Catherine Heigel, President of Duke Energy South Carolina
October 4, 2011
by Alan Cooper, October 4, 2011
UpstateBizSC:
Talk a little about your background.
Catherine Heigel:
I was born in Florence and grew up in Darlington, but moved out of state when I was in the fifth grade. I returned to South Carolina to attend Honors College at the University of South Carolina where I did my undergraduate degree in international studies. I can’t speak highly enough about the quality of education that I received at USC. After that, I attended law school at The Ohio State University.
I began my career working for the Department of Consumer Affairs as a consumer advocate in utility and insurance rate regulatory matters. In 1997, I joined Duke Energy as in house counsel.
UpstateBizSC:
Talk a little about the scope of Duke Energy’s presence in South Carolina.
Catherine Heigel:
Duke Energy has a significant presence in South Carolina and with over 6,000 contractors and employees, we are a significant employer. We have two nuclear plants in South Carolina, the Catawba Nuclear Station on Lake Wylie in York County and the Oconee Nuclear Station on Lake Keowee. We have plans for a third nuclear plant in Cherokee County.
We are a publicly-held corporation with corporate headquarters are in Charlotte, North Carolina. Duke Energy Carolinas serves both North and South Carolina as a single integrated system. We have 2.4 million combined retail customers in the Carolinas, approximately 600,000 of which are in South Carolina.
UpstateBizSC:
What is your title and role?
Catherine Heigel:
I am president of Duke Energy South Carolina and I report to our president and CEO, Jim Rogers. My job has a broad set of responsibilities which includes overseeing our rates and regulatory affairs in South Carolina. I also oversee the company’s economic development and community and legislative affairs in the state.
UpstateBizSC:
Why is Duke Energy seeking to merge with Progress Energy?
Catherine Heigel:
This merger will create the largest electric utility in the United States. From a business point of view, this merger will help us achieve a level of scale and financial strength to execute on the modernization of our operations while helping to hold down costs for our customers. That is the biggest challenge that we face over the next fifty years. Our goal in merging our two companies is not to be the biggest, but the best utility in country.
UpstateBizSC:
Talk a little about how Duke goes about deciding where to invest in terms of future energy needs.
Catherine Heigel:
Our traditional business model is similar to other utilities – big, central power plants with wires going out to substations for large scale electricity generation. In addressing the future energy needs for our customers, we need to become more energy efficient and either build new plants and apply for new licenses, or upgrade and re-license existing facilities.
We are charged by state statute with least cost planning, that is, building assets that will be the least cost for our customers. Each year, Duke Energy puts together a 20-year forecast for energy demand. That forecast is a part of the company’s integrated resource plan which is filed with the Public Service Commission on September 1 of each year. This plan outlines how the company plans to meet the energy needs of our customers over the next two decades. As new and better information becomes available throughout the year, we incorporate it into our models and adjust our plans accordingly.
Our integrated resource plan involves sophisticated modeling to forecast future energy needs. The current and predicted future prices of commodities (natural gas, uranium, coal), the changes that will take place in energy efficiency, the impact of future innovations such as plug-in electric vehicles, known and pending environmental legislation – these are just a few of the variables that have to be factored in to our predictions. At each step of the way, we deal with significant uncertainties with regards to the inputs into the model. It is a difficult undertaking, but core to the decisions that we make about what resources to build.
One example of the unpredictability is how carbon has been factored into our models over the past couple of years. Not long ago, we were fairly confident that some form of legislation would be introduced with regards to carbon emissions – either a cap and trade system or a carbon tax. Like prior legislation governing sulfur dioxide and nitrogen oxide to address acid rain, it seemed likely that carbon would get the same treatment. Regrettably, Congress failed to enact any form of comprehensive climate legislation, which would have put a market price on carbon and provided more regulatory certainty around how the U.S. would move toward a low-carbon future.
Now, it is clear that there will be no carbon legislation until at least 2013 and our model results have changed. Yet, even in the absence of federal or congressional action with regards to carbon, the Environmental Protection Agency (EPA) continues to move forward with various regulations related to coal-fired generation.
UpstateBizSC:
Demand for energy is predicted to increase 53% over the couple of decades. How are we going to meet that demand?
Catherine Heigel:
There is no silver bullet to meeting customer’s energy needs in the future; we need to come up with a balanced portfolio approach. Coal and nuclear are the traditional sources of base load energy generation in this region.
Nuclear has been a part of our energy mix for 40 years and it is an important part of our future. It has the advantage of 24/7 operation, boasts a 90% capacity factor, and with zero carbon emissions – it is clean.
We remain committed to pursuing a license for the Lee Nuclear Station in Cherokee County. Our application for two Westinghouse AP1000 reactors will enable us to bring online 2,234 MW of power generation. The construction of this facility will be a key economic development project for this state and create high paying jobs and increased tax revenues.
We also have to modernize our existing infrastructure. Our coal plants in the Carolinas are 60 years old. Absent re-licensure of our existing facilities, and with the exception of hydroelectric plants, every other generating station under our control will have to be retired or replaced by 2050. In the Carolinas alone, 38 units will have to be retired in the next several years – 18 coal-fired units and 20 natural gas units. There is a pressing need for new investment. We recently invested over $500M on a scrubber for an existing coal fired plant at our Cliffside location in North Carolina. We are also building a new, clean 800 MW plant coal facility at Cliffside that will allow us to retire a 1,000 MW of older and unscrubbed coal units.
