Tamar Hallerman
GHG Monitor
05/04/12
Duke Energy Indiana and the state’s consumer regulatory group announced a settlement agreement this week over the utility’s Edwardsport power plant, potentially bringing an end to a case that has probed the financial and ethical underpinnings of the project and has stretched on for years. The utility said it came to the agreement with the Indiana Office of Utility Consumer Counselor (IOUCC), the state regulatory body that advocates on behalf of consumers, and Nucor Steel-Indiana this week. If approved by state regulators at the Indiana Utility Regulatory Commission (IURC), the agreement would establish a $2.59 billion rate recovery cap for the project—roughly $700 million less than the amount most recently requested by Duke—while essentially tossing out two pending phases of a case against the utility.
Duke Faced Cost, Ethics Charges
The 618 MW Edwardsport project has been a lightning rod for controversy ever since Duke asked for initial rate recovery in 2006, and the utility has found itself in spiraling legal troubles in front of the IURC ever since. The utility initially pitched the Edwardsport IGCC project as a replacement for a 160 MW facility on the same site that had been operational since the 1940s. In 2006, the IURC initially granted the Edwardsport rate recovery to cover $1.99 billion of project costs. That rate was later revised to $2.35 billion in 2008 when project costs rose. A year later, Duke asked for $2.88 billion, but that effort failed. Most recently, Duke revised its cost estimate to $3.3 billion and once again asked for full rate recovery. But opposition groups have recently argued in a hearing front of the IURC that Duke has consistently and deliberately underestimated its cost estimates in order to gain rate approval from the Commission. Led by the Citizens Action Coalition and the state chapter of the Sierra Club, the groups argued that Duke did not adequately take into account ‘first-mover’ issues that come with using a newer technology like IGCC. Current cost estimates have put the project as $1.3 billion over budget.
Duke also faced allegations of ‘fraud, concealment and gross mismanagement’ regarding Edwardsport earlier this year in front of the IURC. Petitioners said Duke officials met improperly with previously-serving IURC Commissioners in the lead-up to rate recovery proceedings. Two Duke and two IURC officials were fired in 2010 after it was revealed that Duke executives met privately with the IURC chairman at the time in order to discuss significant cost increases at the project and the desire for an increased amount of rate recovery. The meetings occurred when Hardy was presiding over rate recovery proceedings for the plant. A senior Duke official was also fired after it was revealed that he hired the IURC’s administrative law judge to be a Duke attorney while he was presiding over Duke’s rate recovery hearings.
Agreement Totals More Than $400 Million
The fate of Edwardsport remained unclear following the IURC’s consideration of the cost overrun and ethics arguments, which stretched on for 27 days earlier this year. Duke Energy argued that the plant is “nearly done” and will be operational this fall, but that full rate recovery for the $3.3 billion cost was needed. However, the IOUCC recommended that the IURC approve the project to move forward, but only with $1.99 billion in rate recover initially offered to the project in 2006.
In total, Duke Energy Indiana said it would pay roughly $420 million in charges as part of the settlement in addition to $265 million in project costs it had originally written off. Aside from covering the difference between the total project costs and the $2.59 billion rate recovery cap, the utility said it would spend:
• $32 million to annual reductions in customer rates related to depreciation expenses on pollution control investments;
• $20 million to reimburse litigation and other legal expenses stemming from the previous IURC cases;
• $3.5 million annually for five years to help low-income customers pay for increased energy costs; and
• $1 million to create a new clean energy initiative with the IOUCC.
Duke, IOUCC Tout Settlement
Duke and IOUCC quickly touted the settlement, saying it was the best solution for all parties involved and that it would lessen the impact on ratepayers. “This is a positive development for all the parties. This lowers the cost that customers will pay for the plant and it gives our investors certainty about how costs will be,” Duke Energy Indiana spokeswoman Angeline Protogere told GHG. “This agreement is the result of countless hours of hard-nosed negotiations with Duke Energy and other consumer parties,” Indiana Utility Consumer Counselor David Stippler said in a statement. “While this is an extremely complex case and has been very difficult to resolve, the agreement will require Duke Energy and its shareholders to pay for an appropriate share of the Edwardsport project, while putting an end to the cost overruns and making sure the project goes online for the benefit of Duke’s customers.”
A Duke Energy Indiana fact sheet said that ratepayers will see an electric rate increase of an additional 9.6 percent above the approximately 5 percent increase already transposed into the rate base. Duke said the increase would be implemented over a two-year period. “Without the settlement, the project would have increased customer rates by approximately 22 percent, compared to approximately 14.5 percent as a result of this agreement,” the fact sheet said. According to the IOUCC, construction costs paid by Duke Energy customers will increase by $94 million over IURC 2009 approved amount, about $660 million less than new construction cost estimates.
Environmental Groups Left Out
The settlement agreement notably leaves out the coalition of environmental and consumer rights groups that intervened in the recent IURC hearings, which included groups like the Sierra Club and the local Citizens Action Coalition. CAC Executive Director Kerwin Olson told GHG that his group was not notified of the settlement at the time of the agreement and only heard about the news once it was released to the public. He said overall the coalition is not in support of the settlement agreement. “We’re a little shocked and surprised that everyone seems to want to sweep these ethical and malfeasance issues under the carpet and let Duke Energy get away with what, from my perspective, is a $3 billion crime,” he said. “There are a lot of unanswered questions here, and we remain firm in our conviction that this plant should have never been built. The proceedings are far from over in our eyes.”
