Coal Ash Wednesday: Here we go again

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Duke Energy wants increased rates to pay for coal ash cleanup:

Duke Energy is urging state regulators to approve rate increases at its two North Carolina electric utilities, including money to pay for cleanups of toxic coal ash.

Duke treasurer Karl Newlin told the North Carolina Utilities Commission Monday that if the company isn't allowed to recover coal ash cleanup costs, it could lead to a downgrade in its credit ratings and scare off investors. His testimony came during the first day of a public hearing on the proposed rate increases that are being conducted online.

Not to put too fine a point on it, that "credit ratings" scare tactic is a load of crap. But before I explain why, here's Lynn Good from their 2020 Q2 Earnings call:

We remain steadfast in our 2020 financial commitment to shareholders and are reaffirming our full year guidance range of $5.05 to $5.45. Through our aggressive approach to cost mitigation, which began early in the year, we are positioned to navigate through the uncertainties of COVID and to absorb the loss of earnings from the cancellation of ACP. As Steve will discuss in a moment, our year-to-date results, along with the strong July, position us to deliver on the lower half of the 2020 guidance range. The third quarter, our most significant one, is still ahead of us and we will update expectations again during our third quarter earnings call.

Let me also touch briefly on 2021. In July, we announced the cancellation of ACP due to ongoing delays and increasing cost uncertainty, which threatened the economic viability of the project. We are disappointed in this outcome, but believe the decision to cancel is in the best interest of our shareholders and our customers, and we are actively pursuing other infrastructure plans to support eastern North Carolina, as I will touch on in a moment.

That "guidance range" to which she refers is the projected annual dividend payment. Duke actually pays dividends to shareholders every quarter, but the combined annual amount is what drives their strong position in the stock market. It has been climbing since the 2009 recession, (the last decade saw an average of $3.78), and is about to hit a record high, even with the stock price dropping 17% or so since the COVID lockdowns began.

But aside from that relatively strong position, the ACP cancellation is the single biggest factor that undermines that whining at the Utilities Commission. The cost of that project had ballooned from $5.1 Billion to almost $8 Billion earlier this year:

Dominion disclosed the new ownership structure Tuesday as it released financial results for the final three months of 2019. It will own 53% and Duke Energy will own 47%, with Dominion acquiring Southern’s 5% stake in the pipeline and gas transmission assets, which include an interest in a small LNG project in Florida, for $175 million. Southern will remain an anchor shipper on Atlantic Coast Pipeline.

The 600-mile pipeline, which would run through West Virginia, Virginia and North Carolina, moving Appalachian Basin gas to Mid-Atlantic markets, is now expected to cost approximately $8 billion, slightly above the high end of Dominion’s previous guidance range of $7.3 billion to $7.8 billion. And while Dominion expressed confidence it will eventually finish the pipeline; it isn’t talking about the pipeline’s growth potential in the same way it has before.

Assuming everything goes as Dominion hopes, the operator is maintaining its target of completing construction by the end of 2021 and finishing commissioning in early 2022.

So when Lynn Good said they were "absorbing the costs of lost revenue" from the cancellation of the project, she was either lying or referring to previous revenue forecasts that were based on the ACP becoming operational in 2018. Either way, that was disingenuous at best.

But setting that aside, let's get back to that credit rating nonsense. Duke had a 47% stake in the ACP, meaning their total investment would have been just under $4 Billion. That's money they would likely have borrowed, incurring a debt burden that would have lasted until Jesus comes back. The fact they could borrow that much, combined with the fact they decided not to, is proof enough that their credit rating is beyond impeccable.

As such, that rate increase request should be denied outright.

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Comments

Duke is basically pretending...

that they passed on the cost savings they achieved by dumping coal ash as they did to their customers. We all know that's hogwash. They kept those cost savings in-house and added the results to their bottom line. Now they want to their customers to pay for Duke having upped their profits by taking these shortcuts. It's just another example of businesses trying to privatize gain and publicize loss. Now that they're going to have to fix what they did and put those unethically obtained dollars back into the place they should have gone to begin with, they want to shift that cost and keep the profit anyway. Very "heads I win, tails you lose."