Duke Energy Indiana has settled issues with some of Indiana’s key consumer groups involved in regulatory proceedings dealing with the company’s Edwardsport integrated gasification combined cycle (IGGC) power plant, which is in construction and often in the news due to regulatory appeals by various parties.
The settlement proposal is subject to Indiana Utility Regulatory Commission (IURC) approval, the utility noted in an April 30 statement. Participants in the settlement, which covers all phases of the Edwardsport subdocket proceedings at the commission, are the Indiana Office of Utility Consumer Counselor, the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana. A joint intervenor group, consisting of the Citizens Action Coalition, Sierra Club, Save the Valley and Valley Watch, is not part of the settlement.
“If approved, this agreement achieves two important objectives: It reduces what Duke Energy Indiana customers will pay for an advanced technology power plant, and it resolves uncertainty for Duke Energy shareholders,” said Duke Energy Indiana President Doug Esamann. “We’re now in the home stretch of completing a facility that will modernize our electric system and provide Indiana with cleaner power to meet increasingly strict federal environmental regulations.”
Construction on the coal-fueled Edwardsport plant near Vincennes, Ind., is nearly complete and the IGCC is due to begin serving customers this fall. Current plant costs are estimated at $3.3bn, including financing charges.
Key provisions of the proposed settlement include:
- A cap on project costs to be included in electric rates of $2.595bn, which includes estimated financing costs through June 30, 2012. If a commission order placing the project into customer rates comes after June 30, Duke Energy Indiana will be able to recover additional financing costs until customer rates are revised.
- Customers will not pay the full cost of the project. Overall customer rates will rise, on average, an additional 9.6% above the approximately 5% already in rates. The increase will be implemented over two years (3.2% upon settlement approval and then a 6.4% increase in mid-2013).
- Without the settlement, the project would have increased customer rates by approximately 22%, compared to about 14.5% as a result of this agreement.
Other settlement terms, effective upon commission approval, that help limit the rate impact to 14.5%, include: reduced annual depreciation expense of $35m on assets other than Edwardsport; and elimination of approximately $22m in annual deferred tax incentives. The settlement also stipulates a $32m annual reduction in customer rates related to depreciation expense on pollution control investments in the company’s next electric base rate case. The agreement stipulates that the earliest the company can file a new base rate increase request with state regulators is March 2013, with rates effective no earlier than April 1, 2014.
As a result of the settlement provisions, parent Duke Energy (NYSE: DUK) expects to take pretax charges of about $420m (20 cents per share) in the first quarter of 2012. These charges will be reflected as a “special item” and, therefore, excluded from adjusted diluted earnings per share. The company had previously recorded pretax charges of $265m related to the project.
The 618-MW Edwardsport IGCC plant is a critical part of Duke Energy Indiana’s efforts to modernize its generation fleet and an initial step toward replacing older, coal-fired generation expected to be retired due to pending U.S. Environmental Protection Agency regulations. The Edwardsport plant will produce 10 times as much power as the former coal plant at Edwardsport, yet with significantly less environmental impact than the much smaller plant it replaces.