Former Illinois Senator Everett Dirksen once observed, "A billion here and a billion there, and pretty soon you’re talking real money." The same can be said about skyrocketing estimated costs of integrated gasification combined-cycle (IGCC) plants as their designs are fleshed out. The higher price tags shouldn’t be a surprise — the more you learn about the complexity of a project, the higher your guess about its cost will go.
These escalating cost estimates are especially important to ratepayers in West Virginia and Virginia, where the first next-generation IGCC plants (IGCC 2.0, if you will) are scheduled to be built. An earlier contender was a site in Ohio, but that state’s Public Utilities Commission disallowed utility recovery of the development costs of a project there. The ruling has been challenged and remains tied up in court.
This June, Appalachian Power (an AEP subsidiary) proposed rate increases to cover the $2.23 billion cost of building an IGCC unit capable of being retrofitted for carbon capture at its Mountaineer Power Plant in New Haven, W.Va. "[The rate hikes] wouldn’t be immediate," according to AEP spokesman Pat Hemlepp. "By the time the [unit] goes into operation [in 2012], the total [increase] would be just a little less than 12%," he added. Ditto for Virginia ratepayers, who also would see their bills rise by an average 12%. Both increases would be phased in as costs are incurred.
AEP says that the new IGCC unit is needed to address load growth and likely restrictions on CO 2 emissions. It makes sense from that perspective, but it raises a question: Should ratepayers be responsible for funding development of an unproven technology whose raison d’être is meeting carbon caps that may not be imposed for many years, if ever?
Meanwhile, Peabody Energy has proposed building the two-unit, 1,500-MW Thoroughbred Energy Campus project in Central City, in Muhlenberg Country, Ky. Each of its two supercritical, pulverized coal – fired units would use a wet scrubber, a selective catalytic reduction system, and wet and dry electrostatic precipitators to mitigate emissions of the conventional pollutants SO 2, NO x, and particulates, respectively. According to Peabody, the use of supercritical technology will cause the project to emit about 15% less CO 2 than a standard pulverized coal plant. The Thoroughbred plant will have all the environmental bells and whistles and will be more than twice the size of an IGCC plant, but it will cost about the same and present minimal performance risk. What’s not to like?
Tough decisions on IGCC face state utility regulators charged with balancing the technology’s development risks. If a utility pushes the IGCC envelope too far, a plant may not perform as advertised, or not at all. If its costs are made recoverable, the bill will end up in the laps of ratepayers, not the utility’s shareholders.
It seems to me that ratepayers should not assume any additional cost, performance, or scheduling risks over those presented by other, less-expensive and more-mature generation technologies. In balancing those risks, regulators should give IGCC-enamored utilities the opportunity to earn a higher-than-usual return on their investment — after the project has proven successful.
Fair allocation of the incremental risks and rewards of IGCC should be the goal of every state public service commission, as its ratepayers’ eyes and ears. At the end of the day, the shareholders who elected the management team to make wise technology decisions should pay the freight if those decisions go south.
Corporate management teams come and go, but a bad project lives forever.