TROUBLED DUKE IGCC FACILITY COMES ONLINE IN INDIANA

Tamar Hallerman
GHG Monitor
6/14/13

Edwardsport, a long-troubled 618 MW integrated gasification combined cycle plant operated by Duke Energy, is now in service in southwestern Indiana, the utility giant announced June 10. The Charlotte-based utility, the country’s largest, touted the delayed and $1.5 billion over-budget project as one of the world’s cleanest and most efficient coal plants, especially when compared with the 500 MW of older coal generation it replaced. “The average age of coal-fired plants on our Indiana system is 45 years, and this facility is key to modernizing our system and filling the gap left by plant retirements,” Duke Energy Indiana President Doug Esamann said in a statement.

Duke said the plant emits 70 percent less SO2, NOx and particulates, as well as half as much CO2, than the decades-old generation it replaces. “Coal has powered Indiana for more than a century, but today’s air quality standards require us to use that fuel in a cleaner, more efficient way. Edwardsport turns coal into a cleaner-burning fuel and enables us to continue using an abundant local resource,” Esamann said, adding that operations will be ramped up over the next 15 months before reaching full capacity.

Cost, Construction, Ethics Woes

Edwardsport’s commissioning ends a drawn-out chapter of the $3.5 billion facility’s history that included cost overruns, construction delays, ethics woes and legal and regulatory battles. When Duke initially pitched the project to state utility regulators in 2006, company officials said Edwardsport would cost just under $2 billion. The Indiana Utility Regulatory Commission (IURC) granted the project that amount of rate recovery, to be paid for by Duke’s nearly 800,000 customers in Indiana. But costs at the IGCC facility consistently crept up, and company officials continued to request additional rate recovery. Most of those requests were subsequently denied.

News eventually emerged that Duke officials had been meeting illegally with then-IURC Chairman David Lott Hardy when the Commission was hearing the project’s rate recovery case. Hardy was subsequently fired 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 company attorney while he was presiding over the utility’s rate recovery hearings. Those ethics allegations were heard in front of the IURC early last year, when the Commission also faced allegations of “fraud, concealment and gross mismanagement” filed by environmental and consumer advocacy groups that argued that company executives were consistently and deliberately underestimating the facility’s cost estimates in order to gain rate recovery from regulators. They said 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, and called on the project to be scrapped.

Some of the parties in that case, including Duke, Nucor Steel-Indiana and the Indiana Office of Utility Consumer Counselor, the state regulatory body that advocates on behalf of consumers, announced a settlement agreement last year that aimed to iron out those charges. The agreement, approved by the IURC in December, limits the project costs that can be passed onto ratepayers to $2.6 billion, about $700 million less than the amount Duke had been requesting from regulators. The agreement required the utility to absorb any additional project costs. The settlement declares that Edwardsport is still in the public interest, despite its high costs and “less than ideal” project management, and dismissed opponents’ fraud, concealment and gross mismanagement allegations. The groups that filed the challenge, including the Sierra Club and Citizens Action Coalition, have appealed the agreement. 

Death of IGCC?

Duke’s woes with Edwardsport are notable, given that there are three other IGCC projects—all with carbon capture and storage components—currently under development in the U.S. Once considered a desirable way for companies to keep using coal, cheap natural gas, stringent Environmental Protection Agency regulations and spiraling cost estimates at previously-planned IGCC facilities have killed most plans for such projects over the last decade. While Edwardsport does not include a CCS component—it is only capture ready, and the IURC recently denied a request from Duke for its customers to foot the bill for a $42 million carbon management study looking into the possibility of CCS—it could scare other companies away from investing in the technology.

The struggle at Edwardsport also mirrors many of the issues Southern Company is currently experiencing with its Kemper County IGCC facility currently under construction in eastern Mississippi. Mississippi Power, the subsidiary in charge of constructing the project, has announced hundreds of millions of dollars in recent cost overruns as costs at the 582 MW facility have ballooned to more than $4.3 billion, nearly $2 billion above initial estimates. The utility has also seen dramatic leadership changes over the last several weeks amid allegations that top officials withheld information of cost overruns at the facility from state utility regulators while requesting rate recovery. The chairman of the Mississippi Public Service Commission said the body would be holding a prudency review of the project later this summer. Meanwhile, the credit ratings agency Standard & Poor’s recently downgraded Southern’s outlook from “stable” to “positive” due mainly to Kemper’s woes.

But despite the issues at Edwardsport and Kemper, developers of a pair of new IGCC projects with CCS said they have found an economically-feasibly way of moving forward with the gasification technology, which centers on poly-generation. Developers of the Texas Clean Energy Project (TCEP) and Hydrogen Energy California Project (HECA), are both moving forward with a business model that plans on generating revenue from the CO2 and hydrogen produced at the plants, in addition to traditional electricity sales. That diversified revenue stream, the developers said, would help insulate their projects from spiraling debt or outside political forces.