Duke Energy proposes $2.72B cost cap on Edwardsport coal gasification plant in Indiana

Source: Duke Energy

In testimony filed with Indiana state utility regulators Thursday, Duke Energy (NYSE: DUK) proposed significant customer protections associated with the construction of its Edwardsport coal gasification plant near Vincennes, Indiana. 

The company is proposing to cap the Edwardsport IGCC power project’s construction costs to be passed along to customers at $2.72 billion, excluding financing costs on that amount. Duke Energy also is proposing rate-related adjustments that will lower the overall customer rate increase related to the Edwardsport project from an average of about 19 percent to about 16 percent. The average residential, homeowner impact would be about 14 percent. 

The proposal is subject to Indiana Utility Regulatory Commission approval. 

“The effect of these proposals would be to bring the project’s near-term rate impact to approximately the same level it would have been under the currently approved, $2.35 billion cost estimate,” said Duke Energy Indiana President Doug Esamann. “We believe this approach balances four important objectives: the continuing need for new power generation; modernizing Indiana’s aging power system, reducing the customer rate impact; and giving shareholders a reasonable return on their investment.” 

Specifically, Duke is proposing a hard cost cap commitment of $2.72 billion, plus financing costs on that amount; a waiver of the deferred tax financial incentive authorized by the commission in 2007 for this project; and a reduction in depreciation expense charged to customers. 

In addition, Indiana customers will see the benefits of “bonus depreciation.” Bonus depreciation is a federal tax incentive provided for major projects such as the Edwardsport plant as part of the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010. 

Last April, the company announced that the Edwardsport project’s scale and complexity would add approximately $530 million to the previously approved $2.35 billion estimate. That brought the total estimated cost of the plant to $2.88 billion, or $2.72 billion, not including financing costs. 

The company’s proposal filed today is part of Indiana Utility Regulatory Commission proceedings to review the cost increase request. Commission hearings are scheduled to begin Aug. 22. 

If approved by regulators, the rate increase will not come at once; already approved costs began phasing into rates in January 2009 and will increase gradually through 2013. This “pay as you go” approach benefits customers by lowering total financing costs and spreading the rate increase over time. 

Edwardsport Coal Gasification Power Project

The Edwardsport coal gasification plant is under construction in southwest Indiana. The total project, factoring in aspects such as engineering, construction and purchasing, is more than 80 percent complete. Actual construction is about 70 percent done. It is scheduled to be operating in the fall of 2012. 

The plant will use state-of-the-art technology to gasify coal, strip out pollutants, and then burn that cleaner gas to produce electricity. This advanced, integrated gasification combined cycle technology significantly improves plant efficiency and reduces carbon emissions per megawatt-hour by nearly half. 

Regulators granted the company permission in 2007 to construct the technologically advanced clean coal power plant in Edwardsport, Ind. It is the first time a plant this size using this advanced clean coal technology has been built anywhere in the world. 

The approximately 618-megawatt plant is a critical part of Duke Energy Indiana’s efforts to modernize its generation fleet and an initial step toward replacing between approximately 540 and 1,100 megawatts of older, coal-fired generation expected to be retired in the future due to pending EPA regulations. The Edwardsport plant will produce 10 times as much power as the existing plant at Edwardsport, yet with significantly less environmental impact than the much smaller plant it replaces. 

The plant will be the first major new coal-fired power plant built in Indiana in more than two decades. The plant is a key step in modernizing the state’s aging electric system. 

Additionally, it will replace the existing 160-megawatt, 60-plus-year-old power plant with state-of-the art efficiency. Because it is so efficient, Edwardsport will be one of the first plants called on when power is needed, which reduces the need to run older, less efficient units. 

The project is one of the largest construction projects ever undertaken in Indiana. About 3,000 construction workers and other professionals are currently working on site. The plant will employ about 110-120 full-time workers. In addition, the 1.7 million to 1.9 million tons of coal the plant will use each year will support an estimated 170 mining jobs. 

Duke Energy Indiana’s operations provide approximately 6,800 megawatts of electricity capacity to approximately 780,000 customers, making it the state’s largest electric supplier.

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