An editorial error in our May 9, 2012 story "Duke's Cost Overrun Saga" left out the word "construction" before the words "cost overruns" in the lead.
In other words the sentence should have read: "Indiana watchdog groups are outraged by an agreement that allows Duke Energy to recoup from ratepayers $94 million more in CONSTRUCTION cost overruns at its scandal-plagued Edwardsport coal-to-gas power plant in Knox County."
Making that change allowed us to add further clarification to better characterize the full cost-overrun picture. We've edited the lead to reflect construction ($94 million higher than IURC approved in 2009) plus financing costs ($151 million higher than IURC approved in 2009).
Total cost overruns now total $245 million. Additional financing charges will also increase the initial estimated costs of the plant. We added further clarification in the story's third and fourth paragraph, as well.
We strive for clarity and accuracy in our stories — even those on utility finance. Thank you for your patience.
Indiana watchdog groups are outraged by an agreement that allows Duke Energy to recoup from ratepayers $245 million more in cost overruns at its scandal-plagued Edwardsport coal-to-gas power plant in Knox County.
Consumer advocates expect that local power users will ultimately pay more than $3 billion for various construction and financing charges at the plant. The Indiana Utility Regulatory Commission approved an order in 2009 allowing Duke to construct the plant for $2.35 billion, which included $2.23 billion in construction costs and $125 million for project financing costs. The new agreement raises the cap that Duke can charge consumers to $2.595 billion, which allows $2.32 billion in construction costs and $276 million in financing.
This means construction costs are up $94 million and financing costs are up $151 million.
"We maintain our position that this is an illegitimate power plant that never should have been approved in the first place," Kerwin Olson, executive director of Citizens Action Coalition (CAC), said in a May 1 news release. "This proposed settlement amounts to nothing more than a massive bailout for Duke Energy."
Aside from those costs, Indiana law allows Duke to recoup "Construction Work in Progress" or CWIP expenses. These expense will add another estimated $500 million to the total cost born by consumers. This $500 million plus the $2.595 billion new project cost cap arrived at in the recent settlement equal the $3 billion number consumer advocates use to estimate total consumer costs. Others with knowledge of the matter caution that including CWIP costs leads to apples-to-oranges comparisons.
Either way, the consumer advocates' bottom-line point remains the same: The project was grossly expensive when it was first proposed (and, they would argue, unnecessary). Now the cost overruns are making it even more so — by the hundreds of millions.
The Office of Utility Consumer Counselor (OUCC) — the state agency charged with representing ratepayers in utility regulatory proceedings — announced its settlement agreement with Duke and two industrial groups — Duke Energy Indiana Industrial Group and Nucor Steel — in an April 30 news release.
The Edwardsport Integrated Gasification Combined Cycle power plant on the Wabash River about 20 miles northwest of Vincennes is 99 percent complete and is expected to begin operations this fall. It will convert coal into a synthetic gas that will be burned to generate electricity.
Duke set the plant's cost at $1.99 billion when it was approved by the Indiana Utility Regulatory Commission (IURC) in 2007. Estimates now range upward of $3.3 billion.
In an April 30 article, The Wall Street Journalcalled Edwardsport "one of the costliest fossil-fuel generating stations ever built" and said Duke would absorb $420 million of the overruns. The company announced the charge in its May 4 first-quarter earnings report, which showed diluted earnings of $295 million, or 22 cents per share, down from 38 cents a share in the first quarter last year.
Olson said in a May 6 telephone interview that the OUCC agreement caps the amount Duke can recover from ratepayers at $2.6 billion. But that doesn't include the estimated $500 million they will ultimately pay in their monthly bills through a process known as construction work in progress (CWIP).
In addition to actual construction costs, Indiana law allows utilities to recover profits, finance charges and interest from consumers through CWIP. Customers have already paid $230 million, and Duke has indicated it wants to continue using CWIP through 2015.
"Consumers will pay the (CWIP) financing costs," said Timothy Stewart, counsel for the Duke industrial ratepayers, in a May 8 interview. "When CWIP bills were passed in the Indiana General Assembly, we argued against them. But we have to work within the laws we have and get the best rates for our clients and all rate payers."
Attorneys for OUCC and industrial ratepayers reported a mighty struggle to achieve the settlement deal. Still, the whole deal stinks to Olson, who cited a report suggesting that demand for the additional power was not needed to the degree Duke suggested it would be when it pitched Edwardsport to Indiana.
The Indianapolis-based Midwest Independent System Operator, which distributes electricity to Indiana, has reported between 25 and 35 percent oversupply over the past five years, Olson said.
And since the 618-megawatt Edwardsport plant was approved in 2007, between 1,000 and 2,000 megawatts of wind-generated electricity in Indiana have been added to the supply, at significantly less cost than the new facility. While no comparable data on Indiana exists, a Feb. 15, 2012, report from the Michigan Public Service Commission found the cost of a conventional coal plant was $107 to $133 per kilowatt hour. Wind was $61 to $64.
"This was nothing but a huge heist by Duke Energy, in collusion with the Indiana Utility Regulatory Commission, to put a lot of money in the coffers of Duke Energy," Olson said. "This is all about cash. "
Richard Hill, president of the Madison, Indiana-based Save the Valley, called the agreement's "hard cap" on customer costs alleged.
"To allow Duke to recover anything on this plant is wrong," he Hill said. "To allow them recovery of anything over the originally proposed $1.99 billion is just obscene."
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