'Stroke of the Pen' Risks Persist
In addition to climate change, a number of legislative, regulatory and legal issues – what we call “stroke of the pen” risks – could require us to retrofit or retire thousands of megawatts of coal-fired generation, beyond what we are already planning.
The U.S. Environmental Protection Agency (EPA) continues to work on a rule to replace the Clean Air Mercury Rule (CAMR), which has been vacated. The EPA is also working on a rule to replace the Clean Air Interstate Rule (CAIR), which was initially vacated by the U.S. Court of Appeals for the District of Columbia Circuit and then reinstated as an interim solution until the EPA develops a new rule. CAMR sought to introduce new limitations on mercury emissions from coal-fired plants across the U.S., while CAIR focuses on nitrogen oxides (NOx) and sulfur dioxide (SO2) emissions in 28 eastern states and the District of Columbia. The EPA expects to finalize both new rules in 2011.
An ash dike failure at a Tennessee Valley Authority plant in December 2008 accelerated the EPA’s development of federal coal ash management regulations. Coal ash management is currently addressed by varying state regulations. Duke Energy has a comprehensive monitoring, maintenance and inspection program in place, and remains committed to managing coal ash and other coal combustion byproducts in a manner that protects human health and the environment.
A key uncertainty, however, is whether the EPA’s forthcoming regulation will seek to reverse its 2000 determination that coal ash is not a hazardous waste. The EPA has indicated that it will propose the new rule in April 2010. The rule could be finalized in late 2010 or early 2011.
The EPA continues to work on revising regulations for existing facilities under Section 316(b) of the Clean Water Act, which requires the location, design, construction and capacity of cooling water intake structures to reflect the best technology available. The purpose of this revised regulation is to protect aquatic life in rivers, lakes and oceans from being affected by cooling water intake structures. These structures are commonly used by steam electric power plants, paper producers, petroleum refiners, chemical plants, and manufacturers of primary metals like iron, steel and aluminum. Potential revision of this regulation could require significant modifications at our coal-fired and nuclear power plants with “once-through cooling” systems. In a once-through cooling system, water is diverted from a body of water, used for cooling and then returned to the source.
Mountaintop-Removal Coal Mining
The practice of mountaintop-removal coal mining continues to be debated. Mountaintop-removal coal mining is a form of surface mining where entire coal seams and the earth above them are removed from the top of a mountain. State regulations require Duke Energy to purchase the most economic coal possible. Because of where we’re located, most of the coal we buy for our Carolinas plants comes from Central Appalachia. The latest industry estimate indicates about 20 to 25 percent of the coal mined in this region comes from mountaintop-removal mines. However, because most Central Appalachian coal is blended at the mine site by producers with both underground and various types of surface-mined coals, it is impossible to know the precise amount of mountaintop-removal coal that is being provided to Duke Energy.
We expect legislative, regulatory and legal challenges to mountaintop-removal coal mining to continue. We have convened an internal task force and continue to review this issue. We are also conducting research and engaging stakeholders. Our goal, as always, is to strike the right balance between economic, environmental and social considerations.
New Source Review
In May 2009, the U.S. District Court for the Southern District of Indiana issued a ruling calling for Duke Energy to shut down three units at the company’s Wabash River Station no later than Sept. 30, 2009. Shutting down the units removed a combined capacity of 265 megawatts (MW), which is 39 percent of the station’s 677-MW power- generating capacity.
In December 2009, Duke Energy reached a settlement with the EPA, the U.S. Department of Justice and others on a lawsuit involving our 560-MW Gallagher Station in southern Indiana. As part of the settlement, we can continue to operate the plant and have the option to either convert two of the units from coal to natural gas or retire the units. We currently expect we will convert the units to gas. As part of the conversion, we would need to install approximately 19 miles of pipeline to transport natural gas to the station. On the station’s other two units, we would install additional pollution controls and switch to lower-sulfur coal. We estimate the cost to convert the coal units to gas and to install additional pollution controls to be more than $80 million.
The Wabash River and Gallagher decisions stem from an effort that began in 1999, when the EPA filed a number of environmental enforcement actions across the utility industry. In this case, the EPA alleged that Cinergy, which merged with Duke Energy in 2006, undertook 129 projects at six power plants (21 units) in Indiana and Ohio without obtaining new permits required under New Source Review (NSR) provisions of the Clean Air Act. The government contended that Cinergy’s work did not qualify as routine maintenance, and that the company should have predicted that the projects would increase emissions at the plants. The EPA dismissed most allegations prior to trial. In the Wabash River and Gallagher trials that did go forward, juries found eight violations at five units, which is far less than the original number of allegations.
Litigation continues over alleged violations of NSR provisions at our coal-fired power plants in the Carolinas. A trial court decision in our favor was appealed, and ultimately a key issue was reversed by the U.S. Supreme Court. The litigation has been remanded to the trial court for reconsideration and is pending further court action.