The Atlantic Coast Pipeline will bring more than natural gas to North Carolina. It could bring legal headaches for Gov. Roy Cooper.
The underground conduit will supply fuel for Duke Energy power plants and, according to its developers, shower local governments with $60 million in property tax revenues by 2025.
But the 600-mile line also came with a footnote: a $57.8 million environmental mitigation fund, which Cooper, or anyone he delegates, will control. This detail was disclosed Friday, Jan. 26, when a key state environmental permit was issued by the N.C. Department of Environmental Quality.
Now both opponents and supporters of the pipeline are questioning the fund.
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Some environmentalists who oppose the pipeline decry the fund as unethical and troubling. Free market advocates, who are all for the pipeline, are researching the possibility of a legal challenge to get Cooper’s account declared illegal.
The state Supreme Court has declared at least two disputed funds to be unconstitutional in past years; in each case school systems argued that money paid into special environmental funds should instead have gone into the state’s Civil Penalty and Forfeiture Fund, which is earmarked for schools. One of the cases, decided by the Supreme Court in 2005, was brought by six local school boards, including Wake, Durham and Johnston counties, and resulted in a $120 million windfall to the schools.
More recently, a legal challenge to an environmental fund created by a corporation was filed last year in Wake County by the conservative Civitas Institute and the New Hanover County Board of Education. It is pending in the N.C. Court of Appeals. None of the funds in these cases, however, were under the direct control of the governor.
The immediate objections to the Atlantic Coast Pipeline fund are of an ethical and political nature.
“It sure looks like they’re buying the permit, by paying up this slush fund,” said Francis De Luca, president of the Civitas Institute in Raleigh, which supports the pipeline. “He’s going to give [the money] out mostly to groups that support his agenda, and in some cases groups that support him politically.”
Therese Vick, a social justice organizer for the Blue Ridge Environmental Defense League, expressed dismay that the N.C. Department of Environmental Quality issued the controversial permit as Cooper worked out a financial deal on the side. She said the organization she works for would not bid for grants from a fund that she deems tainted money.
“It certainly raises ethical issues,” Vick said. “I don’t recall ever seeing anything anything like this.”
Virginia also sets up mitigation fund
Last week, Cooper’s Department of Environmental Quality issued the water quality permit, allowing the underground Atlantic Coast Pipeline to be laid across and under 320 creeks, ponds and other waterways in the eight North Carolina counties the project will traverse. After a rigorous and prolonged state review, the water quality permit cleared the way to begin tree removal for the $5 billion pipeline project that is already more than a year behind schedule.
Cooper issued his own statement Friday to announce the mitigation fund, and the N.C. Department of Environmental Quality referred questions about the fund to Cooper’s office. The purpose of the money is to compensate for any disruptions the pipeline causes to natural habitats, forest wildlife and tribal Indian traditions – and to invest in economic development.
“The amount of the fund was reached in negotiations, not through a formula,” Cooper spokesman Ford Porter said by email. “The fund can be used for [environmental] mitigation, renewable energy projects, extending distribution lines for natural gas, and other economic development projects.”
Porter rejected the notion that the fund is a pay-to-play scheme or a quid pro quo.
“The permit was not contingent on the fund agreement,” Porter said. “The permit went through the normal review process at DEQ and it was separate from the creation of this fund.”
The Atlantic Coast Pipeline reached a similar agreement last month in Virginia. But that deal is between the pipeline consortium and the state government, not with a named elected official. The forestry mitigation fund in Virginia designates specific organizations to receive $57.85 million.
Because the pipeline will cross three states, the pipeline group is also negotiating a funding agreement with West Virginia authorities, said Aaron Ruby, spokesman for Richmond-based Dominion Energy, one of the two lead pipeline partners along with Charlotte-based Duke Energy.
Ruby said the North Carolina agreement satisfies a federal requirement to remedy harmful impacts on migratory birds and loss of forest habitat. It also redresses the pipeline’s disruptions to cultural and historic resources.
“The agencies have already determined that these impacts will likely occur, which is why we’ve provided the mitigation funds,” Ruby said by email. “While we provide the funding, we do not select the recipients.”
Duke spokeswoman Tammie McGee said that mitigation funds are not unusual.
“Comprehensive mitigation strategies are regularly applied to site-specific projects and to linear projects, such as highways, pipelines and electric transmission lines,” McGee said by email.
For example, when Duke Energy Carolinas and Duke Energy Progress received regulatory approvals for rate increases in 2014, the utilities agreed to contribute a total of $20 million to ratepayer assistance funds. These funds pay for home repair, new appliances and other upgrades for low-income households.
That money was designated for a specific group: the nonprofit N.C. Community Action Association, to be spent according to need determined by that organization.
In the rate cases, the ratepayer assistance funds were paid by Duke’s shareholders, not by customers, said James McLawhorn, who heads the electric division of the N.C. Public Staff, the state agency that represents customers in utility matters before the Utilities Commission.
The Atlantic Coast Pipeline mitigation fund will be paid for by Duke Energy and other utilities that will buy the gas from the project, McGee said. Duke and other utilities will seek to recover the full cost of the pipeline – which includes construction, permitting and environmental compliance – from their customers through their utility bills, but that request would have to be reviewed by the N.C. Utilities Commission.
Apex lawyer Paul Stam, a former N.C. House member, is reviewing the legality of the pipeline fund for clients who are interested in a legal challenge.
Stam is representing the Civitas Institute in its pending lawsuit that alleges that Cooper, in his previous job as state attorney general, improperly diverted money from a pollution fund to finance environmental projects, rather than for funding public education. The state constitution requires that money collected from fines and penalties be used to fund public schools.
The $50 million fund in question, known as the Smithfield Agreement, was created in 2000 by then-Attorney General Mike Easley to develop alternate methods of treating hog waste and to address other environmental issues.
The lawsuit, filed in Wake County Superior Court by Civitas and the New Hanover Board of Education, now names Cooper’s successor, Josh Stein. The office of the attorney general has said the Smithfield fund is a voluntary contribution, not a fine or penalty, so it’s not covered by the constitutional requirement.
Last October, a Wake County judge dismissed the case, and Stam filed an appeal on Jan. 19.
Stam acknowledged that the Atlantic Coast Pipeline fund is different from the Smithfield fund or other funds that were disallowed by the Supreme Court. In all those cases, he said, the funds could be tied to violations, enforcements and penalties. The Atlantic Coast Pipeline fund was created before the project began construction, so there is no possibility of violations or fines.
Still, Stam characterized the Atlantic Coast Pipeline fund as “extremely bad policy.”
“What it’s saying is: ‘You’re entitled to a permit, but you’ve got to pay me money to get that permit,’ ” Stam said.