Ever since the late 1980s, James Rogers has been beating the drum for green energy as an answer to global warming, putting him in the vanguard of climate-change activists. But what’s most remarkable is that Rogers happens to be the CEO of Duke Energy Corp., the huge electric and gas utility that ranks among the U.S.’s biggest emitters of carbon dioxide.
Moreover, that dubious distinction is one the Charlotte, North Carolina, utility won’t be relinquishing any time soon. It is the only power company in the U.S. that is simultaneously building two coal-burning plants, which are due to come online in 2012. And coal, although it is both abundant and cheap, is a notorious pollutant compared with natural gas or nuclear power.
What explains the apparent paradox between Rogers’s green persona and Duke’s seemingly retrograde strategy? A self-proclaimed pragmatist, he argues that a climate-friendly future will require a 40-year forced march. So how do new coal plants fit into this scenario?
Rogers frames the history of power generation as one big cleanup effort. “When people were burning coal and wood in the fireplace and using kerosene lights, going to electricity automatically cleaned up the cities,” he points out. Then the Clean Air Acts and subsequent amendments got utilities to clean up power plants. Now that coal plants built in the 1970s and ’80s are reaching the end of their lives, Rogers says, the U.S. will have to build fewer but more-efficient coal and other types of power plants to carry consumers into the brave new world of alternative energy sources that he envisions arriving around 2050. (The coal plants under construction by Duke are efficient enough to qualify for a combined $258.5 million in clean-coal tax credits.)
In the meantime, Duke Energy must serve a big and growing marketplace. It supplies electricity to 4 million retail customers in the Carolinas and the Midwest, and distributes natural gas in Ohio and Kentucky. Duke’s commercial unit operates power plants for municipalities, other utilities and industrial facilities. Its international division runs plants in Latin America. In addition, Duke has a portfolio of renewable-energy ventures — wind, solar and biomass — that now supply roughly 1,000 megawatts of the company’s nearly 40,000 megawatts. In all, some 40 percent of Duke’s power comes from noncarbon-producing sources, including water and nuclear energy.
Born in Birmingham, Alabama, Rogers, 63, graduated from Emory University with a degree in business and spent three years as a reporter for the Lexington Herald-Leader before going to law school at the University of Kentucky. After clerking for Kentucky’s Supreme Court, he was named an assistant state attorney general and consumer advocate under then–Democratic governor Julian Carroll. In 1977, Rogers moved to Washington, going back and forth between the Federal Energy Regulatory Commission, where he handled litigation, and Akin Gump Strauss Hauer & Feld, where he became a partner in 1983. Enron Corp. chief Kenneth Lay hired him away in 1985 to run Enron’s gas pipeline business, but Rogers left in 1988 — more than a decade before Enron’s notorious bankruptcy — to head Indiana utility PSI Energy. He oversaw PSI’s 1994 merger with Cincinnati Gas & Electric Co., yielding Cinergy Corp., which he also ran. When Cinergy and Duke Energy merged in 2006, creating the U.S.’s third-largest electric utility, Rogers became CEO, president and board chairman. He spoke with Senior Writer Frances Denmark during a visit to New York in late September.
Institutional Investor: What drives your interest in green energy?
Rogers: I’m in the business of making billion-dollar decisions, and as a pragmatist, I’m an advocate for advancing [green] issues, in part so that I can deliver on my job one: making energy as affordable, reliable and clean as possible. Whether it’s a coal plant at $3 billion or a nuclear plant at $12 billion to $14 billion, I can make more-informed decisions about huge investments that will last 50 years if I know the [environmental] rules, even though a cleaner carbon footprint in our generation facilities is going to translate into higher prices.
So where are energy prices headed?
As you look out over 20 to 30 years, you’re going to see the real price of electricity rise. It’s going to be driven by the need to spend more on an aging system. We’re retiring depreciating plants and building new ones. The price is going to rise because we are modernizing the grid with two-way communication, and we’re looking at modernizing our meter system with two-way communication. [This saves energy by, for instance, letting a so-called smart meter temporarily shut off a refrigerator when a customer runs a dishwasher, to avoid a surge in demand.]
What can Duke Energy do about controlling costs for its customers?
We can help them reduce usage as prices go up. That makes it easier for us to make investments [in new plants] — which drives our earnings growth — and yet minimizes the consumer backlash from rising prices. Our customers’ frustration won’t be as great if they are able to take action to optimize their electricity usage and minimize their bills.
Which of all the alternative energy sources holds the most promise?
If you look out over the next decade, the Environmental Protection Agency is going to write a set of regulations requiring us to shut down as much as one third of the existing coal fleet [of plants] in the United States. And that coal fleet is going to have to be replaced by something. Will it be natural gas? Will it be nuclear? Will it be renewables? One of the great challenges confronting us is what mix of those three do we need to replace one third of the U.S. coal fleet.
What has Duke done to minimize carbon emissions?
We’ve invested over $1.5 billion in wind power. We build the plants and sell them under long-term contracts to utility companies in other regions of the country. We’re doing the same thing with solar in our commercial business. But we’re also putting solar panels on the rooftop within our regulated business in North Carolina. And we have two nuclear plants on the drawing board. [Duke is also awaiting regulatory approval of a nuclear plant in Cherokee County, South Carolina.]
Would it be out of the question to replace Duke’s coal-burning plants with cleaner nuclear ones?
If you’re serious about addressing the climate problem, you have to be serious about embracing nuclear power, because it is the only technology that will allow us to achieve both sufficient electricity and zero greenhouse gases 24/7. We’ve been able to safely and reliably provide power from nuclear plants for 40 years. From a safety standpoint, nuclear plants are better than coal or gas or any other alternative.
China has embraced nuclear power.
Yes. We have several partnerships with Chinese companies, including China Huaneng Group, China’s largest power generator. They’re building 24 nuclear plants, while we’re not turning dirt on a single one here at home. China has an economic imperative to build power generation to bring electricity to its people, the way we did in the 20th century. We’ve also partnered with ENN Group, one of China’s largest private energy companies.
What do you expect ultimately to gain?
We need to cooperate with them because it will benefit the people of both countries. In the infrastructure business, if you’re building 24 plants, the real innovation comes as you build each new generation. You will build it cheaper and more efficiently. The Chinese are going to develop the construction processes and capabilities to build facilities cheaper than we’ll be able to build them in the United States. We can learn from their experience. That is very counterintuitive to Americans’ way of thinking today.
What do you say to people who deny global warming?
There’s a wide number of people that don’t believe it, for a variety of reasons. But even if it didn’t exist, what would I change about my strategy? We are building plants today that are modernized and have significantly reduced the emissions per kilowatt hour. We would be doing that anyway.
