IPL settlement features ‘soft cap’ on Petersburg 4 scrubber costs

Indianapolis Power & Light, criticized by the Indiana Office of Utility Consumer Counselor (OUCC) over cost overruns at its Petersburg Unit 4 flue gas desulfurization (FGD) upgrade project, has worked out a settlement.

The utility, a unit of AES Corp. (NYSE: AES), filed Oct. 5 testimony with the Indiana Utility Regulatory Commission in support of the settlement. IPL has been seeking passthrough of the costs of the upgrades to the coal-fired Unit 4’s FGD within an environmental cost case. It had previously gotten two project cost increases approved by the commission, with this one being the third.

James Cutshaw, IPL’s Revenue Requirements Manager, said the settlement resolves all matters pending before the commission in this proceeding. The deal addresses:

  • cost recovery through the environmental cost tracker mechanism of construction costs related to the Petersburg Unit 4 FGD enhancements project;
  • revision of the proposed environmental cost recovery (ECR) factor;
  • an increase of $1.6m in the previously-approved Certificate of Public Convenience and Necessity (CPCN) cost for the Petersburg 4 FGD upgrade;
  • treatment of amounts (if any) related to the Petersburg 4 FGD upgrade over the $1.6m modification to the CPCN in IPL’s rate base at the time of IPL’s next base rate case; and
  • credits for any reduced charges or concessions received from contractors involved in the Petersburg 4 upgrade toward the final cost of the project.

“The Settlement Agreement reflects compromise and resolves the disputed issues in this proceeding without further expenditure of the time and resources of the Commission and the Parties in litigating the contested issues to a conclusion,” Cutshaw wrote. “In addition, the Settlement Agreement reasonably responds to concerns raised by the OUCC in this proceeding. As explained in greater detail by IPL Witness Bradley Scott, IPL disagrees that there was any mismanagement of the Pete 4 FGD upgrade and believes that IPL’s request in this proceeding is consistent with the ongoing review process.”

Settlement features ‘soft cap’ on any new big cost overruns

The settlement says that IPL will not seek recovery through ECR tracker filings for construction costs related to the FGD upgrade over $128m (the CPCN amount as approved) less actual removal/demolition costs of $3,364,169. Although IPL believes it has provided significant evidence justifying the requested increase in the CPCN to $129.6m through its direct testimony and exhibits and data request responses, it has agreed to utilize a “soft cap” based on the currently approved project cost for the Pete 4 FGD upgrade for the purposes of calculating its ECR factors. The agreed upon “soft cap” is slightly different from that proposed by OUCC witnesses in that it utilizes actual removal costs as a deduction from the $128m instead of estimated removal costs.

Also writing support testimony was Scott, IPL’s Senior Director, Plant Operations. He noted that the Unit 4 FGD upgrade was placed in service in November 2011. Subsequent to being placed in service, start-up activities, initial tuning and performance testing were conducted and additional necessary work was identified. As a result, IPL is requesting approval of a revised cost estimate of $129.6m, an increase of $1.6m.

“The FGD on Unit 4 has been operating very well,” Scott added. “Scrubbing efficiency is running in the 95% to 97% range and gypsum quality has been excellent allowing it to be utilized in the production of wallboard, which reduces disposal costs. In my opinion, this performance illustrates that the scope of the FGD upgrade was reasonable and appropriate and has allowed the unit to achieve compliance with the [Clean Air Interstate Rule] and [National Ambient Air Quality Standards] requirements. This allows IPL to continue to provide low cost electricity to its customers from the output of Petersburg Unit 4.”

Scott said IPL managed the project very well given the requirements of its various stakeholders. IPL first and foremost attempted to continue to provide low cost electricity to customers by keeping Unit 4 in-service whenever possible, he noted. It also tried to minimize the cost of the project by developing many of the design requirements while the unit was in-service. It also attempted to perform as much of the construction as possible without removing the unit from service.

Cynthia Armstrong of the OUCC said in companion Oct. 5 testimony that the settlement is reasonable. “With the soft cap in place, IPL will have additional incentive to keep additional project costs to a minimum, as the company will not be able to receive the accelerated rate relief provided by the ECR trackers for direct project costs over $124.636 million,” Armstrong added. “In addition to the soft cap, IPL will not be able to receive special accounting treatment for costs above the soft cap, which further incents the company to keep project costs as low as reasonably possible.”

IPL has a new series of emissions project before the commission

Notable is that IPL is now before the commission in a separate case for approval of a new series of emissions projects. The total capital cost of these new projects at the “Big Five” coal units is estimated at about $606m, which includes $496m at the four Petersburg units and $110m at Harding Street Unit 7.

The summer-rated capacity of the Petersburg units is 1,752 MW and it is 427 MW for Harding Street Unit 7. To comply with new air rules, IPL wants to:

  • install and operate a Pulse Air Fabric Filter System (baghouse) on Units 2 and 3 at Petersburg;
  • upgrade the electrostatic precipitators on Unit 7 at Harding Street and Petersburg Units 1, 3 and 4; and
  • install other environmental controls and monitoring equipment including activated carbon injection, sorbent injection, FGD system upgrades and continuous emission monitors.
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.