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IndyStar: Duke Energy Indiana customers owe $2.5 billion-plus for Edwardsport plant December 28, 2012

Posted by Laura Arnold in Duke Energy, Edwardsport IGCC Plant, Indiana Utility Regulatory Commission (IURC), Office of Utility Consumer Counselor (OUCC), Uncategorized.
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Dear IndianaDG Readers:

The story about the IURC order on Duke Energy Indiana’s Edwardsport IGCC  plant was the front page banner story in this morning’s Indianapolis Star print edition. At the end of the article is a summary of the timeline of events. This matter is not over since it is anticipated that parties such as Citizens Action Coalition of Indiana et al., that were intervenors that did not sign the proposed settlement agreement are expected to appeal the IURC decision.

For additional perspectives on this matter please also see:

Remember, you can read the IURC order in its entirety HERE> Order_in_Cause_No_43114_IGCC_4_S1(1)
Laura Ann Arnold
Duke Energy coal gasification power plant, Edwardsport, Ind.

Duke Energy coal gasification power plant, Edwardsport, Ind.

8:31 PM, Dec 27, 2012 Written by John Russell

Follow Indianapolis Star reporter John Russell on Twitter at @johnrussell99 or call him at (317) 444-6283.

Finally, after years of legal fighting, it’s official: Duke Energy Corp.and its 790,000 Indiana customers will split the $3.5 billion cost of the Edwardsport power plant — one of the largest, most expensive and most disputed construction projects in Indiana history.

But it’s not an even split, and how much each side will have to pay is likely to produce some grumbling.

The Indiana Utility Regulatory Commission ruled Thursday that Duke Energy must swallow about $900 million for the plant, which in 2010 became enveloped in an ethics cloud involving a revolving door between the regulatory commission’s staff and the utility’s ranks.

The commission ruled that Duke should have managed the project more prudently and that it failed to hold its contractors accountable in allowing costs to spiral from the original estimate of $1.985 billion.

“We do not find it reasonable for ratepayers to pay for the imprudent actions of Duke’s contractors,” the ruling said.

But the commission ruled that the 618-megawatt plant ias necessary to meet the future energy needs of Indiana. It said customers must pay the bulk of construction costs: $2.595 billion, plus millions of dollars in financing costs.

Duke said the ruling will result in customers’ bills climbing 14 percent to 16 percent. Of that, a 5 percent rise already has taken place. The remainder will occur in two steps: Customers will see a rate hike of 3 percent to 4 percent in January, and two other hikes totaling 6 percent to 7 percent by early 2014.

The company said construction of the huge plant, near Vincennes, is nearly complete. It expects to put the plant into commercial operation by the middle of next year. Already, it has produced its first electricity from gasified coal during start-up and testing. The plant uses a coal-gasification technology to turn coal into electricity.

The ruling “allows us to focus on bringing into service a plant that will help us meet increasingly strict federal environmental regulations while still using an abundant local resource, Indiana coal,” Duke Energy said in a statement.

The IURC said that if Duke recovers any additional funds through litigation, the surplus must be returned to customers. Duke has strongly hinted it would take its contractors to court for engineering and construction problems.

The commission also directed Duke to credit customers for certain incentive payments that were found to be unwarranted “given the delays that arose from the project cost overruns.”

And in a major victory for the utility, the commission found that Duke did not commit fraud, concealment or gross mismanagement with the project. Those charges were leveled by several customer and citizens groups and resulted in months of public hearings.

In large part, Thursday’s ruling reflects a new settlement that Duke reached with its largest customers and the Indiana Office of Utility Consumer Counselor in April. The agreement and ruling apparently end more than two years of uncertainty and bitter fighting among those organizations over who should pay for a string of huge cost overruns.

The deal replaces an earlier agreement, reached in 2010, that had called for customers to pay about $2.9 billion of the plant’s costs. That settlement fell apart after The Indianapolis Star revealed secret meetings and conversations between state regulators and Duke executives stretching back several years.

David Stippler, the state’s consumer counselor, said Thursday the ruling means that more than $835 million in construction cost overruns will be borne by Duke, not its customers.

“At the same time, all Hoosiers will benefit from the reliability and stability this project will add to the grid,” Stippler said in a statement.

The agreement did not satisfy everyone. Citizens Action Coalition of Indiana, which has long fought the plant as unnecessary, said customers could have to pay tens of millions of dollars in additional funds for ongoing financing of the plant, which could push their share of the cost to $2.65 billion.

“Customers should not have to pay for any cost overruns which are attributable to imprudence or mismanagement of the project,” said Kerwin Olson, the group’s executive director. His group said it would appeal the ruling to the Indiana Court of Appeals.

The plant came under severe criticism from the outset. Some critics said the technology was unproven and the additional generating capacity wasn’t needed.

Others weighed in after The Star exposed numerous emails and internal documents that showed utility executives had a chummy relationship with some state regulators.

Those revelations cost four high-ranking people their jobs, including David Lott Hardy, former chairman of the regulatory commission, who was fired by Gov. Mitch Daniels in late 2010. Others who lost their jobs were Duke’s No. 2 executive, the company’s former Indiana president and a Duke lawyer named Scott Storms.

The ethics scandal began, in large part, when Storms joined Duke in 2010 from the IURC, where he had been working as a chief administrative law judge. In that role, he oversaw the IURC’s regulation of the Edwardsport project while negotiating for a job with utility.

Duke said Thursday it looked forward to getting the controversy behind it and getting the plant in operation.

“Edwardsport will serve the electric energy needs of our Indiana customers for decades to come,” the company said.


