Criminal charges in spills to cost Duke Energy $100 million
Criminal charges in spills to cost Duke Energy $100 million
By Anne Blythe and Bruce Henderson
ablythe@newsobserver.com bhenderson@charlotteobserver.com
Posted: Wednesday, Feb. 18, 2015
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- John D. Simmons - jsimmons@charlotteobserver.com
A vortex of coal ash swirls in the gray waters of the Dan River at Danville, Va. downstream from the Duke Energy Steam Station in Eden.
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- KEY DEVELOPMENTS
• Criminal charges against Duke Energy, alleging violations of the federal Clean Water Act, are expected to be filed within a few days. No individuals are expected to be charged.
• Duke would pay a $100 million fine under a settlement agreement. Duke took a charge against earnings of that amount Tuesday to reflect its “probable financial exposure” to a grand jury probe of its coal ash practices.
• Unanswered questions: How far-ranging are the settlement terms? Do they address civil penalties by the Environmental Protection Agency? Will Duke try to quickly resolve other ash-related legal issues?
Criminal charges are expected to be brought against Duke Energy in the next several days that will accuse the nation’s largest electric utility of multiple misdemeanor violations of the federal Clean Water Act.
The charges would come a year after a Duke power plant spilled up to 39,000 tons of coal ash into the Dan River, quickly triggering state and federal investigations.
The federal accusations would be against the company, and are not expected to result in charges against individuals, according to sources close to the investigation. They could not speak publicly due to the sensitive nature of the ongoing probe.
The allegations are expected to come in each of the three federal districts in North Carolina, accusing the company of violations from the coast to the mountains. Duke supplies electricity to most of the state.
As part of a negotiated plea deal, Duke would pay a $100 million fine that the company disclosed in a regulatory filing Wednesday. A federal judge or magistrate would have to approve any deal.
The statewide cases are likely to be consolidated in the federal Eastern District, which stretches from Raleigh to the coast.
That’s where a federal investigative grand jury began convening two weeks after the Dan River spill in Eden, near the Virginia line, sent ash 70 miles downstream.
The Clean Water Act makes it illegal to knowingly or negligently discharge a pollutant into a water of the United States.
The $100 million that Duke Energy disclosed in its earning report is expected to go to fines, community-service and mitigation projects.
Duke reported the figure Wednesday as its “probable financial exposure” from a settlement of the federal charges. Federal securities law requires that companies disclose substantial new expenses to investors.
Neither Duke nor U.S. Attorney Thomas Walker in Raleigh would comment on the settlement. Duke quoted CEO Lynn Good as saying “we believe we are close to an agreement” to resolve the grand jury probe.
Large fine
It’s unclear whether the proposed settlement would also resolve civil Clean Water Act violations under investigation by the Environmental Protection Agency and North Carolina regulators.
But a $100 million fine would compare with the largest federal criminal fines EPA has won.
BP paid $4 billion in criminal fines and penalties, the largest criminal resolution in U.S. history, for the Deepwater Horizon oil spill into the Gulf of Mexico in 2012. Transocean Deepwater paid $400 million for its part in the spill.
Walmart paid $81 million in fines and state and local projects for mishandling pesticides in California and Missouri in 2013. A Columbus County hog farm was penalized $1.5 million in fines, restitution and community service in 2012 for dumping hog waste into a stream. Its president was sentenced to six months in prison.
Duke, which has a market worth of more than $50 billion, reported earnings for 2014 of nearly $1.9 billion. Duke’s fourth-quarter earning results reflect a 14 cent-a-share charge to reflect the penalty.
Resolving criminal charges might not help Duke with civil penalties, said Victor Flatt, who teaches environmental law at UNC Chapel Hill. While civil liability compensates for the harm caused, criminal penalties punish intentional wrongdoing.
“That is a big number for a criminal penalty, but you can’t really read anything into that,” Flatt said. “Some of this can be motivated by Duke just wanting to move forward as much as by a fear that (prosecutors) are going to get us.”
‘Far from over’
A grand jury settlement won’t affect state lawsuits over Duke’s ash ponds or DENR’s investigation of groundwater contamination, said Drew Elliot of the Department of Environment and Natural Resources.
“This is not some sort of global settlement,” he said. “This is far from over.”
The federal grand jury subpoenaed documents and correspondence from Duke, DENR and North Carolina’s Utilities Commission, which once inspected ash pond dams.
Advocacy groups have also filed lawsuits over ash contamination. They say state regulators have been lax in holding Duke accountable for the environmental impacts of its 108 million tons of ash stored in North Carolina.
Groundwater contamination has been detected at each of Duke’s 14 coal-fired power plants in the state, although the sources have not been fully identified.
In December, Duke reported about 200 illicit seeps at its power plants that together leak more than 3 million gallons of day near lakes and rivers.
“When anyone pays $100 million to resolve a grand jury investigation, that indicates something serious happened,” said Frank Holleman of the Southern Environmental Law Center, which represents advocacy groups that have sued Duke. “It also indicates they should be willing and eager to resolve the civil claims of the government and the citizen suits.”
Stock rises
Duke’s spill was the nation’s third-largest in the past decade. But neither of the utilities involved in the other two spills faced criminal investigations.
The Tennessee Valley Authority paid only $11.5 million in state fines after a ruptured dike spilled 1.1 billion gallons of coal ash slurry in 2008. Pennsylvania’s PPL paid a $1.5 million state fine for a 2005 spill.
Duke has reported spending $20 million to clean up the Dan River. Following the spill, legislators ordered Duke to close its 32 ash ponds statewide by 2029. Duke has estimated those costs at $3.4 billion.
Resolving the criminal issues could help Duke lay to rest its litany of other ash problems, said Rick Gaskins, a longtime environmental lawyer who’s now executive director of the Catawba Riverkeeper Foundation.
“I think it does make it easier, if only because that’s one less excuse Duke and the state have to say, ‘I’m not sure we can do this kind of thing,’ ” he said. “My sense is Duke does want to get this behind them. Uncertainty is bad from their perspective.”
Wake Forest University professor Dan Fogel, who teaches sustainability but has a business background, said Duke might have been “hoping they can get things settled to reassure investors so they don’t flee the stock.”
Industry analyst Christopher Muir of S&P Capital IQ said the settlement “would remove a substantial overhang on the stock.
“When you’re talking about a company the size of Duke, $100 million is not all that substantial. It’s not going to break the bank.”
Despite the grand jury news and the 29 percent drop in 2014 earnings reported Wednesday, Duke’s investors seemed invigorated. The company’s stock closed at $80.97, up $1.58.
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