Merger paying off with cost savings and environmental benefits
Duke Energy’s merger with Progress Energy was completed in early July 2012. As part of our merger agreement, Duke Energy promised to deliver $687 million in customer savings over five years. The savings accrue through two efficiency strategies: reducing fuel costs ($331 million) and the joint dispatch of the Carolinas generation fleet ($356 million). These efficiency strategies also reduce our environmental impact.
As of year-end 2012, we had delivered nearly $52 million in fuel and joint dispatch savings, well over half of our 12-month goal of $70 million.
Fuel savings
Fuel savings are accumulating quickly, largely due to coal blending. Illinois Basin and Northern Appalachian coals are currently less expensive than the Central Appalachian coals that our plants in the Carolinas have traditionally burned.
Advanced emission controls at some of our larger stations allow us to burn mixtures containing more of the less expensive coal, and still comply with environmental regulations. We’re planning additional equipment upgrades to improve coal blending and combustion capabilities at other plants as well.
Testing of the new, lower-cost fuel blends is going better than anticipated. At several plants, we’re burning up to 100 percent non-Central Appalachian coal to produce power.
Reducing our reliance on Central Appalachian coal means we will likely be purchasing less coal mined through mountaintop removal — a controversial surface mining technique that’s accomplished by removing the tops of mountains in order to reach coal seams. Approximately 25 percent of Central Appalachian coal is mined this way, while non-Central Appalachian coal tends to be mined through underground mining methods.
The mountaintop removal mining method continues to face regulatory and cost challenges, so increased fuel flexibility allows Duke Energy to maintain a reliable fuel supply for our customers.
In addition to coal-related savings, Duke Energy has brought 2,760 megawatts (MW) of natural gas capacity on line since 2011, and will add another 625 MW in 2013, allowing our customers to benefit from low prices for this commodity. The environment also benefits, because natural gas power plants have fewer air emissions than coal plants.
We’ve realized more than $37 million in actual fuel savings through December 2012. Through contracts, we have locked in an additional $238 million toward the projected $331 million in fuel savings over five years.
Joint dispatch
Our joint dispatch agreement allows Duke Energy Carolinas and Duke Energy Progress to share power from plants across the Carolinas. We can run the most efficient plants available from our combined generation fleet, in order to meet the total demand on both systems at the least cost. And running the most efficient plants across the two systems helps lower air emissions.
The two neighboring utilities are moving as much as 2,000 MW of electricity between them daily. In just the first two weeks as a merged company, we realized almost a half-million dollars in joint dispatch-related savings, which grew to $14 million by year-end 2012.
Various initiatives are under way to save even more. No utilities have attempted joint dispatch on a large scale with such complexity before, and there is a steep learning curve. We expect these savings to increase with operational experience.