>> Aug. 31: Duke Energy offered a job to Scott Storms, general counsel for the Indiana Utility Regulatory Commission.
>> Sept. 9: The Indiana Ethics Commission ruled that Storms could take the job without a one-year cooling-off period typically required for utility regulators.
>> Sept. 22: Consumer groups, including the Citizens Action Coalition, raised serious concerns about Storms’ hiring and the relationship between utilities and state regulators.
>> Sept. 24: Duke Energy said it would impose stricter limits on Storms’ work for Duke, saying it wouldn’t let him do any work for Duke with the IURC for a year or work internally for Duke on any regulatory cases involving Duke pending with the state.
>> Sept. 27: Storms began working for Duke.
>> Oct. 5: Gov. Mitch Daniels terminated and replaced David Lott Hardy as chairman of the IURC, citing the violation of an ethics policy. As a result, Duke announced it had put its Indiana president, Michael W. Reed, on paid leave as he played a role in hiring Storms away from the IURC. Reed formerly was an IURC executive director.
>> Dec. 9: Under pressure from large industrial customers, Duke agreed to renegotiate an agreement that had customers paying for much of the latest cost overruns at Duke’s coal-gasification plant in Edwardsport.

>> May 12: An ethics panel ruled that Storms violated state law when he participated in cases involving Duke while talking to the utility about a job.
>> June 30: The state’s utility consumer agency withdrew support for a deal with Duke in which ratepayers would shoulder $530 million in extra construction costs for the Edwardsport plant.
>> July 14: The utility consumer agency and Duke’s industrial users called for regulators to force the utility to pay for $1 billion in cost overruns on the Edwardsport plant and not pass those costs on to consumers. The Citizens Action Coalition argued that consumers should pay nothing toward the cost of the plant.
>> Oct. 27: The IURC kicked off weeks of testimony about Duke’s handling of the Edwardsport project.
>> Dec. 9: A Marion County grand jury indicted Hardy on three counts of official misconduct.

>> July 2: Duke Energy agrees to merge with Progress Energy. Hours after gaining regulators’ approval, Duke Energy’s board ousted Progress Energy CEO Bill Johnson, who was supposed to take over the combined company, in favor of Duke Energy CEO Jim Rogers. The deal created the nation’s largest electric company.
>> Nov. 29: Rogers agrees to retire at the end of 2013 as part of a settlement with North Carolina utilities regulators over the July 2 action.
>> Dec. 27: The Indiana Utility Regulatory Commission approves an agreement that would shift $900 million in cost overruns on the Edwardsport plant to Duke.

— Source: Star archives

IURC Decision Limits Cost Recovery on Duke Energy Edwardsport IGCC Plant on Indiana December 27, 2012

Posted by Laura Arnold in Duke Energy, Edwardsport IGCC Plant, Indiana Utility Regulatory Commission (IURC), Office of Utility Consumer Counselor (OUCC), Uncategorized.
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Dear Indiana DG Readers:

The Indiana Utility Regulatory Commission (IURC) this afternoon (12/27/12) approved a modified Settlement Agreement in the Duke Energy Indiana Edwardsport case.

Please find below the official IURC News Release. Download the IURC News Release HERE > http://www.in.gov/iurc/files/IURC_Decision_Limits_Cost_Recovery_on_Duke_Energy_Edwardsport_Plant.pdf

Download a copy of the order HERE > http://www.in.gov/iurc/files/Order_in_Cause_No_43114_IGCC_4_S1.pdf 

The order is 134 pages but most of the order summarizes the case and the procedural history.

The Commission Discussion and Findings begins at p. 109.

A copy of the Settlement Agreement starts at p. 123 of the 134 page document., however, since this was not a settlement signed by all the parties to the proceeding this is likely not over. More details will be covered as they unfold. Watch this blog for further developments.


Laura Ann Arnold


IURC News Release
Indiana Utility Regulatory Commission
101 W. Washington St.
Suite 1500 E.
Indianapolis, IN 46204

For Immediate Release  
December 27, 2012
Contact Information:
Danielle McGrath
Office: (317) 232‐2297

IURC Decision Limits Cost Recovery on Duke Energy Edwardsport Plant

Commission approves modified settlement agreement and credits ratepayers an additional $28 million

INDIANAPOLIS – Today the Indiana Utility Regulatory Commission (IURC) modified and approved a settlement agreement reached in the Duke Energy Indiana case involving the revised cost estimate for the electric utility’s new integrated gasification combined cycle facility (IGCC) in Edwardsport, Ind.

The settlement agreement set a hard cost cap for the project at $2.595 billion (as of June 30, 2012), which prohibits Duke Energy from recovering project construction costs above this amount from retail electric customers, excluding costs related to force majeure situations defined in the agreement. It also requires the utility to absorb nearly $900 million in cost overruns given the plant is now projected to cost approximately $3.5 billion.

Although Duke Energy is limited in its recovery of project costs, the settlement agreement does allow the utility to recover financing charges accrued to fund the project’s construction. This arrangement is otherwise known as allowance for funds used during construction (AFUDC) and has been approved thus far in this case in accordance with state law.

Through a modification to the settlement agreement, the IURC also provided $28 million in additional value to ratepayers by directing Duke Energy to credit customers for cost control incentive payments found to be unwarranted, given the delays that arose from the project cost overruns. The IURC also modified the settlement agreement in such a way that if Duke Energy should recover through litigation claims more than the IGCC project costs absorbed by its shareholders, any surplus recovery is required to be returned to ratepayers.

