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NC public staff contests approval of Duke Energy Progress coal ash recovery

The North Carolina Public Staff is the latest stakeholder to contest state regulators' approval of coal ash cost recovery in Duke Energy Progress LLC's rate case.

The public staff on May 15 filed a notice of appeal with the North Carolina Supreme Court and the North Carolina Utilities Commission tied to the commission's Feb. 23 decision to allow Duke Energy Progress, or DEP, to recover about $232 million in coal ash management costs from ratepayers. Staff said the order should be "reversed and remanded" by the state Supreme Court since it is "affected by errors of law and unsupported by substantial evidence."

The Duke Energy Corp. subsidiary is allowed to recover coal ash pond closure costs incurred from Jan. 1, 2015, through Aug. 31, 2017, less a disallowance of $9.5 million. The cost recovery will be spread over five years.

Regulators also imposed a $30 million penalty against DEP tied to its mismanagement of coal ash.

The public staff said the commission's order "contains reversible error" in that regulators "inappropriately categorize coal ash costs as 'property used and useful' and 'working capital' that would be entitled to a rate of return, rather than 'operating expenses' where any return on the unamortized balance would reside solely in the discretion of the commission."

"Correctly categorizing deferred coal ash costs as operating expenses rather than as used and useful property would authorize the commission to exercise its discretion to establish an equitable sharing mechanism," the staff added.

The staff in October 2017 recommended the removal of more than $129 million in ongoing environmental costs and a 28-year amortization of deferred coal ash expenses in DEP's rate case. The staff said these accounting changes produce "reasonable sharing of the burden of coal ash expenditures between the company's ratepayers and its shareholders."

Regulators denied DEP's request to recover approximately $129 million annually for ongoing coal ash expenses and rejected the staff's equitable sharing proposal as "unfairly punitive and of questionable legal sustainability."

This finding is among the staff's exceptions to the ruling.

North Carolina Attorney General Joshua Stein in an April 25 notice of appeal filed 14 exceptions to the commission's ruling. These exceptions highlight Duke Energy's May 2015 guilty plea in federal court to "multiple counts of criminal negligence" and evidence that shows the company "knew of the risks of storing coal ash in unlined surface impoundments and failed to take timely and appropriate action to address those risks."

The Sierra Club also filed a notice of appeal April 25 and argued the rate increase "overcharges" DEP's customers in violation of North Carolina law.

"Rates that allow for recovery of cleanup costs for coal ash impoundments where DEP's maintenance of the impoundments was not reasonable and prudent are neither just, nor reasonable, nor fair," the Sierra Club wrote.

Duke Energy spokeswoman Meredith Archie said the company "cannot predict the outcome" of the appeals but plans to file its responses as the case moves forward.

"We have always worked to manage coal ash in compliance with state and federal regulations and continue to follow evolving industry standards," Archie said. "While we do not agree with the order in its entirety, we believe the commission's decision is fair and gives customers the full benefits of cleaner and more reliable power while keeping rates below the national average."

(NCUC docket E-2, Sub 1142)