Duke Energy and some of the Indiana’s key consumer groups on Friday reached a settlement agreement that resolves a disagreement concerning the utility’s consumer-paid cost overruns for its 618-MW integrated gasification combined cycle (IGCC) plant at Edwardsport, Ind. The $3.3 billion coal-fired plant is almost complete and on schedule to begin operations this fall.

If approved by the Indiana Utility Regulatory Commission (IURC), the agreement could end five years of ongoing litigation among the Indiana Office of Utility Consumer Counselor (OUCC), the Duke Energy Industrial Group (which consists of six of the utility’s large industrial customers), Nucor Steel, and Duke Energy.

A joint intervenor group, consisting of the Citizens Action Coalition, Sierra Club, Save the Valley and Valley Watch, is not part of the settlement.

The OUCC, a state agency that represents Indiana consumer interests before state and federal bodies that regulate utilities, said in a statement it has supported construction of the Edwardsport project since 2007 and still supports the plant’s completion. The agency’s disagreements with Duke have focused on cost overruns and inaccurate cost estimates in its testimony in various phases throughout the case, and whether ratepayers or shareholders should bear those costs.

Compared to the original project estimate of $1.985 billion, Duke Energy now estimates current plant costs at $3.3 billion, including financing charges. Indiana law allows Duke Energy to increase customer rates incrementally to recover such costs for the Edwardsport project.

But the agreement reached on Friday puts a cap on project costs to be included in electric rates at $2.595 billion, which includes estimated financing costs through June 30, 2012. “If a commission order placing the project into customer rates comes after June 30, Duke Energy Indiana will be able to recover additional financing costs until customer rates are revised.” Duke Energy said in a statement.

Under the agreement, construction costs paid by Duke Energy customers will increase by $94 million over the amount the IURC approved in 2009, but it is about $660 million less than Duke Energy’s new construction cost estimates, the OUCC said.  “The financing costs capped under the agreement are a portion of the financing costs that have continued to accrue since the 2009 order and would have been otherwise recoverable by Duke in due course under the project as allowed by Indiana law,” it added.

Customers will not pay the full cost of the project, Duke Energy said. “Overall customer rates will rise, on average, an additional 9.6 percent above the approximately 5 percent already in rates. The increase will be implemented over two years (3.2 percent upon settlement approval and then a 6.4 percent increase in mid-2013). 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.”

“This agreement is the result of countless hours of hard-nosed negotiations with Duke Energy and other consumer parties,” said Indiana Utility Consumer Counselor David Stippler. “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.”

Duke Energy also agreed to a two-year moratorium on any Indiana base rate increases. “Specifically, the utility will be barred from initiating any new base rate case with the IURC before March 2013, and not allowed to implement any increase from such a case before April 2014,” the OUCC said. “Without this provision, Duke would be allowed under state law to seek a base rate increase at any time.”  

Under the agreement, the Edwardsport plant’s assets will be valued at the capped costs for the life of the project, and Duke and its shareholders will pay $2 million to the Indiana Utility Ratepayer Trust. Duke shareholder funds will also pay the legal fees for other consumer parties that are part of the agreement and bear all costs for the company’s lawsuits against GE, Bechtel or other project vendors or contractors. At the same time, the settling parties agree not to oppose or undermine Duke’s legal actions.

"If approved, this agreement achieves two important objectives: It reduces what Duke Energy Indiana customers will pay for an advanced technology power plant, and it resolves uncertainty for Duke Energy shareholders," said Duke Energy Indiana President Doug Esamann.

"We’re now in the home stretch of completing a facility that will modernize our electric system and provide Indiana with cleaner power to meet increasingly strict federal environmental regulations," he added.

Sources: POWERnews, OUCC, Duke Energy