The investment recovery sharing coupled with the other terms of the settlement agreement created value that was found to be in the public interest. The settlement agreement was reached by the utility, Nucor Steel Indiana, the Duke industrial group, and the Indiana Office of Utility Consumer Counselor. Packaged with the settlement agreement is also a guarantee by Duke Energy that it will not file a rate case prior to March 2013, nor implement one before April 2014.

For your reference, the IURC’s decision under Cause No. 43114 IGCC 4 S1 can be found online at http://www.in.gov/iurc. To read the “Commission Discussion and Findings” section, please go to page 109. If you need to access other case‐related documents, visit our Electronic Document System at https://myweb.in.gov/IURC/eds/. Instructions on how to best use this database can be found at http://www.in.gov/iurc/2666.htm.

The Commission is a fact‐finding body that hears evidence in cases filed before it and makes decisions based on the evidence presented in those cases. An advocate of neither the public nor the utilities, the IURC is required by state statute to make decisions that balance the interests of all parties to ensure the utilities provide adequate and reliable service at reasonable prices. For more information, please visit: http://www.in.gov/iurc.

Watch the Indiana hearings on the Duke Energy Edwardsport IGCC plant hearings on-line; Consumer and environmental groups are opposing Settlement Agreement filed by OUCC et al. July 16, 2012

Posted by Laura Arnold in Duke Energy, Edwardsport IGCC Plant, Indiana Utility Regulatory Commission (IURC), Office of Utility Consumer Counselor (OUCC).
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The Indiana Utility Regulatory Commission (IURC) is conducting public hearings in the Duke Energy case pertaining to the Settlement Agreement reached on their Edwardsport IGCC plant located in southern Indiana.

July 16th  to July 20th @ 9:30 a.m.      Duke Energy      Cause No. 43114 IGCC 4 S1

Click HERE  to watch the Duke Energy hearings this week at the IURC.

Click HERE for a copy of the Office of the Utility Consumer Counselor’s (OUCCs) news release supporting the Settlement Agreement dated April 30, 2012.

Click HERE to see the News Release from Citizens Action Coalition, the Sierra Club Hoosier Chapter, Valley Watch and Save the Valley  dated July 2, 2012. These groups are opposing the Settlement Agreement filed by the OUCC et al.

I urge you to read these News Release, watch the hearings and decide for yourself if the IURC should accept the proposed Settlement Agreement. Don’t be surprised if portions of the hearings go off-line or “in camera” and you see the following message:


The IURC’s hearing will resume shortly due to a scheduled break or an in camera session. An in camera session is where parties to the case discuss matters required to be kept confidential in accordance with IC 5-14-3-4. These sessions are limited to certain witnesses and parties authorized to view the confidential information. Once the break is over or the in camera session concludes, the online video streaming will resume.


Duke CEO Jim Rogers about Edwardsport IGCC plant: ‘Yes, it’s expensive’ October 27, 2011

Posted by Laura Arnold in Duke Energy, Edwardsport IGCC Plant, Indiana Utility Regulatory Commission (IURC), Office of Utility Consumer Counselor (OUCC), Uncategorized.
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Company tries to explain cost overruns to IURC

Original article http://www.indystar.com/article/20111027/NEWS14/110270360/star-watch-duke-energy-Edwardsport-iurc?odyssey=tab|topnews|text|News

Written by John Russell Indianapolis Star, 11:33 PM, Oct. 26, 2011
Duke Energy CEO James Rogers testified before the Indiana Utility Regulatory Commission in Indianapolis on Wednesday about cost overruns at the company’s coal-gasification plant in Edwardsport. / Joe Vitti / The Star

Duke Energy Corp.’s troubled power plant in Edwardsport now ranks as the company’s most expensive project ever built per kilowatt of electricity generated, the utility’s chairman admitted under questioning Wednesday.

The massive plant, originally billed as a producer of low-cost energy, has run into numerous construction problems that have pushed its price tag above $3 billion, from an original estimate of $1.9 billion.

Company officials, including Chairman James Rogers, found themselves on the defensive Wednesday, trying to explain how the costs got so out of hand and who should pay the bill.

It’s an issue the Indiana Utility Regulatory Commission will decide in coming weeks, as it hears from more than a dozen witnesses. The agency will determine whether Duke was prudent in managing the project and should be allowed to bill customers for much of the costs.

So far, the IURC has ruled that customers should pay $2.35 billion of the plant’s cost. Duke wants the commission to increase that to more than $2.7 billion, raising monthly electricity bills for more than 700,000 Indiana households and businesses.

Rogers faced a barrage of questions about the plant’s problems, such as its wildly wrong estimates on the amount of steel, piping and concrete needed to construct the facility, along with labor productivity issues and a costly, unforeseen water-disposal system.

Rogers acknowledged, under questioning by Randall Helmen, chief deputy at the Indiana Office of Utility Consumer Counselor, that the cost of the Edwardsport plant per kilowatt has climbed to $5,593, up from $3,364 when the regulators originally approved the project in 2007. [Emphasis added.]

That figure takes in the capital costs of the plant, not the annual costs of running it once it goes online. Many of Duke’s other plants or units were built at a fraction of the cost per kilowatt generated by those facilities.

“How is this low-cost energy?” Helmen demanded.

Rogers said he has been disappointed by the soaring costs but maintained that the plant, when completed, will produce cleaner electricity for decades to come.

“Yes, it’s expensive,” Rogers said. “But it will be the cleanest plant in Indiana.”

He said the project is 96 percent complete and should be in service a year from now, adding much-needed generating capacity to Indiana households and businesses as Duke begins to retire other, aging plants.

