A publication of Site Selection

Duke Energy CEO:
How to Build a Low-Carbon Future
by Ron Starner
ron.starner bounce@conway.com
Jim Rogers says coal, nuclear must be part
of America´s power plan; he explains how it could happen.
Jim Rogers: CEO of Duke Energy
Jim Rogers: CEO of Duke Energy.

f all the voices crying out for change in the way America produces and consumes its energy, few are capturing more attention than that of Jim Rogers, chairman and CEO of Duke Energy Corp.
      For years, Rogers has been telling anyone within earshot that if America is serious about reducing greenhouse gas emissions and lowering the carbon footprint of its industrial infrastructure, then wholesale change must come in the form of new government policies and a new approach to the nation´s patchwork electrical grid.
       "We´re going to have to fundamentally redefine our business models in a low-carbon world," Rogers told a global corporate climate summit of CEOs in Copenhagen last month.
      The regulatory regime of yesteryear must become exactly that, says Rogers, who wields a lot of clout on Capitol Hill and is a master of using his bully pulpit from the Charlotte, N.C., headquarters of his energy company that on June 12 had a market capitalization of US$18.92 billion.
      In 2008, Duke was the nation´s third largest electrical power generator from coal and the third largest generator from nuclear plants, according to Rogers. Both sources of energy will continue to play major roles in our future, he says.
      System-wide, Duke owns about 27,400 megawatts of electric generating capacity and serves 4 million customers in five states: North Carolina, South Carolina, Ohio, Indiana and Kentucky. Duke also operates 150,900 miles (242,798 km.) of distribution lines and 20,900 miles (33,628 km.) of transmission lines.
      In a wide-ranging and often frank interview with Site Selection, Rogers offered a prescription for lowering U.S. dependency on fossil fuels and gave a glimpse of what the new electrical power system of the future would look like.
      Before doing so, he announced a bold plan that rolls out 100 to 400 mini solar plants across North Carolina – putting his money where his mouth is. All of these mini power plants will feed directly into the grid and deliver power for some 1,300 homes.
      It´s all part of Duke´s strategy to "decarbonize its fleet" and "build a bridge to a low-carbon future." For its efforts, Duke this year has once again earned a spot in the Dow Jones Sustainability Index.
      The company´s stated goal is to reduce its carbon emissions by 50 percent by the year 2030. To accomplish that, Duke plans to build a whole new fleet of clean-coal plants, even as it retires 1,000 megawatts of existing plants by 2018. Nuclear energy will be a key component of that plan, as 50 percent of the electrical power used in North Carolina already comes from three nuclear generation units in the state.
      In the following interview, Rogers talks about his company´s path toward a cleaner and more renewable future:

"True sustainability is when you can create value for all the different stakeholders."

      SITE SELECTION: What was the impetus for your recently announced distributive electricity project in North Carolina, and why did you choose solar energy as the source?
      JIM ROGERS: Let me start with an historical observation – it centers around the affordability issue. Universal access to electric power and affordability really drove us in the past century. In the 21st century, our goal is to decarbonize our fleet and, secondly, help make our communities the most energy efficient in the world. Those two aspirations are at the heart of how I will address this issue. Why solar? The things we are trying to achieve – redefining the boundaries of our business and creating distributive generation – will play an increasing role in the future. We chose solar because it offers the greatest promise of significant cost reduction over the next decade. It has a distributed generation to it. Solar connected to the grid is one model. And it is in stark contrast with wind. Wind will never become a distributed generation source. In the new century, distributive generation will emerge as the way that electricity is generated, stored and used. Learning to operate intermittent sources of supply and integrate them into your system is a skill set that we have to develop. This will get us on the road to handling distribution across our system. I see this as a huge learning curve for us in preparing for our future.
McGuire Nuclear Station
McGuire Nuclear Station is located on Lake Norman in Mecklenburg County, North Carolina. Lake Norman– the state´s largest man-made lake–was built by Duke Energy in 1963 by damming the Catawba River with Cowans Ford Hydroelectric Station. The lake provides cooling water for both McGuire and Marshall Steam Station.                                        All photos courtesy of Duke Energy.
      SS: At what point did you and your company determine that sustainability was, in your opinion, "no longer optional?" Was there a crisis or other event that precipitated this shift in corporate strategy
      ROGERS: Sustainability is grounded in the fact that when I became CEO 20 years ago, I began addressing my annual letter to customers, employers, suppliers, communities and policy makers. I have taken a stakeholder approach my entire career. I have been on many sides of all these issues. True sustainability is when you can create value for all the different stakeholders. When you learn to create value for all the stakeholders, you create a tradeoff. What´s best for your customers often isn´t what´s best for your investors. Only recently, Jack Welch announced that he was wrong in the early 1980s, and now says that the only way to run a company is the stakeholder approach. We do business for the people, planet and profit. Reducing carbon dioxide won´t be cheap or easy or quick, but it has to be fair and we have to start now.

"Reducing carbon dioxide won´t be cheap or easy or quick, but it has to be fair and we have to start now."

