## DUKE

**ENERGY**

**~**

March 12, 2014

Mr. Pat McCrory Governorofthe State ofNorth Carolina NC State Capitol 1 East Edenton Street Raleigh, NC 27601 Mr. John Skvarla Secretary, Department ofEnvironment and Natural Resources NC State Capitol 1 East Edenton Street Raleigh, NC 27601 Dear Governor McCrory and Secretary Skvarla: ,§

- ' 11'- • , ._,--

LynnJ

. Good President,CEOand Vice Chair Duke EnergyCorporation 550 South Tryon Street

Charlotte, NC 28202

This letter provides an update to my February 28 letterand delivers recommendations for near-term and longer-term actions at ourash basins in North Carolina. Taken together, these near-term and longer
-term actions comprise our comprehensive ash basin plan

. Our recommendations have been developed around guiding principles designed to preventfuture events and to identify opportunities to improve ash pond management activities. We are committed to working with the State of North Carolina,the North Carolina General Assembly, the North Carolina Utilities Commission (NCUC) and all ofour regulators aswe develop an updated, comprehensive plan that protects the environment and provides safe, reliable and cost-effective electricityto North Carolinians. As we progress through implementation, we will continue to refine and expand these recommendations, including the design, engineering and cost estimates. We will also be working on these matters with our regulators in other states we serve
. We have accepted responsibilityforthe Dan River ash discharge and have taken a number ofimmediate actions following the event:
• We installed a permanent plug on the 48-inch stormwater pipe on February 8, and permanently plugged the 36
-inch pipe on February 21

. • Crews have removed coal ash in an area ofthe riverbed belowthe broken stormwater pipe's discharge point. We will continue to workwith state and federal agencies as we determine next steps needed forthe river.• Company representatives presented information aboutthe Dan River ash release to the North Carolina General Assembly's Environmental Review Commission on February 17 and to the NCUC on February 24. • We have worked with the North Carolina Division ofWater Resources to redirect stormwater around the basins in a mannercompliantwith our National Pollution Discharge Elimination System (NPDES) permit, until a permanent solution is devised. • We, along with various agencies, have continuallytested the water in the Dan River. The drinking water has remained safe. We will continue to work with you, your staffs and all appropriate regulatory agencies to finalize ourwork at Dan River. For more than a century, our company has provided reliable and affordable electricity to our customers. Coal-fired power plants produced a good portion ofthat electricity. Throughoutthe pastfew decades, we have dedicated significant resources to the management and monitoring ofour ash basins. We continue to place the safe operations ofthese ash basins as one ofour highest priorities. We have formed a team dedicated to strengthening ourcomprehensive strategyfor managing all ofour ash basins. John Elnitsky, most recently the company's vice president ofproject management and construction, is leading this effort. This team will focus on implementing our recommendations listed below as well as identifying and addressing ongoing improvement opportunities. This workwill provide an opportunity for us to assess our ongoing storage techniques and will influence the ash basin closure strategies for our retired facilities, recognizing that any storage technique embodies cost and risk-reduction tradeoffs. We want to make certain that we, our regulators and other stakeholders can have a high degree ofconfidence in the integrity ofour ash basins. As stated above, our comprehensive plan is comprised ofboth near-term and longerterm actions. Our near-term actions setforth below address three specific retired plants, specific actions related to three active operating units (Cliffside 5 and both Asheville units), and an approach to reduce risk on remaining ponds at all retired plants. These actions are first steps in a more comprehensive plan thatwill address all retired sites (21 ponds/7 sites) and pond management at active sites (12 ponds/7 sites). Of course, implementing our near-term recommendations and longer-term plans depends on state and federal agreementthat these are prudent, cost-effective and environmentally sound options. They are as follows, with associated time frames:

• Permanently close the Dan River ash ponds and move ash awayfrom the river to a lined structural fill solution or a lined landfill. This work will be started immediately upon securing the appropriate fill solution or landfill location and any necessary permits, with an expected completion th.ereafter of24-30 months. • Accelerate planning and closure ofthe Sutton ash ponds to include evaluation of possible lined structural fill solutions and other options. A conceptual closure plan will be submitted to the North Carolina Department of Environment and
2Natural Resources (NCDENR) within six months, and removing the waterfrom the ash basins will be completed in the next 18-24 months. • Move all ash from Riverbend awayfrom the river to a lined structural fill solution ora lined landfill. Workwill begin immediately upon securing the appropriate fill solution or landfill location and any necessary permits, with an expected completion thereafterwithin 48-54 months. • Continue moving ash from the Asheville plant to a lined structural fill solution. We continue to lookfor ash reuse opportunities where such uses remain permissible underthe upcoming coal ash regulations. • Convert the three remaining North Carolina units to dryfly ash (Cliffside 5 and both Asheville units) or retire the units. Conversion work, ifselected, will be completed within 30-36 months of receiving permits. • Minimize the potential risk ofa discharge similarto Dan River by accelerating the removal ofwaterfrom the ash ponds at all retired coal plants. Upon receipt of permits, dewatering will be completed within 24-36 months. In addition, we have taken immediate action to initiate a near-term comprehensive engineering review ofall ofourash basins to identify and address potential risks. This review consists ofa risk-informed approach to confirm the structural integrity ofthe ash basins and associated structures, as well as the characterization and evaluation ofall stormwater discharges nearash basins. We expectthis engineering reviewto continue overthe next six-to-eight months. We are also developing a comprehensive longer-term ash basin strategyfor all ash ponds in North Carolina and throughout our service territory. This strategywill include a review ofactive ponds, inactive ponds and closure strategies forthe remaining retired plants, will be informed by outside experts, and will include a risk-informed, tiered approach. The work will include a review ofthe effectiveness ofash storage management programs and practices to confirm that longer-term solutions are sustainable and lessons learned are captured for company-wide application. This comprehensive strategy will evaluate options up to and including complete conversion to all dry handling. This workwill be completed by year-end. We wantto getthe near-term and longer-term strategies right and implemented in a timely way. Thatwill require close coordination with NCDENR and/orthe United States Environmental Protection Agency (EPA) on permitting, as well as consideration of many factors including environmental and transportation issues for each communitywhere coal ash is stored. We lookforward to working with and incorporating the input ofthose agencies, as well as your offices and the General Assembly, to accomplish these objectives. As our plans progress, itwill be importantto align our steps with upcoming federal regulations. The EPA issued a proposed rule on June 21, 2010, regarding federal regulation ofcoal ash. A final rule is expected by December 19, 2014. In addition, the EPA issued a proposed rule June 7, 2013, for Steam Electric Effluent Guidelines that

3regulates wastewater streams from power plants. The final rule is expected no sooner than May 2014. Our longer-term solutions must satisfythese rules. As we continue to refine our recommendations, we would like to meetto discuss the near-term items and our comprehensive strategy. Such a meeting should include technical expertise from the company and your agencies to listen to and challenge assumptions. Cost estimates to implementthese recommendations are very dependent upon the actual disposal methods that are approved (e.g., cap in place versus structural fill or lined landfills), and we will work with the state to make estimates available as we narrow the range ofoptions at each particular site. Low-cost power generation has fueled the development ofourstate overthe last century. As scientific knowledge and technology have advanced, we have worked constructively with the policymakers and regulators ofour state to develop cost-effective ways to continue providing reliable, low-cost energyto our citizens while protecting public health and the environment. We look forward to continuing this work as we develop and implementthese recommendations for both immediate and longer-term solutions to coal ash storage and disposal. Sincerely,

Lynn 

### J. Good President and Chief Executive Officer

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