But Helmen hammered Rogers on the costs, much of which Duke wants customers to pay in the form of higher electricity bills.

“Is there any plant in the whole Duke family anywhere near $5,000 a kilowatt?” Helmen asked. [Empasis added.]

“No sir,” Rogers replied.

Among its vast fleet, Duke owns 14 coal plants, three nuclear plants and more than a dozen oil or gas plants.

Despite the grilling, Duke officials did not budge Wednesday from their position that they prudently managed the project and costs, and that the plant will be good for Indiana, using about 1.5 million tons of coal per year, much of it mined in Southern Indiana, to generate about 618 megawatts of electricity at its peak.

The company said the challenges of building such a large plant — the biggest coal-gasification plant in the world — took it by surprise each time there was a setback. But Duke has said it relied on its outside contractors and engineers for expert guidance.

“With the benefit of hindsight, of course, different choices might have been made as the project unfolded, but that does not equal imprudence under the law,” Kelley Karn, a Duke attorney, said in her opening statement.

She added: “The company is not required to make perfect decisions or even optimal decisions. Rather, as long as the decision falls within the range of reasonable choices at the time it is made, it is a prudent decision.”

The commission also will consider, in a separate hearing, whether Duke hid vital information from regulators, committed fraud or grossly mismanaged the project.

Rogers told the commission Wednesday he has worked hard to get the plant finished, despite the problems. He said he urged the major contractors, Bechtel and General Electric, to “stop pointing fingers” and get the job done.

“I said, let’s finish with the least cost possible and then we’ll sort out who owes what,” Rogers said. “My first priority was to finish the project.”

But a group of large industrial customers wants the commission to hold Duke’s feet to the fire over costs. The utility’s position is “it’s someone else’s fault,” said Jack Wickes, a lawyer at Lewis & Kappes, representing the industrial customers.

“Duke’s assumptions were too rosy,” he said.

A group of public-action groups said the project was a novelty that presented special risks in overall planning and management, and Duke failed to manage the risks.

“Many of those risks have come to fruition,” said Jerry Polk, attorney for Citizens Action Coalition of Indiana, one of the public-action groups.

During more than three hours on the witness stand, Rogers repeatedly deferred questions about the project’s engineering setbacks to other executives, who will testify in coming days. He could not describe, for example, where the plant’s main components were located on the property, or the basic layout of the project, even though a huge image of the plant was set on an easel near him.

“I think it’s painfully clear I’m not an engineer, based on my testimony so far today,” he said, eliciting laughter in the room.

Helmen grilled Rogers relentlessly, asking him whether he was familiar with Bechtel’s other projects worldwide, including the Hoover Dam, and about the qualifications of Duke’s early team of engineers.

Rogers said he was familiar with some of Bechtel’s work and said Duke later hired more qualified managers to take over the project.

Follow him on Twitter @johnrussell99

Call Star reporter John Russell at (317) 444-6283.

IndyStar Editorial: “Too many secrets with Duke”; Duke Edwardsport IURC hearings start 10/26/11 October 25, 2011

Posted by Laura Arnold in Duke Energy, Edwardsport IGCC Plant, Indiana Utility Regulatory Commission (IURC), Uncategorized.
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Original article: http://www.indystar.com/article/20111024/OPINION08/110240309/Too-many-secrets-Duke?odyssey=mod|newswell|text|Opinion|s

When secrets have been kept between Duke Energy Corp. and the state officials who are supposed to regulate it, Duke’s captive customers have gotten unpleasant surprises.

Personal emails and other documents obtained by The Star since last year have exposed a viper’s nest of cronyism and conflict of interest, leading to the inglorious exit of high-level players at both Duke and the Indiana Utility Regulatory Commission.

The troubles, for Duke and its ratepayers, have not gone away. And the secrets keep on coming.

As it faces IURC hearings into the soundness of its Edwardsport power plant and into allegations of fraud and coverup, Duke has surrendered a trove of useful information — but not for the public’s eyes.

Blanked out entirely, or virtually entirely, are communications such as:

A report to Duke’s board of directors as to why the $2.9 billion power plant is costing roughly $1 billion over the original estimate.

A memo about Duke Chairman James Rogers’ meeting with Gov. Mitch Daniels as Duke prepared to ask the IURC to let it pass huge cost overruns along to consumers.

Extensive documentation from an outside expert alleging Duke concealed information from regulators.

The IURC and/or Duke could remove some redactions; but for now, the IURC’s stance is that confidentiality may be justified to protect trade secrets. We invite the IURC to look up “disingenuous” in the office Webster’s.

Duke, which operates in a regulated industry, enjoys a government-imposed monopoly over its 780,000 customers. Some serious abuse of that privilege has already been confirmed, and more has been alleged. The burden is on the utility — and the IURC, and the governor — to explain how business advantage, convenience or fear of embarrassment on their part outweigh the public’s right to have answers to a $3 billion question.

Edwardsport is nearly 90 percent complete as the IURC ponders whether it should exist. The potential waste is nothing short of appalling. The fact that the state’s watchdogs slept through the affair until consumer advocates and the news media raised the alarm sends a message that can’t be blanked out. Giving us more blanks speaks volumes.


Hearings on Duke plant set to start this week

by John Russell, john.russell@indystar.com, Indianapolis Star, 7:37 AM, Oct. 24, 2011

Original article: http://www.indystar.com/apps/pbcs.dll/article?AID=2011110240320

Duke Energy Corp.’s chairman will be on the hot seat this week as he tries to convince Indiana regulators that his company managed the troubled Edwardsport power plant competently and did not conceal vital information.