      SS: What is your projection, in real costs, of cutting Duke´s CO2 emissions in half by 2030?
      ROGERS: We do have some rough estimates and different scenarios, but we are not in a place to predict what those costs will be. We are not yet comfortable releasing that estimate. 2010 is hard; 2030 is harder. We have not released the numbers; we have a range of numbers. We have a feel for it. It will cost in the billions of dollars. Our budget is $25 billion over the next five years. I believe we will be able to do this and maintain our competitive rates, vis-à-vis our competitors, over that period. We recognize how technology evolves. Every plant we operate today will be retired by 2050. If everybody replaces every plant by 2050, the guy who gets the head start will have a lower cost by 2050.
      We were one of the leaders on nuclear. Some 96 percent of our electricity comes from coal and nuclear. We were never one of these people that got hooked on the crack cocaine of natural gas. California gets 40 percent of its electricity from natural gas. Its cost ranges from $3 to $12 [per thousand cu. ft.] in the last 18 months. We are looking to the future. My goal line is whatever rate advantage we have today, I want to still have that rate advantage over every other region of the country. This will enable us to compete for manufacturing plants. We serve Ohio and Kentucky, major manufacturing states. North and South Carolina are different. There is some growth in manufacturing here. Most of our growth will be in residential and commercial energy usage.

      SS: Duke will invest $1 billion in smart-grid technology over the next five years. By 2014, how different will that grid look, and how will the new grid technology impact industrial end users?
      ROGERS: I am meeting tomorrow with the U.S. Energy Secretary [Steven Chu] to talk about the smart grid, stimulus dollars and standardization. If we can use the stimulus dollars, that will mean lower costs for our customers over time. It will allow us to take energy efficiency to the next level. It will help us provide energy efficiency for our industrial end users. When we look back 10 years from now, what we think of as energy efficiency today will be very primitive then. Smart metering will become standard. We will also have standardized Internet protocols.

      SS:What further regulatory and legislative changes are needed to assist Duke in your goal of decarbonizing your fleet?
      ROGERS: We have to get the passage of cap-and-trade legislation because we need a price on carbon and a cap on emissions. We have to get the transition right so that the people who are dependent on coal are not required to pay twice for the transition. We must minimize the price impact until the new technologies are available.
Duke Energy McGuire Nuclear Station
The Duke Energy McGuire Nuclear Station is the second of three nuclear stations designed and built by Duke Power

      SS: Have the advances in clean-coal technology and carbon sequestration achieved the level that makes burning coal safe again for the environment?
      ROGERS: These technologies have really advanced. The technology is so advanced that our new plant did not even have to be regulated. There are so little emissions. And we are building a coal gasification plant in Indiana that even has lower emissions. Its carbon intensity will be even better than the one in North Carolina. We are advancing the ball. On carbon capture and sequestration, we haven´t met the goal yet. We are making superior advances on clean-coal technology as defined by the generation of electricity, but we have only begun on carbon capturing and sequestration. At the largest coal gas plant in Indiana, we are creating the largest carbon sequestration plant in the world. An incredible amount of work has to be done on sequestration. That is the key to using coal.

      SS: Duke is taking extraordinary measures to control costs, even as you are modernizing your fleet, rolling out extensive new alternative energy programs and embarking on various marketing initiatives. How are you able to fund everything you want and plan to do as part of your strategic plan?
      ROGERS: Yes, we are taking measures to control our costs. Our prices are going to go up anyway. We are retiring 1,000 megawatts of power plants. The carbon intensity of our product will go down. We are in a very, very interesting place. The real price of electricity has actually fallen over the last 20 years. Over the next 20 years, the real price of electricity will actually go up. Investments in efficiency, smart grid and new plants will be factors in that – just from steps taken to decarbonize the existing fleet. We will see price increases across the country. You asked, "Are you able to fund everything you want?" There has not been another company in our industry that has raised as much capital as we have in the past year. We have raised about $5 billion since June 1, 2008, in the toughest capital markets we have seen in the U.S. and the world since the 1930s. We have maturities that are slightly longer, and we have one of the strongest balance sheets in the industry. We have an A-minus credit rating. In a capital-intensive industry, our prices will be lower. I want to be able to attract more business to the five states we do business in. Our prices are dramatically lower than the national average, with the exception of Ohio. I think we can maintain that differential going forward.

      SS: The South has long competed for manufacturing plants and other energy-intensive projects on the basis of affordable power. Do you foresee this location advantage being neutralized in the future?
      ROGERS: Our location advantage will not be neutralized in the future. We are going to maintain our cost advantage, which differentiates us on electricity. Yes, the South will maintain its price advantage in all areas of power. We have taken a more conservative approach historically. We have been slow to adopt renewable portfolio standards until we see the costs come down. We have been early adapters of nuclear. We have a constructive regulatory environment and we know that the way to raise the standard of living in the South is to keep prices down and keep creating jobs. This is true for Southern, FP&L and Progress Energy. We are all in this together.

"Our prices are dramatically lower than the national average, with the exception of Ohio. I think we can maintain that differential going forward."

      SS: How does your plan to grant carbon emission allowances to local electric utilities help America´s manufacturing operations?
      ROGERS: Carbon emission allowances, for states reliant upon coal, means our rates don´t go up. Obama´s 100-percent auction was a plan that would have really driven up our rates. The new bill would give us 90 percent of the allowances from day one.

      SS: You have said that "if you´re serious about climate change, you need to be serious about nuclear power." What role will nuclear energy generation play in the Duke Energy future generation platform, and how will that component help our industrial manufacturing infrastructure?
      ROGERS: I think nuclear is going to play an increasing role going forward. It is hard to see that today. In the past 30 years, we have not built a new nuclear plant. But carbon regulation will drive us to nuclear. We need zero CO2 emissions. We need to replace our old plants. People who live closer to nuclear are more positive than people who live farther away. It will prove to be a very important source. Solar, coupled with nuclear, will be the key to the answer. Great things are happening in Charlotte. It is becoming a cluster city. An incredible number of companies in nuclear engineering are there. Toshiba and Siemens are both moving 400 people to Charlotte. I think Charlotte is on its way to being a cluster city for energy, smart tech and smart-grid technology.

To view Duke Energy's Sustainablity reports go here.

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