Costs of pond closures unclear, but Alabama Power customers will pay

Environmental disasters are not cheap. Whether natural or man-made, the cost of cleanup and remediation today is often measured in the billions of dollars. 

Perhaps two of the most familiar to residents of South Alabama are Hurricane Katrina in 2005 and BP’s Deepwater Horizon explosion and oil spill in 2010. Years later, the visual evidence of either can be hard to find, but the relative return to normalcy didn’t occur without vast related expenses. 

At the time, Katrina was estimated to have caused $125 billion in damages, while the oil spill set the Gulf Coast back to the tune of at least $68 billion, conservatively.

As Lagniappe has been reporting over the past several weeks, nonprofit environmental organization Mobile Baykeeper is warning against a looming environmental disaster in the Mobile-Tensaw Delta, where Alabama Power has stockpiled 21 million tons of coal ash in a 600-acre unlined pond along the banks of the Mobile River. 

If the earthen dam surrounding the pond were to fail, as one did in 2008 in Kingston, Tennessee, and another did in 2014 in Eden, North Carolina, Mobile and Baldwin counties could be facing a multi-billion dollar price tag for cleaning and restoring an ecosystem that is much more challenging and biodiverse than the two previous examples. 

In Tennessee and North Carolina, the power providers Tennessee Valley Authority and Duke Energy spent more than $1 billion each on their efforts, a price that doesn’t include potential damages from ongoing civil lawsuits.

The U.S. Environmental Protection Agency (EPA) responded to the spills by passing a nationwide rule in 2015 requiring electric utilities to either retrofit existing ponds to incorporate a composite liner or, if the ponds did not meet the minimum requirements of a set of EPA performance criteria, close them within five years.

At Plant Barry on the Mobile River and at other sites around the state, Alabama Power elected to close its ponds. Within its rule governing the “Disposal of Coal Combustion Residuals from Electric Utilities,” the EPA gave utilities the option of either removing the coal ash from existing ponds and disposing of it at lined landfills farther inland or dewatering the material, consolidating it and “capping” it place. 

While utility providers in Virginia, Georgia and North Carolina either voluntarily agreed or were required by state legislation to remove some, if not all, coal ash from existing ponds, Alabama Power “reviewed site-specific conditions and other factors at all its plants, resulting in the decision to close-in-place, with additional safeguards and protections, including consolidation of the material into smaller footprints following dewatering,” spokesperson Michael Sznajderman wrote in a series of answers to questions posed by Lagniappe earlier this month. “As part of its review, the company considered the close-and-remove option, but the company never changed its plans once determining to close-in-place with additional enhancements.” 

Claiming the cap-in-place option is both safe and economically feasible, Sznajderman wrote that “current estimates for the company’s ash pond closure program, including Plant Barry, put the price at more than $2 billion. Under current plans, the permanent closure of the Barry ash pond is estimated to take approximately 13 years. Based on industry estimates and our own review, close-by-removal would cost three to five times more and take three to five times longer to safely complete closure.”

The EPA requires utilities to complete the closures within 15 years, Sznajderman said. 

The company’s published closure plan for Plant Barry’s coal ash pond, which is only two pages in length and lacking specifics, notes “the pond will be dewatered sufficiently to remove the free liquids and to an extent to provide a stable base for the construction of an ash containment structure for the consolidated footprint, excavation of ash outside the consolidated footprint and, construction of the final cover system.

“[Coal ash] will be excavated from the area outside the consolidated footprint, transported, and disposed of in the consolidated footprint to create a subgrade for the final cover system. Excavation will include removing all visible ash and over excavating into the subgrade soils.”

The final cover or “cap,” the company claims, “will be constructed to control, minimize or eliminate, to the maximum extent feasible, post-closure infiltration of liquids into the waste and potential releases of [coal ash] from the unit.”

In response to more specific questions, Sznajderman noted “material will be excavated and moved farther away from waterways, creating buffers of up to 750 yards from the Mobile River” and “the consolidation will reduce the size of the footprint by more than 250 acres, or by more than a third.” The consolidated material will also be surrounded by a “redundant dike system” while “stormwater systems will be added to manage rainwater runoff.”

According to a March 2018 letter from the Southern Environmental Law Center (SELC) to Alabama Department of Environmental Management (ADEM)’s Office of General Counsel, Alabama Power is not required to provide financial assurances that it will cover the cost of its cap-in-place program. 

“The [coal ash ponds] in Alabama are hundreds of acres in size and contain over 100 million cubic yards of coal ash. Requiring a financial assurance mechanism to be in place will ensure that the [coal ash pond] owners or operators are held responsible for the cost of closure, post-closure care and cleanup of these sites,” the SELC wrote. 

Unlike utilities in other states, Alabama Power was granted a 3 percent rate increase by Alabama’s Public Service Commission (PSC) for the express purpose of closing its ash ponds — an increase the PSC says will generate more than $200 million for the company and can be renewed by the commission.

“Costs for ash pond closures, which are driven by federal mandates, are recoverable under Public Service Commission regulations,” Sznajderman explained. “The costs must be justified to the PSC as reasonable and are one of many factors that go into determining rates. Should these mandated environmental costs be reduced over time, this would be factored into rate calculations.”

Meanwhile, according to its annual report filed with the Securities and Exchange Commission, Alabama Power reported just over $6 billion in total revenue in 2018. Its parent company, Southern Company, reported $23.5 billion in operating revenues and total assets worth $116 billion. 

In notes to investors, the company stated its “asset retirement obligations” (AROs), which are essentially unknown expenses associated with the retirement of assets, are expected to fluctuate depending on state and federal regulations regarding coal ash ponds. 

“In June 2018, Alabama Power recorded an increase of approximately $1.2 billion to its AROs related to the [coal ash] rule,” the report stated. “The revised cost estimates were based on information from feasibility studies performed on ash ponds in use at plants operated by Alabama Power, including at a plant jointly-owned by Mississippi Power. During the second quarter 2018, Alabama Power’s management completed its analysis of these studies which indicated that additional closure costs, primarily related to increases in estimated ash volume, water management requirements and design revisions, will be required to close these ash ponds under the planned closure-in-place methodology. As the level of work becomes more defined in the next 12 months, it is likely that these cost estimates will change and the change could be material.”