Duke Chairman and CEO James E. Rogers is expected to take the witness stand Wednesday during the first day of hearings by the Indiana Utility Regulatory Commission into problems at the $3 billion plant, one of the most expensive projects in state history.

The IURC will determine whether Duke customers must pay for hundreds of millions of dollars in cost overruns. Regulators originally approved the plant at a cost of $1.985 billion.

The IURC also will examine whether Duke committed fraud, concealment or gross mismanagement. If so, that could be grounds for making Duke eat most or all of the costs instead of passing them along in the form of rate hikes.

Rogers has defended his company’s performance, despite numerous problems. He also has swatted down accusations the company has concealed information from regulators.

“The company has not concealed or hidden anything about this project. . . . We have endeavored to be as transparent as possible,” Rogers said in pre-filed testimony.

But opponents of the plant, including large industrial customers and public-action groups, are expected to grill Rogers about the company’s numerous secret meetings with state officials, in what they say is a violation of the regulatory process.

They also plan to introduce testimony that the company knew the plant would cost much more than the original estimate. Just last week, the utility said it would take a $220 million charge against earnings to cover some of the spiraling costs at the plant.

Duke, based in Charlotte, N.C., has described the 618-megawatt plant as a “power plant of the future” that will burn coal more cleanly than existing plants and provide power to hundreds of thousands of Indiana homes and businesses.

The hearings could last two weeks. They will be in the IURC offices, Room 222, PNC Center, 101 W. Washington St.

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

For more background please see these additional stories from the Indianapolis Star:

Duke Energy says that it will pay for the latest overruns at its site in Edwardsport

by John Russell, Indianapolis Star, john.russell@indystar.com

12:17 AM, Oct. 21, 2011

The price tag of Duke Energy Corp.’s troubled Edwardsport plant will climb more than an additional $200 million, the company said Thursday.

But the utility said it will pay for the latest overruns out of its own pocket, rather than seek to pass them along in the form of higher electricity bills for customers.

In a public filing, Duke revised its project cost to $2.98billion, up from $2.72billion. Both figures exclude financing costs, which are sure to add millions more.

Duke said the revised cost “reflects additional cost pressures resulting from unfavorable labor productivity trends and incremental material quantity and scope changes.”

The company said it will recognize a pre-tax impairment charge of approximately $220 million for the quarter ending Sept. 30.

Altogether, Duke said it has incurred about $2.9 billion in costs on the project. The company has won approval to pass along $2.35 billion of that to customers.

But Duke faces growing opposition from customers and consumer groups. In July, the Indiana Office of Utility Consumer Counselor accused Duke of gross mismanagement and of concealing vital information from regulators. It recommended that state regulators force Duke to swallow all of the nearly $1 billion in cost overruns and said ratepayers should be charged only for the original price tag of $1.98 billion.

Also opposing higher costs are a group of large industrial customers and several public action groups, including Citizen Action Coalition of Indiana.

In addition to construction and engineering setbacks, the plant has been plagued with a growing ethics scandal involving widespread secret communications between the utility and the former chairman of the Indiana Utility Regulatory Commission.

Duke will continue to plead its case for passing cost overruns on to ratepayers before regulators at a pair of public hearings later this month.

More than 90 percent built, the plant is set to open next year.

Call Star reporter John Russell at (317) 444-6283.

11:21 PM, Oct. 19, 2011

by John Russell, Indianapolis Star, john.russell@indystar.com

Want to read Duke Energy Corp.’s report to its board of directors about spiraling costs at its scandal-plagued $2.9 billion Edwardsport power plant?

It won’t be easy, even if you squint hard and hold the papers up to the light.

The five-page report from March 2010, on file with the Indiana Utility Regulatory Commission, is almost completely blacked out. “Privileged and Confidential,” the report says. “Not for Public Access.”

Or maybe you’re curious about what Duke Chairman James Rogers discussed with Gov. Mitch Daniels as the utility was preparing to ask Indiana regulators to pass along hundreds of millions of dollars in cost overruns to customers.

A summary of the meeting, written by a Duke vice president, also is completely redacted.

Then there’s a wide range of testimony and exhibits from an outside expert that purport to outline how Duke concealed vital material from regulators about the plant’s financial risks. That information, also on file at the IURC, is hidden from the public. “Confidential. Pages 16-99 redacted,” the document says.

Duke, already under a cloud of suspicion over its conduct with the IURC, has so far kept secret the most telling details of the plant’s history. Now it will be up to the IURC, in hearings next week, to determine whether Duke should swallow nearly $1 billion in cost overruns, or pass part of them along to its 780,000 Indiana customers in the form of higher electricity bills.

Some open-government advocates say it’s time to shine a bright light on the entire matter.

“This whole project has been tainted by secrecy and lack of transparency,” said Julia Vaughn, policy director of Common Cause Indiana. “This process just continues that. It doesn’t put people’s fears at ease that this project was handled in a way that was fair.”

The hearings will examine two broad issues: whether Duke committed fraud, concealed information from regulators or mismanaged the project; and broader questions of whether Indiana needs the Edwardsport electricity, and the reasonableness of continuing with a plant some say has costly, unproven technology.

The construction of what would become the world’s largest coal gasification plant is more than 90 percent complete, but the project has run into numerous problems. The plans vastly underestimated the amount of concrete, pipe and other materials needed. A shortage of skilled labor pushed up costs. Several major accidents shut down work areas for hours or days.

With every delay or setback, the cost went up. The price tag climbed from $1.9 billion in 2007 to nearly $2.9 billion today.

