Following the coal ash release earlier this year from Duke Energy’s Dan River plant and a spate of citizen suits by environmental groups, North Carolina has enacted the country’s first comprehensive coal ash management law. The statute, which took effect September 20, mandates that “high risk” ponds be closed in five years and all ponds be closed by 2029, with all closure plans subject to public comment as well as approval by a newly created citizen commission. The law also imposes detailed permitting and design requirements on the use of coal ash as structural fill. In what undoubtedly will become a model that other states will follow, North Carolina’s coal ash law could cost billions of dollars, leading to higher utility rates for customers, lower returns for utility company investors and other bad economic consequences.

All Ponds Covered

The coal ash law applies to all unlined dry and wet coal ash ponds owned by public utilities, including ponds that have been covered and are no longer in use. Effective October 1, 2014, any new coal ash ponds are banned and continued use of ponds at closed power plants is prohibited. By the end of 2019, all power plants must convert to the disposal of dry bottom ash or shut down.

Focus on Closing Active Coal Ash Ponds

The law focuses on closing existing and legacy coal ash ponds. “As soon as practicable but by no later than December 31, 2015,” the North Carolina Department of Environment and Natural Resources (NCDENR) must classify each pond as high-, intermediate- or low-risk. Various factors must be considered in making these classifications, including the structural condition and hazard potential of a pond, how close a pond is to surface water and how much coal ash is in a pond. The legislation specifically classifies four sites – Duke’s Dan River, Riverbend, Asheville and Sutton plants – as high-risk sites.

Water Supply Well Survey

NCDENR will rely heavily on three studies required for each pond, each of which must be prepared very quickly.

By October 1, 2014, a pond owner must conduct a survey that identifies all drinking water wells within ½ mile downgradient of the site. By December 1, 2014, NCDENR will identify which of those wells have to be sampled, with sampling to begin by January 1, 2015. The pond owner pays for all the sampling.

Groundwater Assessment

By December 31, 2014, a pond owner must submit a groundwater assessment plan that includes identification of potential receptors and a sampling plan to determine the horizontal and vertical extent of soil and groundwater contamination. After NCDENR approval, the plan must be implemented and a report submitted within 180 days. If the report shows groundwater contamination above North Carolina standards, the owner must submit a corrective action plan within 90 days.

Surface Water Discharge Assessment

By December 31, 2014, an owner also must submit a plan to identify any ongoing discharges to surface water from a pond. If the assessment shows an unpermitted discharge, the pond owner has to either eliminate the discharge or apply for a NPDES permit. Plans for identification of new discharges, including inspection procedures, must be submitted by October 1, 2014.

Closure Schedule and Standards

The coal ash law requires all ponds to be closed over the next 15 years according to the following schedule:

High risk: December 31, 2019

Intermediate risk: December 31, 2024

Low risk: December 31, 2029

High- and intermediate-risk ponds can be closed in two ways: either remove and temporarily store the ash, convert the existing pond to a lined landfill, put the ash back in and cap it, or remove all the ash and dispose of it at a permitted, off-site facility. Low-risk ponds have the additional option of being capped according to solid waste landfill standards.

These deadlines can be extended only if the pond owner has complied with all other deadlines in the statute, has made a good faith effort to meet the closure deadline and shows that “compliance cannot be achieved by application of best available technology found to be economically reasonable at the time and would produce serious hardship without equal or greater benefits to the public.” A deadline cannot be extended for more than three years, and only one extension per pond is allowed.

All risk classifications and closure plans are subject to public comment and must be approved by the newly created Coal Ash Commission, a nine-member citizen commission appointed equally by the governor, the Senate and the House of Representatives.

Cost Recovery in Utility Rates

The law prohibits public utilities from recovering from retail customers costs relating to unlawful discharges to surface water occurring after January 1, 2014, meaning that Duke Energy cannot recover Dan River cleanup costs in its rate base. No application for cost recovery for discharges before that date can be made until January 15, 2015. The law is silent on a public utility’s right to recover costs associated with closure of a pond, meaning that decision will be left to the North Carolina Utilities Commission.

Structural Fill

North Carolina’s coal ash law also imposes numerous requirements and limitations on the use of coal ash as structural fill for projects such as embankments, building foundations and footprints for roads and parking lots. Projects using more than 8,000 tons per acre or more than 80,000 tons for an entire project must be permitted and have liners, leachate collection systems, groundwater monitoring and financial assurance. There are also siting limitations and deed recordation requirements. To allow NCDENR and the legislature to consider this issue in more detail, the use of coal ash as structural fill is prohibited until August 1, 2015.

Governor May Challenge Law

After threatening a veto, Governor Pat McCrory allowed the coal ash bill to become law without his signature to preserve his right to challenge the composition of the Coal Ash Commission. McCrory claims that the makeup of the commission violates the state constitution because a majority of its members are appointed by the legislature.

Big Challenges, Huge Costs

Duke Energy estimates that excavation and off-site disposal along with conversion of its North Carolina facilities to a dry system could cost as much as $10 billion. As utility companies have coal ash ponds across the country, other states likely will consider and many may pass similar legislation. In addition, EPA is scheduled to finally issue in December its long-awaited rule as to whether coal ash will be considered a hazardous waste, which could increase these costs even more. These potentially astronomical costs pose great risks and uncertainty for all businesses.