Duke nears completion of two coal, one natural gas plant

Before the end of 2012, Duke Energy (NYSE: DUK) expects to start commercial operation of a coal gasification power plant in Indiana, as well as both a new coal plant and a new gas plant in North Carolina.

Also during Duke’s May 4 earnings call, Duke CEO James Rogers and CFO Lynn Good discussed the recent proposed cost agreement for the Edwardsport integrated combined-cycle plant in Indiana, the ongoing merger proceedings with Progress Energy (NYSE: PGN) and how Duke is handling rising coal stockpiles.

As GenerationHub reported, on April 30, 2012, subsidiary Duke Energy Indiana entered into a settlement agreement with the Indiana Office of Utility Consumer Counselor (OUCC), the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana. The settlement includes a cap on the estimated construction costs of $2.59bn.

As GenerationHub reported, on April 30, 2012, subsidiary Duke Energy Indiana entered into a settlement agreement with the Indiana Office of Utility Consumer Counselor (OUCC), the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana. The settlement includes a cap on the estimated construction costs of $2.59bn.

Duke Energy has recognized a $420m pre-tax charge in Q1 2012. In addition to the $400m of costs expected to be incurred above the cap, Duke has also agreed to $20m to reimburse legal expenses connected with the state regulatory case.

But for Duke the good news is that the 620-MW Edwardsport IGCC is 99% complete. It successfully fired its gas turbines in March, should hopefully obtain a final settlement from the Indiana Utility Regulatory Commission and start operation this fall. Altogether the project cost is placed at $3.2 bn as of March 31.

Also expected to begin operation this fall is the 825-MW Cliffside expansion coal unit in North Carolina. Cliffside is 97% complete and successfully conducted “steam blows” in April. The project is currently on-budget at roughly $2.2bn, Duke said.

Likewise the 620-MW Dan River combined-cycle gas plant in North Carolina is 85% complete and expected to enter service by the end of the year. The Dan River combined-cycle plant is currently on budget at $710m, according to a Duke chart.

In addition, Duke Energy Renewables lists about 770 MW of renewable projects that should come online in various regions of the country by the end of the year.

They include the Los Vientos wind project in Texas; the Ironwood and Cimarron II wind projects in Kansas and the Laurel Hill in Pennsylvania. During the call, Rogers said

Duke is still looking to make a deal with South Carolina’s state owned utility, Santee Cooper, to some of its ownership stake in two new nuclear units. Santee Cooper and majority partner SCANA (NYSE: SCG) have received NRC approval to build two additional units at the V.C. Summer nuclear plant.  

Duke still pushing Progress merger; dealing with coal-to-gas shift

Like other generators, Duke is reshaping its power mix due to a combination of cheap natural gas and stricter EPA standards. Duke’s generation mix has changed significantly of late, Good said.

In 2010, Duke’s power was 62% coal and 36% nuclear with the remaining 2% divided between natural gas and hydroelectric. In 2011, coal still controlled 60% and nuclear 38%. But things are changing in 2012. This year, Duke expects its mix will be 46% coal; 41% nuclear and 11% natural gas.

For example, Duke’s Buck combined-cycle plant in North Carolina has been dispatching like a baseload generating unit since it opened a few months ago, Good said.

As a result of less coal generation, Duke’s coal inventory levels have increased albeit not to the level of a few years ago, Good said. Duke’s coal piles are above the company’s targeted level of 40 to 45 days, but below the company’s “maximum storage levels of 75 to 80 days,” according to the Duke presentation.

Finally CEO Rogers asserted that his company’s merger with neighboring Progress Energy will provide a long-term benefit to both companies and customers in the Southeast. Rogers was peppered with questions on whether Duke will stick with the transaction if it continues to drag on before FERC and state commissions in North and South Carolina.

“More likely than not, we’ll get it done,” Rogers said at one point. Duke is targeting a July 1 closing date.

Duke said in a May 4 news release that it turned in a solid quarter despite mild winter weather. First quarter 2012 adjusted diluted earnings per share (EPS) were 38 cents, compared to 39 cents for the first quarter 2011.

 

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.