BUSINESS

Duke Energy or Indiana customers: Who should pay Edwardsport's climbing price tag?

John Russell
john.russell@indystar.com

The massive Edwardsport power plant, originally billed as a producer of low-cost energy, has been racked over the years with construction problems and huge cost overruns. The plant, with a price tag of about $3.5 billion, is one of the most expensive projects in Indiana history.

Now the question is who should pay mounting operating costs: owner Duke Energy or its 780,000 customers across Indiana?

The state's utility regulators will hear testimony starting Wednesday morning on a request by Duke Energy to pass along tens of millions of dollars in extra costs to its customers through higher rates.

The average residential customer would expect to see electricity bills climb by about $2.40 a month if the Indiana Utility Regulatory Commission approves Duke Energy's petitions.

Consumer advocates object, saying that Duke Energy should swallow those costs, because the the company placed the plant in service in 2013 before it was truly ready. They say customers should not continue to pay for a plant that is not up to speed. And some even want Duke to refund money to customers.

The plant has suffered numerous outages and maintenance issues. Last February, the plant's output fell to less than 1 percent of capacity. Duke Energy said the low amount was due to "equipment challenges" and a decision to move up spring maintenance.

The plant has since ramped up to higher levels, but rarely above 50 percent. It generated about 15 percent of capacity in September, 27 percent in October, 71 percent in November and 20 percent in December.

The Indiana Office of Utility Consumer Counselor wants regulators not only to prevent Duke from passing along $63.2 million in operating costs, but force the utility refund about $51.6 million to Indiana customers. That reflects fees included in the utility's rates since September 2013.

"While state law allows a utility to recover costs through rates for a plant that is fully operational and providing electricity to customers, these costs do not rise to that level," said David Stippler, the state's utility consumer counselor, in pre-filed testimony.

A consumer group, Citizen Action Coalition, released a study Tuesday that concludes the plant is the least efficient of Duke Energy's coal plants.

It also said the plant's two gasifiers were operating less than 40 percent of the time during its first 15 months of operation. The company had forecast that the gasifiers would run about 72 percent of the time during the period.

"We strongly believe that ratepayers should not have to pay for Duke Energy's failure to deliver on its promises," said Kerwin Olson, the group's executive director.

Large industrial customers, who use millions of dollars worth of electricity to power their factories, are also upset by the plant's performance.

"Duke's declaration that Edwardsport was in-service was premature," said Tim Stewart, an attorney at Lewis & Kappes who represents the industrial customers. "The plant was not ready for its intended use."

Under a settlement reached in 2012, Duke Energy agreed to pay for costs related to startup, testing, validation and commissioning of the plant.

The agreement also capped the total construction costs that Duke Energy could pass along to consumers at $2.595 billion, plus millions of dollars in financing costs.

Duke had originally estimated that the plant would cost $1.9 billion to build. The total price tag has since soared more than $1 billion higher, due to wildly wrong estimates on the amount of steel, piping and concrete needed to construct the facility, along with labor issues and a costly, unforeseen water-disposal system.

Duke Energy has repeatedly said it would take time to get the plant's coal-gasification technology operating consistently at a high level.

The company touts the plant as the largest in the world to use advanced technology to "gasify" coal, strip out many of the pollutants and then burn that cleaner gas to produce power. It would replace power-generating units that are more than 60 years old.

"It's important to look at performance over a longer term period, and we're on track to reaching our long-term projections," company spokeswoman Angeline Protogere said.

She said the company was confident it will be one of the lowest-cost energy producers in the system. She also pointed out the company recently reached a settlement with a major coal supplier that could reduce fuel costs for customers by about 4 percent, if approved by state regulators.

Still, the Edwardsport plant now ranks as the company's most expensive project ever built per kilowatt of electricity generated.

The utility regulatory commission will meet at 9:30 a.m. Wednesday in Room 222 at the PNC Building downtown. It will not rule immediately.

The plant is located in a former cornfield in southwest Indiana. Duke, based in Charlotte, N.C., is the largest electric utility in Indiana, serving customers in 69 of the state's 92 counties.

Call Star reporter John Russell at (317) 444-6283 and follow him on Twitter @johnrussell99.