Duke is in the fight of its life, hoping to convince regulators it has managed the project responsibly and honestly.

Meanwhile, Duke has been rocked by revelations of chummy, inappropriate communications between the utility’s executives and state regulators. Three people have been fired in connection with the scandal, including David Lott Hardy, the former chairman of the IURC, and the president of Duke’s Indiana operations.

Another Duke official, the company’s second-highest-paid executive, James Turner, resigned in December after The Indianapolis Star reported that he sent hundreds of compromising emails to Hardy, bantering about alcohol and cars, his vacations and Duke personnel decisions.

Much of the hearings could wind up being held behind closed doors. Every time a redacted document is brought up for discussion, the commissioners will have to clear the hearing room.

Citizens Action Coalition of Indiana, an outspoken critic of the Edwardsport plant and the way it was regulated, said the sweeping redactions, if they stand, will only hurt public confidence.

“This clearly obstructs the public’s understanding of all these serious issues, for no good reason,” said Kerwin Olson, the group’s interim director. “It’s an abuse of the redaction process.”

It’s a common practice for state agencies to redact certain information from public inspection, but only for such things as protecting trade secrets and certain personnel information. Some advocates of open government say that in a case like this, the state should take extra pains to promote transparency.

Doug Webber, general counsel for the IURC, said the redactions are there for good reasons: protecting the trade secrets of Duke or its contractors.

“I’ll bet you 90-some percent of the redactions deal with trade secrets,” Webber said. “That’s the main reason.”

Another reason, he said, is that some of the exhibits, such as email and internal memos, have been redacted during the pre-hearing discovery process “as being irrelevant.”

When asked whether public confidence would suffer if large portions of the hearings and supporting testimony and exhibits were hidden from the public, he responded: “I’m not going to second-guess the administrative law judge’s rulings. There’s a formal process that was followed.”

Most, if not all, of the documents were turned over to the IURC at the request of several public-action organizations and a group of large Duke customers, who are challenging the cost of the plant and the regulatory history behind it. They have been granted legal status to participate in the IURC’s oversight of the plant.

But the groups were required to sign confidentiality agreements with Duke before the utility would release the records. Now those groups say they are prohibited from discussing or sharing the redacted contents, for fear of being sued.

Duke defends the need to keep the information tightly under wraps. The company said it has turned over thousands of documents but must protect trade secrets and confidentiality obligations to its vendors and contractors.

The utility added, however, that some of the redactions may not be necessary. Duke had to turn over a large number of documents in a relatively short time and could not review them all to determine exactly what met the exemptions, Duke spokeswoman Angeline Protogere explained.

“So instead Duke filed a request to keep confidential categories of information,” she wrote in an email, “and the IURC preliminarily approved that request.”

She added that Duke and parties are now reviewing the testimony to determine whether more exhibits can be made public.

“It’s likely more information will be made publicly available prior to the hearing as a result of the parties’ meetings,” she wrote. “The IURC will ultimately decide if the parties cannot agree.”

Tim Stewart, a lawyer for Lewis & Kappes, which represents Duke’s industrial customers, said he is working with Duke to unredact “substantially all” of its testimony. But as of Wednesday, the two sides had not reached an agreement.

He said his clients have been frustrated by the sweeping redactions. For example, one of Stewart’s witnesses is Michael Banta, a retired utility lawyer and former executive with Indianapolis Power & Light Co. Banta testified in writing, prior to the hearings, that Duke concealed vital information from Indiana regulators. But more than 80 pages of his testimony have been redacted by Duke as “confidential.”

Another redaction keeps secret a meeting with Daniels.

Duke met privately with regulators and other state officials to discuss the plant but said it did not break any laws because the meetings were only procedural. Under state law, utilities and other interested parties are prohibited from holding private meetings with regulators on pending matters.

On Feb. 24, 2010, Duke CEO Rogers and his top lieutenants met with Hardy, then chairman of the IURC, at a private breakfast at the Capital Grille restaurant Downtown. Duke said it did so only to give Hardy a heads-up on the latest cost estimates at the plant.

Several hours later, Rogers was set to meet with Daniels when he and Turner received an email from Hardy with the subject line, “terseness.”

“Whoever reports on the meeting might consider a one-word characterization and a number where you can be reached,” Hardy wrote.

Turner wrote back: “Got it.”

What was said in that meeting with the governor remains a mystery to outsiders. No report has ever been released to the public.

Turner, however, informed Hardy hours later of the meeting with the governor, a move that has been criticized as an improper intrusion on the regulatory process.

The meetings with Hardy and the governor were important enough to Duke that Rogers wanted to convey their contents to Duke’s board of directors. Two days later, Rogers sent an email to Turner: “Jim, please write several paragraphs describing our meeting with the Chair and Gov,” a reference to Hardy and Daniels.

Turner, however, was cautious: “I don’t think it’s a good idea to put chm mtg in writing. Happy to do gov mtg.”

A few minutes later, Rogers replied: “I agree.”

Turner wrote a summary and emailed it to Rogers, who used it a few weeks later as part of a report to Duke’s board of directors.

Turner’s email and Rogers’ board report were later filed with the IURC, but the documents are heavily redacted, at Duke’s insistence.

More than a year after that meeting, Turner testified under oath about the meeting with Daniels.

“The governor was concerned, interested in what was happening,” Turner said in his deposition. “The governor made the observation green isn’t cheap. And that overall although everybody was alarmed and distressed about costs going up for consumers, and we certainly let the governor know ways we were trying to mitigate costs.”

Overall, Turner said, the meeting had gone “reasonably well.”

