Duke had to know the bad news before merger closing – as we warned in June
Statement by Executive Director Jim Warren:
Tuesday’s revelation that repair of the broken Crystal River nuclear plant will cost up to $3.4 billion – far higher than Progress Energy had claimed during its merger with Duke Energy – comes as little surprise. The riveting question now for the NC Utilities Commission is: Did Duke know this before the merger closed on July 2, but withhold it because its impacts on NC ratepayers could derail the merger?
Based on the newly released information, NC WARN calls for the Commission and Attorney General Roy Cooper to ensure their investigators explore the documents and interview the parties necessary to determine when Duke knew about Crystal River, and whether it improperly withheld critical information on several other billion-dollar problems that could turn the merger into a net public soaking.
This week’s carefully delayed release of the summary of Duke’s “secret study” of the botched Crystal River repair appears to validate our June warning that the utility knew the results before the late-June board meeting when Duke decided to fire incoming CEO Bill Johnson.
It is implausible that Zapata Engineering’s review of earlier repair estimates did not provide at least interim results to Duke by late June. Zapata’s work began “in March” according to the summary of the final report, which was dated August 1. With Duke’s board pressing for the truth about the repair estimates, it is inconceivable that Duke ordered a contract which would not have provided the long-awaited estimate before the merger closed.
Would Duke have the public and Commission believe it signed a five-month contract, which would have missed the critical deadline, instead of requiring the engineering firm to complete the work in four months? Would Duke not have required Zapata to use sufficient staffing or outside resources so the multi-billion dollar information would be available when needed? Would overtime not be implemented in such a pressured situation?
It is almost certain that interim results were provided to Duke by the late June board meeting. With such engineering analyses, it is standard practice to provide interim reporting prior to final results.
What likely happened is this: Duke got the information it needed – and used it to fire Johnson – in June, as we warned the Commission weeks earlier based on an anonymous insider who proved correct on every other warning about the “secret study.” Then, Duke rationalized that the report was completed only in “draft” form, and thus withheld the “final” version until the merger dust settled. The corporation still withheld the report from regulators and the public for two more months after its completion date.
As we argued in June, the Crystal River situation has important impacts for NC ratepayers and should have been disclosed during the merger proceeding, because:
1) billions in repair costs in Florida creates pressure for higher parent company profits, thus rates, in its other states;
2) Crystal River losses will raise Duke’s cost of borrowing the billions for in construction projects in the Carolinas, hiking rates even more than already planned;
3) withholding Crystal River costs would show bad faith and violate disclosure requirements; and
4) Duke’s attorneys replied to NC WARN’s June motion – and Rogers testified to the Commission – that there was “no new information” regarding Crystal River.
In rushing to accommodate Duke’s desired merger closing and its false deadline, the Commission refused to allow NC WARN to question Duke about Crystal River or about several other billion-dollar insults to NC ratepayers such as the 17 once-secret deals, the Progress nuclear fleet upgrades, or its investments in nuclear construction projects in Florida and South Carolina. The secret deals were belatedly unsealed in late August, and NC WARN’s analysis indicates they will cost residential and small business customers hundreds of millions, if not billions of dollars.
While all those costly secrets might work at cross purposes with the commission’s obvious desire to punish Duke for firing Johnson, they remain the critical issues impacting the primary legal question: Does the merger provide any net public benefit?
The Commission and Attorney General Cooper must ensure that question is resolved openly and transparently – and the only way to do that is by reopening evidentiary hearings on the merger.