Duke Energy CEO: Shale gas key to changes

Nov. 28, 2012 @ 06:35 PM

Jim Rogers, CEO of Charlotte-based Duke Energy Corp., said there’s been a turnaround in the last five years tied to the “shale gas revolution,” and the utility has increasingly turned to electricity production from natural gas.

Rogers was a keynote speaker at the Duke University Energy Conference held Wednesday at Duke’s Fuqua School of Business. He delivered a talk called “The Future of Energy: How will Today’s Challenges Shape the Future of the Industry?”

In his remarks, he spoke about changes for the industry in the last five years, including a decline in electricity demand since 2007, and cheaper and more abundant U.S. natural gas resources.

“Part of this story is really shale gas,” Rogers said. “It is transformative. I think maybe more transformative than even nuclear was in the ’60s and ’70s.”

However, Rogers did not address the investigation by the N.C. Utilities Commission into whether the commission was misled in the approval and closing of Duke Energy’s merger with Progress Energy.

Bill Johnson, former CEO of Progress Energy, was expected to take over as CEO of the combined utility. Instead, it was announced that Rogers would take the role.

In August, the commission announced the hiring of attorney Anton Valukas and the Chicago-based law firm Jenner & Block to help with its investigation. The commission said that per state law, investigation costs would be charged to Duke Energy.

Sam Watson, the commission’s general counsel, said Wednesday that the investigation is ongoing. Tom Williams, a spokesman for Duke Energy, said the utility is continuing to cooperate.

In his talk Wednesday, Rogers said demand for electricity has fallen, and won’t return to 2007 levels until 2016 or 2017.

Residential energy use has declined, he said, in part because of more efficient appliances and homes, as well as because of utilities’ energy efficiency programs.

“Now for environmentalists, that’s a good thing, particularly with respect to emissions of (carbon dioxide),” he said.

Rogers also spoke about the impact of increased shale gas resources.

Shale gas is natural gas that’s trapped in sedimentary rock, according to the U.S. Energy Information Administration.

Horizontal drilling and hydraulic fracturing techniques, which involve pumping pressurized fluids underground to break up the rock and release gas, have allowed access to shale gas resources in the last decade that were previously “uneconomical to produce,” according to the energy information administration.

Rogers said natural gas is “cheaper and it’s cleaner” than coal. The utility has increased its mix of natural gas as a fuel for generating electricity from 19 percent to 30 percent to 35 percent since 2007, while he said its production from coal has fallen from about 50 percent to 30 percent to 35 percent.

“Clearly, our emission footprint is much improved,” he said. “It’s more affordable, because gas prices are lower, cheaper than coal.”

Rogers also spoke about the utility’s plans to modernize its fleet. According to Williams, the utility expects to retire and replace its power plants by 2050, except its hydroelectric power plants, and its plants that are under construction.

Rogers said he expects electricity demand to be flat or slightly declining in the future, which he said is a challenge to the utility’s business model. Historically, he said, the utility has been building new plants to meet growing demand. Now, he said, it has to bring on more modern, efficiency and cleaner plants.

“But guess what? Our customers are going to have to have a hard time paying for higher prices for these new plants,” he said.

This year, Duke Energy Carolinas was approved for a 7.2 percent average rate increase for most customers. That has been appealed by North Carolina Attorney General Roy Cooper, who argued Nov. 13 before the state’s Supreme Court regarding the matter.

The basis of the appeal was whether the utility could raise customers’ rates and deliver a 10.5 percent shareholder profit in “this challenging economic climate,” according to a news release from Cooper’s office.

Noelle Talley, a spokeswoman for the N.C. Department of Justice, said in an email message on Wednesday that the attorney general is waiting for the court to rule.

“We feel pretty confident in that case,” Williams said. “We clearly think the rates were justified,” he also said.

Duke Energy Carolinas is expected to file for another rate increase early next year, Williams said.