Daniels did not respond to several requests from The Star to discuss the meeting. His press secretary, Jane Jankowski, called the meeting “routine” and “one the governor does regularly with business leaders.”

She said the topics discussed at the meeting would have been wide-ranging, including an update on the Edwardsport project and economic development opportunities.

“The governor would in no way discuss specific details of a project before the IURC,” she said in an email to The Star.

Protogere, the Duke spokeswoman, said the company simply updated the governor that the plant’s costs were rising, and the reasons for it.

“Nothing was asked of the governor,” she wrote in an email to The Star. “It was a courtesy heads-up meeting.”

She declined to make the redacted reports available, saying such correspondence to the Duke board is routinely labeled as confidential because it often deals with proprietary business information.

“We regularly update our board on major projects such as Edwardsport, and the draft basically summarizes a meeting where we told the governor that Edwardsport costs were rising,” she wrote.

Call Star reporter John Russell at (317) 444-6283.

Contractor says Duke took risks at Edwardsport plant in Indiana; Letters show rift over work at $2.9B facility February 1, 2011

Posted by Laura Arnold in Duke Energy, Edwardsport IGCC Plant, Indiana Utility Regulatory Commission (IURC), Uncategorized.
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12:53 AM, Jan. 29, 2011  | 

Written by John Russell

Letter from Bechtel to Duke Energy Drop. about Edwardsport project

Last fall, as costs and accidents were mounting at Duke Energy Corp.’s massive power plant in Edwardsport, the project’s engineering contractor warned that Duke was taking “significant risks” with the way it was managing the $2.9 billion construction project.

In a confidential letter to Duke dated Oct. 5, Brian Hartman, project manager for engineering giant Bechtel Corp., raised sharp questions about the project, which has since become embroiled in an ethics scandal. Hartman wrote that Duke, in violation of its contract with Bechtel, had:

» Shuffled supervisory staff, “demobilized” certain Bechtel workers and severely limited oversight of Bechtel’s support and engineering service.
» Stopped monthly project reports and monthly review meetings.
» Consolidated certain engineering functions.
» Sharply limited Bechtel’s overtime.
» Took personnel action against Bechtel management’s recommendation.
» Reduced documentation of certain work.

“The precipitous speed with which you intend to implement these transitions will almost certainly have a detrimental impact on the work, and potentially the long term interest of the project,” Hartman wrote in the letter addressed to Mike Womack, a Duke vice president and Edwardsport project director.

The letter is one of dozens of letters and e-mails between the companies in a new filing made Friday afternoon at the Indiana Utility Regulatory Commission.

The exhibits reveal a growing unhappiness between Duke and its engineering partner as they sharply disagreed over who has responsibility for the plant’s rising price tag and several accidents that delayed construction.

The filing was made by a collection of consumer and environmental groups that have opposed the plant for years, saying it is not needed, uses unproven technology and is too expensive.

The groups — Citizens Action Coalition of Indiana, the Sierra Club, Save the Valley and Valley Watch — want the state to investigate whether Duke mismanaged the project, committed fraud or concealed vital facts. If the groups can prove that, Duke would have to swallow a large portion of the construction costs, without passing them along to ratepayers.

A Duke spokeswoman on Friday said the plant’s opponents have taken documents out of context, and that Duke will address the issues fully in proceedings before the commission in coming months.

“In most large construction projects, there are disputes with contractors,” Duke spokeswoman Angeline Protogere said in an e-mail to The Indianapolis Star. “While we continue to have disagreements over costs, the issues outlined in that letter have been resolved.”

San Francisco-based Bechtel, one of the largest engineering and construction companies in the world, declined to comment Friday.

The price tag for the Edwardsport plant has ballooned to $2.9 billion from an original estimate of $1.6 billion in 2006.
The plant is one of the most expensive projects in Indiana history. It would be the first commercial-scale gasification plant in the country when it starts operating in 2012.

With every delay or setback, the project’s price tag has climbed higher, and the company has won permission to pass along much of that increase in the form of higher electric bills to hundreds of thousands of customers, from households to steel mills.

The 630-megawatt plant is sorely needed, Duke said, to keep up with growing energy needs, and it would replace several older, coal-fired power plants. Duke, based in Charlotte, N.C., is the largest electric utility in Indiana, with 780,000 customers in 69 of the state’s 92 counties.

Duke repeatedly has denied that it has hidden the true costs of Edwardsport. The company said it has managed the project properly and let regulators know about cost and construction problems as they arose.

Whatever their relationship today, Duke and Bechtel have clearly had some rocky moments, based on the correspondence contained in the new filing.

According to the minutes of a Nov. 12, 2009, meeting between the two companies, Duke rated Bechtel’s performance at Edwardsport as “very low” in engineering, procurement and other “home office activities.” Duke rated Bechtel’s construction management as “acceptable to good, but without a lot of data at this point.”

Duke concluded that Bechtel “should contribute commercially to the significant increased costs.” Bechtel, for its part, took issue with performance problems, although its concerns were not spelled out in the minutes of that meeting.

Several e-mails between Duke and government officials suggest the utility was putting pressure on Bechtel to keep the project under control.

“We’re throttling Bechtel,” James Turner, then Duke’s second-highest-paid executive, wrote to David Lott Hardy, then chairman of the IURC, on Sept. 2, 2009. “More work to do on that score.”

Despite the throttling, the Edwardsport plant has spiraled into a huge problem for Duke. Earlier this month, a group of large industrial customers demanded that Duke renegotiate terms of an agreement over the latest round of cost overruns, worth about $530 million. Duke reluctantly agreed to reopen the settlement.

