Regulation and Coal and Duke Energy and Electric and Gas and Utilities and Utility rates

Labor costs being watched at Duke Energy plant

November 16, 2010

Duke Energy Corp. has told regulators it is facing labor cost pressures at its $2.9 billion goal-gasification plant under construction in Edwardsport, where the price tag is already $1 billion higher than earlier projections.

Possible cost increases in labor contracts threaten to use up the entire $89.6 million contingency fund included in the plant’s price tag, “leaving no contingency for unexpected costs during startup and testing,” a Duke executive said in a Nov. 5 filing with the Indiana Utility Regulatory Commission.

The 630-megawatt plant in southwest Indiana is scheduled to go online in a year.

Michael Womack, project manager for the Edwardsport plant, said in his progress report to the commission that labor cost trends aren’t yet firm enough to warrant a contingency drawdown, but “it seems likely that they will impact the project cost to some degree.”

North Carolina-based Duke has been under fire as costs of the coal-gasification generating plant have soared. In September, the Indiana Office of Utility Consumer Counselor and industrial customers reached a settlement with Duke that would cap the amount ratepayers could be charged for the plant.

The settlement, which is pending before the IURC, would place a “hard cap” of $2.96 billion on construction costs that may be passed on to customers.

“Customers are protected,” Angeline Protogere, spokeswoman for Duke, said of the settlement terms.

The Edwardsport plant would be the largest of its kind yet built, which is part of the price issue. Duke told the commission previously that studies conducted early on with vendor General Electric Co. and contractor Bechtel Corp. looked at existing, smaller gasification plants such as one in Tampa, Fla. Edwardsport was designed essentially as a supersized version of those, with adjustments made for technological advances made by GE in recent years.

However, a utility exec told the commission the scale wound up being bigger than initially envisioned.  Duke needed more steel, piping and other materials.

Some of the accounting of the cost increases also has furrowed brows.

“Our office has been concerned about the project’s contingencies and cost overruns for some time. Even though the pending settlement includes the cap … we are still very concerned and continue to monitor the costs closely,” said Anthony Swinger, spokesman for the Office of Utility Consumer Counselor.

In August an OUCC analyst said Duke appeared to be embedding contingencies inside the direct project cost and outside of “explicit contingency” figures in its latest cost estimate.

“Such lack of transparency calls into question the overall reasonableness of Duke’s latest revised cost estimates,” the analyst told the commission.

But other groups, including not-for-profit watchdog Citizens Action Coalition, contend it would be cheaper to cancel the plant—now about 75-percent completed—rather than risk additional cost overruns.

Duke has considered the potential of repurposing the plant to burn natural gas, instead of coal gas—but insists gasification is still the most viable plan.

Gasification converts coal to a synthetic gas, cleans the gas of pollutants such as sulfur dioxide, then burns it.

In contrast, traditional coal-fired power plants burn pulverized coal directly, then scrub the exhaust gases.

The site contains massive structures such as heat-recovery steam generators that resemble Aztec pyramids. The framework of gasification towers rises several stories tall, akin to a launch pad at Cape Canaveral. Some of the technology is not far removed—with liquid nitrogen and liquid oxygen tanks as part of a cryogenic process used in gasification.

The new plant is projected to eventually boost the price of electricity for Duke’s Indiana customers by 16 percent—or an average 14 percent for residential ratepayers. Duke has about 780,000 customers in Indiana and distributes power to 69 of the state's 92 counties.

The proposed settlement with the OUCC and industrial ratepayers, which includes changes in how Duke accounts for plant costs, will reduce the rate increase by about 3 percent more than originally projected, Duke says.

 

 

 

 

 

 

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