NC WARN Says Changes in Duke-Progress Merger Harm the Public – News Release from NC WARN
- June 18th, 2012
Groups from 5 merger states urge NC hearings; WARN calls for sunshine on 15 secret deals and for attorney general to investigate backroom pressure over SC nuclear project
Statement from Director Jim Warren:
Durham, NC – The NC Utilities Commission must conduct evidentiary hearings into major changes in the proposed merger agreement between Duke Energy and Progress Energy along with over $10 billion of additional risk that could drive up rates for customers. Despite much pressure by the utilities to call the merger a done deal, NC WARN is a party in the case and has the right to cross-examine Duke Energy witnesses and others – especially involving a host of secret settlements that could erode purported benefits to most NC ratepayers by granting special deals to large users.
Progress Energy is bringing far more baggage into this marriage than was known during Commission hearings last fall, including soaring costs of new and broken nuclear plants in Florida. Such additional costs could lower bond ratings and drive up borrowing costs and rates for the merged utility. Also, federal regulators’ order for new transmission lines appears, ironically, to support Duke’s well-documented agenda of expanding sales out of region while sticking Carolinas customers with the enormous costs and risks of new power plants that would serve other regions.
By separate letter today, NC WARN is formally requesting Attorney General Roy Cooper and the Commission’s Public Staff to investigate continuing reports that South Carolina utility commissioners have quietly and possibly unlawfully pressured Duke-Progress, as a condition of merger approval, to relieve state-owned utility Santee-Cooper of all or part of its 45 percent ownership of the troubled nuclear construction project at the VC Summer plant.
Also today, at least nine public interest groups representing five merger states are sending letters to the NC Commission calling for evidentiary and public hearings.*
Below is a summary of the NC WARN motion filed today with the NC Utilities Commission:
> The merger as it stands now does not provide a net positive benefit to many, and probably most, residential customers, especially families low or fixed incomes. As such, it should be DENIED.
> The Federal Energy Regulatory Commission (FERC) order significantly alters the benefits and costs to ratepayers and therefore requires an evidentiary hearing and a public hearing. Among other matters, FERC requires the extension of transmission lines connecting to the regional transmission organization with the stated purpose of allowing competitive sales of electricity to eastern North Carolina.
> But FERC does not address the question about whether the approved transmission projects will then allow the new Duke Energy unrestricted access to sales outside its present service area into the PJM and Northeastern markets. Duke Energy will, in all likelihood, require new generation facilities to meet this potential demand, as it arguably did for its proposed sales to Orangeburg and other markets in South Carolina. Any cost savings through competition in eastern North Carolina would be more than offset by the costs of new generation facilities for increased sales.
> At least 15 secret side agreements between Duke and various parties could directly undermine the professed ratepayer benefits or shift the costs among customer classes. Some apparently provide lower rates for large industrial customers, as evidenced by Duke’s request in the new Economic Recovery docket, in which a selected pool of industrial customers would receive a 6% discounted rate, as indicated in part by the merger settlement and in part by a settlement in the 2011 Duke rate case. Confidentiality of side agreements undermines public confidence in the process. All secret deals must be opened up for public scrutiny.
> The reported effort by South Carolina government officials, including members of the South Carolina Public Service Commission, to require Duke and Progress to purchase the state-owned Santee Cooper’s share of the problem-ridden V.C. Summer nuclear construction project introduces a new factor that would add significant cost to NC rate payers. If such a purchase – which could total $4.5 billion excluding financing or cost overruns – has been part of merger negotiations, that must become part of the record, with costs and benefits fully considered by the NC Commission.
> The increasing costs of new nuclear and coal plants, as well as extensive repairs, have significantly raised the debt burden of the utilities since the September 2011 hearing. Including
the potential V.C. Summer purchase, new commitments could exceed $10 billion which, piled on top of Duke Energy’s ambitious, high-risk construction plans, would likely damage a new Duke Energy’s financial position, lower its bond ratings, and negatively impact North Carolina ratepayers.
> One such risk: Progress recently raised cost projections for its proposed Levy County Nuclear plant to as much as $24 billion, up $2 billion, while doubt grows about the project’s future.
> Another new risk: Progress’ earlier estimates to repair the Crystal River Nuclear Plant are questionable. The plant has been idled since 2009 due to damage caused by a misguided maintenance operation. Progress Energy still has not completed a repair plan but will reportedly attempt an unprecedented replacement of containment walls and roof – with a nuclear power unit inside. Because no contractor will risk a fixed contract, total repair cost won’t be known for years and could total several billion dollars. Some experts believe the nuclear unit is beyond repair.
> As another change in circumstances, it is NC WARN’s understanding that Duke Energy’s board of directors sanctioned a study of the costs and feasibility of repairing Crystal River and has withheld the study from Progress Energy. Duke has not denied the study’s existence, the results reportedly will be made to Duke’s board this week, and the NC Commission needs the results too.
All these matters require testimony, cross-examination of utility and Public Staff witnesses, and additional public testimony to assist the Commission in analyzing whether the benefits of a merger would outweigh the costs for all classes of ratepayers.
Due to the sheer size, complexity and sweeping, long-term ramifications of this arrangement, the Commission must ensure a full and careful examination of all these issues, not compress its review to accommodate the utilities’ much-publicized pressure that the deal needs to be closed by any certain date.
Moreover, July 8 appears to be a false deadline; Duke Energy and Progress Energy have indicated publicly that they can extend that deadline as needed. It seems clear that a few additional weeks of careful review would provide an important boost to public confidence that, should it be approved, this merger has at least been completed without any taint of unanswered questions about matters of importance to North Carolina ratepayers.
* Public interest groups calling for full hearings include:
Blue Ridge Environmental Defense League
Clean Water for NC
Florida Consumer Action Network
Indiana Citizen Action Coalition
Ohio Citizen Action
NC Justice Center
NC Housing Coalition
NC League of Conservation Voters
Nuclear Information & Resource Service