The consent order that the state Department of Environment and Natural Resources scuttled was meant to settle violations for groundwater contamination leeching from coal ash dumps near Charlotte and Asheville.
The order had been reached before a Feb. 2 spill from a coal ash dump in Eden coated 70 miles of the Dan River in toxic sludge and brought to light a history of Duke being cited for its leaky, unlined coal ash dumps that were polluting the groundwater.
Officials said they will now partner with the U.S. Environmental Protection Agency to pursue joint enforcement against Duke for Clean Water Act violations related to the Dan River dump and amid new concerns about the illegal releases at another of the company's sites that came out this week.
Duke has coal ash dumps at 14 power plants in North Carolina, all of which were cited last year for polluting groundwater. Following the Dan River spill, the company has been cited for eight more violations.
The latest came Thursday, after activists with the Waterkeeper Alliance photographed Duke employees pumping what the state now estimates was 61 million gallons of contaminated water from two coal ash dumps into a canal leading to the Cape Fear River. On Friday, the state approved Duke's emergency plan to repair a large crack that has opened in an earthen dam that holds back millions of tons of coal ash.
Documents obtained by The Associated Press show a state inspector noted a month ago that water levels in waste pits at the Cape Fear Plant were low, but no enforcement action was taken until after the environmental group's photos of the illegal pumping were widely reported in the news media.
The state is now testing water samples from the river for signs of hazardous chemicals. Coal ash contains arsenic, lead, mercury and other heavy metals highly toxic to humans and wildlife. Several sizable cities and towns are downstream of the latest spill but none has reported any problems with treated drinking water drawn from the river.
In partnering with the EPA, state officials pointed to the federal agency's extensive experience from the ongoing cleanup in Kingston, Tenn., the site of the largest coal ash spill in the nation's history in 2008.
"The state's goal is to clean up both the Dan River and to protect public health and the environment at the other Duke Energy facilities around the state, and we are pleased to announce that the EPA will join us as we address these important issues," Gov. Pat McCrory said in a statement.
McCrory worked at Duke for more than 28 years before retiring to launch an unsuccessful campaign for governor in 2008. Since then, records show the company and its employees have provided more than $1.1 million to his campaign and GOP groups that supported his candidacy.
McCrory denies that Duke has received any special treatment and points out that coal ash was a problem long before he was elected in 2012. But his administration has also been criticized for a shift in focus at the environmental agency to a more pro-business approach where the industries being regulated are referred to as "customers."
The now-derailed settlement was initially tabled Feb. 11, the day after AP published a story highlighting what environmentalists criticized as a "sweetheart deal" to the governor's former employer.
The state only took legal action against Duke after a coalition of environmental groups represented by the Southern Environmental Law Center filed notice in January 2013 that they planned to sue Duke under the Clean Water Act for its pollution. The McCrory administration then used its authority under the act to file state violations against Duke and then quickly negotiated the consent order — a move environmentalists say was intended to shield the company from far-harsher penalties it might have faced in federal court.
Federal prosecutors are now conducting a criminal investigation of the Dan River spill and investigating the relationship between Duke and the state officials charged with enforcing water laws.
McCrory and officials at the state environmental agency, which is known by the acronym DENR, have ardently defended the proposed deal with the company, even as they abandoned it.
Frank Holleman, a senior lawyer at the Southern Environmental Law Center, welcomed what he termed as "a total reversal" of the state's position.
"We hope that DENR will now work with us to enforce the law and force Duke Energy to clean up its illegal coal ash storage and move the ash to safe dry storage in lined landfills away from our rivers," Holleman said. "It is a shame that it took the Dan River spill and a federal criminal grand jury to get DENR to change course."
Regulators said the illegal pumping at the Cape Fear site had been going on for months. It wasn't immediately clear if Duke's efforts to empty the pond caused the crack in the dam. But that wasn't being ruled out.
"Lowering a reservoir too quickly or continuously fluctuating a reservoir level can lead to upstream slope failures or cracking in an earthen dam," State Dam Safety Engineer Steve McEvoy said Friday.
Duke spokesman Dave Scanzoni said he wouldn't speculate on whether the crack was related to the pumping.
Cape Fear is rated by the EPA as a high-hazard dam where a spill could cause catastrophic damage to nearby homes and threaten lives. The state is required to inspect it every two years.
A Feb. 21 inspection report obtained by AP shows the agency knew water levels were low, yet failed to raise any alarm.
In his report, John Holley, an engineer with the Division of Energy, Mineral and Land Resources, said he didn't find any structural damage with the dam but did notice the low water levels. He said Duke said it needed to lower the water in the pit to investigate problems with a leaky pipe. Holley told Duke about the "potential need for repair permit."
"What I was telling them was that they needed to get a permit before they did any significant repairs," Holley told the AP on Friday.
But Holley said he didn't see any pumps removing water from the pit.
"I'll be the first to say that I was not thinking at that moment about any potential issues associated with water quality. What I was looking at was trying to make sure the dam was structurally safe and was not running a risk of failure or malfunction so that it would allow a large discharge of liquid into the river," he said.
But Peter Harrison, a lawyer with the environmental group, Waterkeeper Alliance, said the report shows that regulators knew about problems at Cape Fear but chose not to take action until the group's photos were widely reported by the news media.
"These inspection reports prove that DENR has been concealing critical information from the public to shelter its most powerful 'customer,'" Harrison said.