AT THE MAJOR CCS PROJECTS: EDWARDSPORT, FUTUREGEN

Tamar Hallerman
GHG Monitor
1/4/13

AT EDWARDSPORT: REGULATORS GREENLIGHT $2.6 BILLION SETTLEMENT

Indiana regulators approved a settlement agreement late last week that requires Duke Energy to absorb nearly $900 million in cost overruns from its 618 MW Edwardsport integrated gasification combined cycle facility. The Indiana Utility Regulatory Commission (IURC) said that the Charlotte-based utility can recover nearly $2.6 billion from its customers to pay for the project now undergoing startup in southwest Indiana, but the company must cover the balance of the $3.5 billion project out of pocket.

Last week’s order is a slight modification of a settlement agreement finalized between Duke, the Indiana Office of Utility Consumer Counselor (IOUCC), the state agency that advocates on behalf of consumer interests, Nucor Steel and others in late April. The Commission alterations require Duke to credit ratepayers an additional $28 million for cost control incentive payments that were later found to be unneeded due to construction delays. The IURC is also prompting the utility to return any surplus funding recovered through litigation to its ratepayers in the future. Under the agreement, though, Duke is allowed to recover financing charges that were accrued during construction from its roughly 800,000 ratepayers in Indiana.

Edwardsport Faced Non-Stop Legal, Regulatory Woes

The Commission’s ruling could bring at least a temporary end to years of legal and regulatory woes for the new-build IGCC project. Edwardsport has been a lightning rod for controversy ever since Duke asked for initial rate recovery in 2006, and the utility has found itself facing cost estimate increases, construction delays and legal issues ever since. In 2006, the IURC initially granted the Edwardsport $1.99 billion in rate recovery. 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.

Many citizens and environmental groups argued that Duke had consistently and deliberately underestimated its cost estimates in order to gain rate approval from the Commission. A coalition led by the Indiana chapters of the Citizens Action Coalition and the Sierra Club told the IURC during a series of public hearings in late 2011 that Duke had “concealed” and “grossly mismanaged” its consideration of ‘first-mover’ issues associated with utilizing a newer technology like IGCC and understated the possibility of cost and schedule overruns in its front-end engineering and design work.

A separate set of hearings in front of the Commission in early 2012 focused on ethical allegations tied to the plant. Several Duke and IURC officials were fired in 2010 after it was revealed that Duke executives illegally met privately with then-IURC chairman David Lott Hardy when the Commission was hearing the project’s rate recovery case. Hardy was fired when the news went public and is now awaiting trial for four felony counts of misuse of office. 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.

Commission: Gross Mismanagement Claims not Adequately Supported

In its ruling approving the settlement agreement, the Commission said the petitioners in the original case against Duke—which have the burden of proving fraud, concealment and gross mismanagement on the part of the utility—were not able to do so. “We find that, on the basis of the competing evidence presented in Phase II of this proceeding, the non-Duke parties have not met their burden of proof with regard to fraud, concealment or gross mismanagement,” the IURC said. However, the Commission did acknowledge that the planning and construction phases of the project have been “less than ideal” and that Duke’s management of the regulatory process “warrants discussion,” but that the parties could not prove flaws to the level of ‘gross mismanagement’ or concealment of information.

Critics of the project said they were not pleased with the IURC’s approval of the settlement agreement. “We maintain our original position that this is an illegitimate power plant that shouldn’t have been approved. We know…Duke corrupted the regulatory process to make this thing happen,” Kerwin Olson, executive director of the Indiana Citizens Action Coalition, told GHG Monitor. “We intend to appeal the approval of the settlement agreement to the court of appeals.” Olson said the plant’s initial certificate should be revoked and that Duke should “have to go back to ground zero” to prove prudency and need for the plant. Other project opponents said ratepayers will have to shoulder far more than the 2.6 figure cited by the Commission, and that with financing costs included that figure would be closer to $3.3 billion. A Duke spokeswoman said the settlement deal would raise customer rates 14 to 16 percent by early 2014 and that about 5 percent has been absorbed already.