We currently do not have a lot of natural gas in our portfolio, but we are working to increase the amount of gas-fired generation on our system because the price of natural gas is favorable (lower) at the moment and it involves relatively low emissions. Currently, we’re building two natural gas-fired power plants in North Carolina.
UpstateBizSC:
What role does increased energy efficiency, lowering the demand for energy play in Duke’s strategy?
Catherine Heigel:
Energy conservation plays a significant role in our strategy. It may seem counter intuitive to people that Duke energy would attempt to reduce the demand for its product, but we have worked hard with regulators in each of our service states, including South Carolina, to put investments in energy efficiency on par with the building new plants. We are fortunate in South Carolina to have the 1992 Energy Conservation and Efficiency Act, which is a very forward-looking piece of legislation that provides incentives to utilities to invest in demand-side management programs. South Carolina and Duke Energy value energy conservation as a resource and we’re counting on our customers to embrace it.
UpstateBizSC:
I guess the big question is: how do you finance such huge capital expenditures?
Catherine Heigel:
In an industry that is capital intensive, access to capital is critical. Having a constructive regulatory environment in the jurisdictions where we operate is critical to allow access to this capital. Despite the recession, Duke Energy has maintained one of the electric utility industry’s strongest balance sheets and this enables us to access capital at very low interest rates. The lower the cost of debt capital, the more favorable the terms of debt issuances, the less our customers will ultimately pay for the investments we need to make in our electric system.
UpstateBizSC:
Rate increases are constantly being talked about as part of the equation for defraying the cost of new investment. Are rate increases inevitable? Talk a little about how Duke handles the PR aspect of possible future price increases.
Catherine Heigel:
When we present our plans before the Public Service Commission, we face intense public scrutiny for our decisions and there has to be a high degree of public transparency. But a regulated industry such as ours is not intuitive for people; it’s difficult to connect the dots and see how rates are set. It is our job to help connect the dots.
Our obligation is to provide affordable, reliable, and increasingly, clean power for our customers in South Carolina. We have invested a lot of time and effort to get out into the local community to talk about our energy future and how Duke Energy plans on meeting those obligations. From February through September of this year alone, Duke Energy employees have spoken to over 4000 customers at over 200 different meetings and events to explain the investments we are making in our electric system and the impacts of these investments on the price of our product.
We are entering a rising cost environment in energy. There is no doubt about that. We’ve reached a point when the rates our customers pay are no longer sufficient to cover the costs to serve them and still provide our investors the opportunity to earn a reasonable return. On August 5 of this year, we filed a request with the Public Service Commission of South Carolina to increase our electric rates by an average of 15 percent. Adjusting customer rates will allow us to begin recovering $6.5 billion dollars we’ve already invested into modernizing our electric system – better aligning the rates customers pay with the costs to serve them.
UpstateBizSC:
What role does Duke Energy play, if any, in economic development efforts in South Carolina?
Catherine Heigel:
We are a key partner in economic development efforts and last year, we helped bring in $1.5B in new investment to the state. For industrial and manufacturing, energy is a significant component of bottom line cost. We work directly with local and state economic development agencies to recruit new business and industry to South Carolina. Duke Energy’s ability to offer reliable electric service at affordable rates is a competitive advantage for our state and we are working hard to maintain that advantage for the long term. In addition to competitive rates, we created the Carolinas Investment Fund with shareholder money to provide economic development grants for qualifying projects. Also, in 2004, the Public Service Commission allowed Duke Energy to create AdvanceSC, a non-profit LLC funded by Duke Energy’s off-system electric sales profits, to provide economic development and competitiveness grants (in addition to low income assistance programs).
UpstateBizSC:
Talk a little about Duke’s investment in renewable sources of energy.
Catherine Heigel:
At this point in time, we like to compare the use of many renewable sources of energy to the role a place kicker plays on a football team. When you need him, he is critical, but you wouldn’t field an entire team of place kickers. Coal and nuclear are both the offensive and defensive lines in terms of their role in our energy portfolio. We need them in there for every play to ensure we can meet our obligation to serve customers. Until we have battery storage technology that will allow us to dispatch energy at peak times of demand, wind and solar are not viable options for base load energy generation. Solar is limited in its application in South Carolina because of the amount of humidity and haze in our state, but has found very practical applications in areas such as hot water heating.
On the non-regulated side of our business, we are making strategic investments in wind, solar and biomass across the United States. We operate over a 1,000 MWs of wind generation and are one of the top ten owners/operators of wind assets in the country. On the regulated side, we also have installed ground mounted and rooftop solar plants in North Carolina. Our objective is to keep our eye on the horizon and to be a part of the exciting future for energy generation. To do that, we have to make investments in and gain experience with alternative sources of energy generation.
UpstateBizSC:
What is your biggest worry about the energy situation in the United States?
Catherine Heigel:
My biggest concern is that while the United States holds the intellectual property (IP) rights on many new energy technologies, the actual deployment of those technologies is happening outside the United States — in places like China and India. As a result, these countries will hold the IP with regards to the scaling of those technologies. They are actually doing what we are talking about here in the United States.
