NC WARN, Climate Times told to put up $98M bond to appeal Duke power plant permit

The N.C. Utilities Commission has told two nonprofits that they must put up a $98 million bond for the right to appeal a power plant construction permit issued to Duke Energy.

A bond is required by a 1965 state law enacted to protect electric utility customers from any increased costs that result from construction delays while a permit is under appeal. The bond provision has never been invoked in anyone’s recollection because power plant permits are not challenged after they are issued, said James McLawhorn, director of the Electric Division of the Public Staff, the agency that represents the public in utility rate cases before the commission.

“The statute plainly places on the appealing party the financial risk of what potentially could be extensive additional costs,” the Utilities Commission said in its order. “Otherwise, these costs would be added to the cost of the generating facility to be recovered from consumers through higher rates.”

The commission issued the power plant permit – called a certificate of public convenience and necessity – in March, and Duke had planned to begin building the $1 billion natural gas power project in October. Charlotte-based Duke said the plant in Buncombe County will replace a coal-burning plant scheduled to be demolished, and must be operational before Jan. 31, 2020, under deadlines set by the state legislature in the Coal Ash Management Act and the Mountain Energy Act.

NC WARN, based in Durham, and Climate Times, based in Boone, planned to challenge the permit in court. The two groups say that natural gas, largely derived from fracking – an energy industry technique used to extract oil and gas from rock by injecting high-pressure mixtures of water, sand or gravel and chemicals – results in methane leaks that release more greenhouse gas into the atmosphere than burning coal does.

Initially the Utilities Commission had set the bond at $10 million. The nonprofits appealed, and the N.C. Court of Appeals rejected the commissioners’ amount, telling them to recalculate the bond based on “competent evidence.”

The nonprofits had proposed a bond of only $250, while Duke said it would need $240 million to cover potential losses. Duke estimates an appeal of the permit could delay construction by up to two years.

The Utilities Commission rejected both requests and on Friday set the bond at $98 million based on several estimates: $40 million in cancellation costs for three major equipment contracts, $8 million in development costs that cannot be recouped and $50 million in increased labor and material costs.

Under the state law, NC WARN and Climate Times would have to cover Duke’s increased costs only if they lost their appeal. If Duke won the appeal, the amount of increased costs would be determined by the Utilities Commission, and the total could be less than the amount of the bond.

NC WARN has a dozen employees and a $1.2 million budget; Climate Times has one executive director, a paid consultant and an annual budget of about $30,000. The organizations could finance the entire bond up front, or they could certify that they would pay it if necessary.

“We’re certainly not going to do either of those, because we don’t have the money,” said NC WARN director Jim Warren. “And I don’t think Lloyd’s of London would act as a bail bondsman in this situation.”

The appeal has yet to be filed as the two sides wrangle over the bond amount.

The Utilities Commission approved the plant in March in an expedited proceeding allowed by the Mountain Energy Act, enacted last year. That proceeding bypassed the usual comprehensive hearings and cross-examination of witnesses. For that reason, NC WARN contends, the appeals court would be the first venue to hold a full hearing on the merits and necessity of the plant.

For its part, Duke Energy denounced what it described as NC WARN’s dilatory tactics.

“NC WARN’s second appeal of the North Carolina Utilities Commission’s order is most unfortunate but certainly to be expected from a group that’s extremely good at creating distractions and roadblocks for their own notoriety and monetary gain,” Duke said in a statement. “Their actions continue to threaten the energy reliability and economic viability of this state at the expense of its citizens and our customers.”

The commission’s order cited “the lack of credibility in NC WARN’s underlying position.”

Warren said the two nonprofits are planning to appeal the amount of the bond. The nonprofits have said that putting up millions of dollars would be financially ruinous for them and the bond blocks their access to the court system.

Warren said: “We’ll take it back to the court of appeals, and believe there’s a good chance they’ll agree with our arguments about abuse of process, and that a bond can’t be used to shield the regulators from their own pro-Duke bias and order in this unprecedented case.”

This story has been corrected. The original version said that only Duke Energy and the Public Staff made presentations to the Utilities Commission at the expedited hearing. The lawyer for NC WARN also made a presentation.

This story was originally published July 11, 2016 at 10:52 AM with the headline "NC WARN, Climate Times told to put up $98M bond to appeal Duke power plant permit."