REGULATORS DENY RATE RECOVERY FOR CO2 MGMT. STUDY AT EDWARDSPORT

Consumer, Green Groups Also Appeal Settlement Agreement 

Tamar Hallerman
GHG Monitor
2/1/13

Indiana regulators have denied a four-year-old request from Duke Energy for the company’s nearly 800,000 customers to foot the bill for a carbon management study for its 618 MW integrated gasification combined cycle facility at Edwardsport. The Indiana Utility Regulatory Commission (IURC) issued an order Jan. 23 denying the Charlotte-based utility’s 2009 request for rate recovery for a three-year, $42 million study that would conduct site assessment and characterization work for its carbon capture-ready facility in southwest Indiana. The Commission said in its order that the study is not sufficiently in the public interest to warrant rate recovery. “The Commission recognizes there are many uncertainties related to the long-term management of CO2, including the potential development of a CO2 interstate pipeline as an alternative to local sequestration,” the order states. “The exact nature of carbon regulations and the date they might take effect is uncertain.” The Commissioners also cited Duke’s inability to receive additional federal funding to support the study as a reason to deny the utility the public funding.

The IURC’s denial comes four years after Duke submitted its request for the study, which would have investigated storage options in the region including deep saline reservoirs, depleted oil and gas wells and enhanced oil recovery. Duke also proposed performing detailed characterization work of potential storage sites by drilling multiple wells and conducting 3-D seismic testing, originally tallying $121 million. Duke eventually revised that figure downward to $42 million. “We had proposed these studies almost four years ago as required by the Commission in the Edwardsport case,” Duke said in a statement provided to GHG Monitor. “A number of years have passed and it makes sense to revaluate this once there’s more clarity around carbon regulation.” The IURC granted Duke $17 million in rate recovery in 2009 to conduct front-end engineering and design work to assess the Edwardsport plant’s carbon capture potential.

Kerwin Olson, executive director of Citizens Action Coalition, a consumer advocate group that has been against the project for years, said in an interview that the Commission “made the right decision.” “We don’t think Duke ever had any intention of capturing a single drop of carbon dioxide, and the problem is there are many people out there that still believe this power plant is going to capture carbon,” he said. “This was just a green-wash public PR scam to gain support for the facility.”

Opposition Groups Challenge Settlement

Meanwhile, Citizens Action Coalition and three other consumer and environmental groups filed a notice with the Indiana Court of Appeals Jan. 25 of their intention to appeal the IURC’s December approval of a settlement agreement regarding Edwardsport. The coalition group, which also includes the Indiana chapter of the Sierra Club, Valley Watch and Save the Valley, said it is challenging the settlement agreement because it passes on billions of dollars in risk to ratepayers “without specifically addressing any of the credible allegations and substantial evidence of multiple instances of gross mismanagement and concealment on the part of Duke Energy,” Olson said. “Despite these clear ethical violations, the Commission has refused to consider whether these improper relationships had any influence on the regulatory approvals for the IGCC,” he said.

In late December, the IURC said Duke could recover nearly $2.6 billion from its customers to pay for the project now undergoing startup in southwest Indiana, but qualified that the company must cover the balance of the $3.5 billion project out of pocket. The order was a slight modification of the settlement agreed to by Duke, the Indiana Office of Utility Consumer Counselor (IOUCC), the state agency that advocates on behalf of consumer interests, Nucor Steel and others last spring. The IURC though, as part of the settlement, did not say Duke was guilty of claims of “fraud, concealment and gross mismanagement” and that the petitioners against the utility did not provide enough evidence to support that. The Commission did acknowledge that the planning and construction phases of the project were “less than ideal” and that Duke’s management of the regulatory process “warrants discussion.”

A Duke spokeswoman told GHG Monitor that the settlement “was a reasonable resolution of all of these issues and we will defend it on appeal. Our focus now is on bringing the plant into commercial service.” The utility kicked off startup operations at Edwardsport in October. The company said construction is complete and that the facility has produced power from both natural gas and syngas. The facility is expected to begin commercial operations this summer, roughly 18 months behind schedule and $1.5 billion over budget, according to the Citizens Action Coalition.

Olson said petitioners want the original certificate of need for Edwardsport to be revoked.  “We think this is an illegitimate power plant that never should have been approved,” he said. “Ratepayers shouldn’t be forced to pay for a project that was corrupt from the beginning to the end.”

Group Says Court Must Address Ethics Issues

Olson said the Citizens Action Coalition filed the appeal, in part, because it wants the Indiana Court of Appeals to address ethics issues that the IURC ignored in the settlement agreement. “We feel that the improper communications and undue influence had a significant impact on the regulatory process and decision-making of the Commission, and we feel by the Commission ignoring and not investigating those issues and not making any sort of finding, that that’s a violation of administrative due process,” he said. “We’re prepared to take this as far as we can and as long as it takes. Time is not an obstacle.”

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. Several citizen and environmental groups argued that Duke had consistently and deliberately underestimated its cost estimates in order to gain rate approval from the Commission.

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 in front of the IURC. Hardy was fired when the news went public and is now awaiting trial for four felony counts of misuse of office. Additionally, Scott Storms, the IURC’s administrative law judge presiding over the Edwardsport certificate hearings at the time, applied for a job with Duke. Storms was later fined and charged with similar ethics violations by the state.