The plant also has been rocked by revelations in recent months of chummy, inappropriate communications between key players. Several officials at Duke and the IURC have come under fire for their cozy relationships, which were revealed in numerous compromising e-mails published in The Star.

Three officials at Duke have been fired or have resigned in recent months, and Gov. Mitch Daniels sacked Hardy as chairman of the IURC last fall for his role in the matter.

Now, the new material filed by the citizens groups raises questions about how well the construction project was managed.

“We say the project has been grossly mismanaged, and important information has been concealed from the public,” said Kerwin Olson, program manager at Citizens Action. “These communications reveal a lot of problems that have never been publicly discussed.”

The confidential documents, obtained by Citizens Action, show tensions between Duke and Bechtel that stretch back more than a year.

Many of the e-mails focus on several construction accidents at the plant and who was to blame for them. One was in November 2009, when a 20-ton column that was being raised at a steam boiler fell to the ground. Another occurred in August 2010, when an erection contractor damaged the shell of a heavy steam turbine while flipping it over. No one was hurt in either incident.
“We need an exorcist on this job,” Richard W. Haviland, a top Duke executive, wrote to Womack, another Duke executive.

They discussed who should be charged for the August accident, which caused damage to a steam nozzle and other external components. Womack told Haviland in an Aug. 9, 2010, e-mail that the damaged equipment might have to be shipped to Chicago for repair, which could delay work on that part of the plant for months.

As for who should pay for damage, Womack wrote that the erection contractor, Graycor, should pay for up to $500,000. The project would then pay the excess up to $10 million, and the insurance company would pay any balance. Graycor could not be reached for comment Friday.

“I suspect you are bracing for the onslaught of questions as to why the project took the first $10 million and not the contractor,” wrote Dennis Zupan, another Duke official.

On Feb. 17, 2010, Bill Dudley Jr., president of Bechtel, wrote a two-page letter to Duke Energy, saying it was time to get together and clear the air on disagreements over the project.

“As we stated in our meeting last November, and we reassert here, Bechtel does not share your view of our performance to date on the project,” Dudley wrote. “We believe that we have performed within the requirements of our contract.”

He pointed out that the project initially was structured as a “lump sum turnkey project.” He did not mention what the “lump sum” was. Duke Energy, he wrote, had insisted on structuring the contract on a “cost reimbursable basis.”

“Rather than relying on Bechtel’s proposed structure, execution plan and pricing, Duke substituted its own in its submission to the IURC,” Dudley wrote.

He continued: “The project has considerable additional risks going forward. . . . This is not a ‘cookie cutter’ natural gas power plant, and we all knew there were significant risks in delivering such a project.”

Duke responded that it was never offered a lump sum turnkey proposal. The company entered into the type of contract it has with Bechtel because it was “the most reasonable and prudent approach given the circumstances at the time,” said Protogere, the Duke spokeswoman.

Call Star reporter John Russell at (317) 444-6283.

Consumer & Environmental Groups Say Settlement on Edwardsport IGCC BAD for Indiana September 18, 2010

Posted by Laura Arnold in Indiana Utility Regulatory Commission (IURC).
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For Immediate Release:

September 17, 2010                                                         

Contact: Kerwin Olson (317) 702-0461 
John Blair (812) 464-5663                                        
Today, a coalition of consumer and environmental watchdog groups announced their opposition to the recently filed settlement agreement pertaining to the Edwardsport IGGC power plant currently under construction in Knox County, IN. 
The settlement, which still requires approval from The Utility Regulatory Commission, is unacceptable to the intervening parties for the following reasons.  
1)     It allows Duke to continue construction of the problem plagued project, even though Duke’s own witnesses state that cancelling the plant today is the least cost option for consumers.
2)     It does not provide a “hard-cap” on the cost of the project as the settlement claims but still allows Duke to increase capital costs above their latest estimates.
3)     The so-called “hard-cap” fails to include future environmental compliance costs, costs associated with governmental action, or “acts of God”.  Again, this allows Duke to raise costs above the so called “cap”.  Carbon compliance costs alone could cost additional billions of dollars.
4)     Limits prudency review of costs to only those above $2.75 billion, which is even higher than the estimate previously approved by the Commission.
5)     Duke’s acceptance of a “reduced” return is limited to only costs above the already approved $2.35B costs estimate.
6)     The self-imposed rate case moratorium until 2012 does nothing to protect consumers from the plant which will come online in 2012, which is when Duke would have filed a rate case anyway.
7)     Proposed changes to depreciation and capital are short lived as they can be lost in the next rate case in 2012.
“This settlement does nothing to change the fact that this plant first and foremost is not needed by Duke to fulfill their legal obligation of providing reliable electricity to their customers and is far too expensive,” stated Kerwin Olson, Program Director for the Citizens Action Coalition. 
Mr. Olson continued: “The Commission should reject this settlement in its entirety, immediately halt construction, and initiate an investigation on whether or not the project is necessary to meet demand and is in the public interest.”
John Blair, President of Valley Watch, asserts, “Duke and the OUCC have been complicit in misleading the public since this project was first proposed.  We outlined these exact pitfalls in our testimony before the IURC in August 2007 (http://valleywatch.net/index.asp?id_nav=3 ).  Unfortunately, the IURC and the OUCC failed to listen and now Indiana ratepayers in 69 counties will suffer needlessly for their complicity.”
Grant Smith, Executive Director for Citizens Action Coalition: 1-317-442-8802

Richard Hill, President of Save the Valley: 1-812-273-6015

John Blair, President of Valley Watch: 1-812-464-5663