was attorney general running for governor. He had opposed the Coal Ash Management Act specifically because, in his words, it would “allow the public utility to unfairly charge customers for the cost of these actions.” Instead, Cooper urged the legislature explicitly to “prohibit the Commission from authorizing utility rate increases related to these costs.”

He also said that “in this situation it is better to come down on the side of the consumer.”

That was before Cooper became governor and two coal ash cleanup settlements ago. Note that the settlement Stein announced doesn’t cover the additional cleanup costs associated with a December 2019 settlement signed by Cooper’s Department of Environmental Quality under Sec. Michael Regan. That settlement explicitly agreed that an additional $5 billion in cleanup costs should be paid by Duke’s customers.

So for now, consumers appear to be on the hook for almost 90 percent of the $9 billion cleanup costs.

Dr. Donald van der Vaart earned a B.S. in Chemistry from UNC Chapel Hill, an M.S. in Chemical Engineering from N. C. State University, a Ph.D. in Chemical Engineering from Cambridge University and a J.D. from N. C. Central University. ...

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