Costs passed onto consumers associated with the construction of Duke Energy Indiana’s Edwardsport coal gasification plant near Vincennes, Ind., will be capped at $2.975 billion, according to a settlement agreement reached last week between the utility, the Indiana Office of the Utility Consumer Counselor (OUCC), and Nucor Steel Indiana.

Duke Energy currently estimates the plant will cost $2.88 billion. The company had extended construction cost estimations this April, saying that the project’s “scale and complexity” would add nearly $530 million to the previously approved $2.35 billion estimate. But, in August, the IUCC told the Indiana Utility Regulatory Commission (IURC) that it had “serious concerns” about 618-MW integrated gasification combined cycle (IGCC) facility’s “inaccurate, unreliable cost estimates.”

The agreement between the utility and the rate agency representing utility ratepayer interests in cases before regulatory commissions was made as an IURC technical evidentiary hearing in the case was scheduled to begin.

According to the agreement, project costs passed on to consumers would be capped at $2.975 billion. In addition, any construction costs amounts above $2.76 billion would be subject to a prudence review similar to most other rate base investments in the company’s next general rate increase request before the IURC, Duke Energy said in statement on Friday. The company also agreed to lower its return on construction costs above $2.35 billion for the life of the plant.

The utility said that customer rate impact associated with the plant will be offset by a  reduction in depreciation expense charged to customers; the company’s waiver of a previously approved incentive related to deferred taxes; and a reduction in the company’s return on equity for the most recent cost increase. The company also agreed not to file for a general rate increase before March 2012.

“If approved, the agreement has the effect of lowering the plant’s customer rate impact from an overall average 19 percent to 16 percent in 2013 – the first full year after the plant is in service. The average residential impact that year would be about 14 percent,” Duke Energy said.

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 70% complete. It is scheduled to be operating in 2012.

Sources: Duke Energy Indiana, Indiana Office of Utility Consumer Counselor, POWERnews