Above Photo: JOHN DOWNEY
An environmental and consumer advocacy group has until May 27 to decide if they can risk ponying up a $10 million bond to challenge Duke Energy’s $1.1 billion Asheville natural gas and infrastructure project.
If it does, Charlotte-based Duke (NYSE: DUK) has until Sept 1 to decide whether it wants to start construction of the 560-megawatt plant knowing that delays for the appeal could make the project more expensive.
That is the offer the N.C. Utilities Commission has laid before NC WARN and Duke Energy Progress. But NC WARN says the ruling as it stands boxes them out of any appeal. And it is considering whether it can go to the court of appeals to challenge the bond as unreasonable.
The commission does not actually order NC WARN to put up the $10 million bond at this time. But it requires them to demonstrate that the group has $10 million in assets that could be used to post a bond if required — a legal filling called an undertaking.
NC WARN does not have those kinds of assets.
“I don’t know of any nonprofit that could file such an undertaking to get a meaningful review of this decision,” says NC WARN attorney John Runkle. “This is another roadblock that Duke and the commission have put up to any effort to challenge this project.”
NC WARN and The Climate Times want to appeal the commission’s February order approving construction of the $750 million plant and about $350 million worth of infrastructure improvements in western North Carolina. They contend the decision not to hold evidentiary hearings on the proposal — an effort to meet an expedited approval schedule ordered by the General Assembly — and other as yet unspecified commission errors invalidate the order.
While both want to appeal the order, NC WARN is the only one actually involved in the current proceedings over the bond.
Duke Progress contends an appeal could cause delays that could ultimately drive the project costs up as much as $140 million. And it asked the commission to set a bond of at least $50 million. The company worries about customers being left holding the bag to pay for legal delays that could result even if the courts eventually hold up the commission’s decision.
Duke’s initial response is cautious.
Duke spokesman Tim Pettit says, “Our interest all along has been protecting our customers through the state statute from any costs and implications from potential appeal delays with this project.”
But he say the company does not have a detailed response to the bond order.
“From our initial read of the order, there are lots of factors that have to be considered in the near term and over the next few months,” he says. “But we will certainly evaluate all factors and comply with the commission’s order.”
‘The right balance’
Sam Watson, chief counsel for the commission, says it is policy not to comment on orders beyond what what is contained in the published version.
The commission says in its order that it attempted to give weight to the contending arguments.
“The estimate of $50 million for an increase in the cost of the facility due to appellate delays does not appear extravagant,” the commission writes in its order.
But it says Duke’s “uncertainty regarding whether it might delay construction due to an appeal and NC WARN’s assurance that it will not seek a stay or injunction, the Commission has determined that a lesser sum of $10 million is sufficient at this time to satisfy potential damages that may be incurred by delaying the beginning of construction of such a large capital investment.”
The order goes on to say that because “NC WARN has the option to file an undertaking in the sum of $10 million as opposed to a bond and that the undertaking or bond is subject to future revision, the commission determines that $10 million strikes the right balance between the parties.”
The commission was faced with a state statute that requires it to set up a surety — through a direct bond or an undertaking — that could reasonably compensate a utility for additional costs if it is forced to delay construction of a project that has been approved by the commission. The requirement applies only if the appeal challenges a certificate of public necessity and convenience, as NC WARN’s appeal would.
The order appears to be trying to give some kind of room for NC WARN to file its appeal without actually putting up money in advance. Then once the formal appeal is filed — under law it has to be filed by May 27 — Duke can see the grounds for appeal and decide if it wants to risk starting the project. Then a full bond hearing could be held to establish the actual bond requirements.
If that was the intent, however, it may not have succeeded. Runkle says the $10 million bond or undertaking amounts to a bar on the courthouse door for almost any challenger, and certainly for NC WARN.
It is not clear that the bar is quite as absolute as it appears. The statute that requires the bond is clear that it must be put up before an appeal. But it defines the surety required as “a bond with sureties approved by the commission, or an undertaking approved by the commission.” That could leave some room for arguing that something less than a full showing of assets on hand could be approved.
But the statute requires that the surety, however presented, be an amount “the Commission determines will be reasonably sufficient to discharge the obligation … imposed upon such appealing party” to compensate the utility for delay costs. That seems to limit flexibility. And certainly, Duke could contend that anything short of a full legal bond or undertaking would not qualify.
So Runkle says the order forecloses any appeal, if it stands.
The bond order is unprecedented, although the commission’s authority to set a bond clearly exists in state statutes, Runkle says. Such a bond has simply never been set before, he says. That leaves NC WARN examining its legal options without much in the way of case law to guide it.
But he says a challenge is imperative.
“I am afraid that if we do not challenge this, it becomes the new normal,” Runkle says. He argues that Duke can go to the legislature and get an expedited review for any project, as it did in the Asheville project. The commission can then opt to hold no detailed hearing, instead deciding the case on filings and preventing court review by setting a bond.
The bar for requiring a bond was set so low, NC WARN argues, that it is meaningless. Duke, never demonstrated in its filings that construction would be delayed if an appeal was filed. It simply argued that delays could happen.
“(Duke Progress) should not be permitted to use these scare tactics to absolve itself of appellate review,” the group argues in a filing made Friday, days before Tuesday’s ruling. “(The utility) failed to meet its burden of proving that a bond is necessary to secure against damages flowing from appeal-related delays in the initiation of construction.”
John Downey covers the energy industry and public companies for the Charlotte Business Journal.