State Agencies Say Project in Public Interest

Both the IOUCC and IURC said the project, despite its high cost, is in the public interest. “The investment recovery sharing coupled with the other terms of the settlement agreement created value that was found to be in the public interest,” the IURC said in a media release. Project opponents have long argued that the extra capacity generated by Edwardsport is not needed and that that utility should subsequently shoulder all of the plant’s costs. “Based on the evidence presented in this matter, we conclude that [Duke] has demonstrated that the IGCC project is still needed by the company for baseload capacity and that the public convenience and necessity continues to require the construction and completion of the IGCC project,” the Commission said in its ruling.

Indiana Utility Consumer Counselor David Stippler largely agreed. “This order concludes more than five years of litigation before the IURC regarding Edwardsport’s costs,” he said in a statement following the ruling. “As a result of tough-minded negotiations and the aggressive work of the OUCC’s technical and legal staff, along with the attorneys and expert witnesses representing industrial customers, Indiana ratepayers will be shielded from hundreds of millions of dollars in cost overruns. At the same time, all Hoosiers will benefit from the reliability and stability this project will add to the grid.”

Plant to go Online This Summer  

Duke Energy began start-up operations at Edwardsport in October. In a statement last week, Duke Energy Indiana President Doug Esamann said construction of the facility is “virtually complete” and that electricity has already been produced at the plant. He added that the facility is expected to begin commercial operation by mid-2013. “Today’s decision resolves key regulatory issues and allows us to focus on bringing into service a plant that will help us meet increasingly strict federal environmental regulations while still using an abundant local resource, Indiana coal,” Esamann said. “Edwardsport will serve the electric energy needs of our Indiana customers for decades to come.”

AT FUTUREGEN: SECOND PHASE OF ILL. REG. HEARINGS TO BEGIN THIS MONTH

Several weeks after state regulators approved a sourcing agreement for electricity to be generated at the FutureGen 2.0 facility in Meredosia, Ill., the Illinois Commerce Commission (ICC) could begin a second phase of hearings on the project as early as next week. The ICC voted Dec. 19 to require Illinois’ utilities and other alternative retail electric suppliers to purchase all 166 MW of gross electricity that will be produced at the oxy-fuel combustion facility for 20 years beginning in 2017. Now regulators will begin a separate second phase of hearings that will hash out many of the “nuts and bolts” of the sourcing agreement, ICC Executive Director Jonathan Feipel said in an interview this week. “Last month’s determination to include FutureGen 2.0 in Illinois’ procurement of electricity starting in 2017 is locked in,” he said. “This second phase won’t be, in essence, the Commission determining if FutureGen goes forward or not. It will just be tinkering around with rates and other details going forward.”

The ruling passed by the Commission last month requires this second phase to move forward as “expeditiously as practicable.” It will examine the remaining contested issues regarding the sourcing agreement including annual input costs, ICC staff’s recommendations for annual audits, reconciliations and periodic benchmark tests and other “unfinished questions,” according to Feipel. He said the ICC could take up the second phase of hearings as soon as next week, which would kick start a series of comments or testimony that could stretch, if needed, for up to several months. However, Feipel said he expects the second phase to be “very quick to flesh out.”

No Word Yet from DOE on Phase II

The ICC’s second phase of hearings is unfolding as the Department of Energy continues to review Phase II applications for the project. The Department will determine whether the $1.65 billion FutureGen can move forward to a 16-month front-end engineering and design (FEED) phase. It will also rule on a novation request from the FutureGen Alliance, as well as the consortium’s agreement with Ameren Energy Resources to purchase the power generating unit that will host the project at the now-mothballed Meredosia power station in western Illinois. DOE is under pressure to make those determinations quickly given the tight timeframe developers have before the project’s $1 billion in federal stimulus dollars expires on Sept. 30, 2015. A DOE spokesperson told GHG Monitor last month that the Department is reviewing all of the Alliance’s requests for the project and that it will make its decisions within the coming weeks.