Duke Dealing With Coal Gasification Cost Overrun Ordeal In Indiana

Forbes
Duke Dealing With Coal Gasification Cost Overrun Ordeal In Indiana
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Duke Dealing With Coal Gasification Cost Overrun Ordeal In Indiana

Duke Energy is facing serious charges from the Indiana’s utility consumer agency, citizens groups, and large industrial customers over its power plant in Edwardsport for an approximate $1 billion in overruns for the plant’s cost. A state counselor accused Duke Energy of mismanagement and concealing certain vital information from the state’s regulators.

Duke Energy is one of the largest electric utilities in the U.S. along with approximately 35,000 megawatts of electric generating capacity in the Carolinas and the Midwest as well as natural gas distribution services in Ohio and Kentucky. Its competitors include Exelon Energy Corp, Allegheny Energy and Progress Energy.

We have a near $19.40 price estimate for Duke, which is just slightly ahead of the market price.

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Duke’s power plant at Edwardsport consists of a massive coal gasification plant. The project faced several technological setbacks in the construction of the plant resulting in a massive overrun in the company’s investment. The state’s utility consumer agency claims that Duke hid vital information and avoided obtaining a contract with an experienced engineering company that could set a firm price.

Moreover, the project has been under scrutiny for an ethics scandal, in which sensitive information was said to have been unofficially shared between the chairman of the Indiana Utility Regulatory Commission and the company.

Barbara A. Smith, Director of Resource Planning and Communications Division of the consumer office states:

It all added up to a compelling case of a company that, through arrogance or incompetence, has unnecessarily cost ratepayers millions of dollars and has set back the public’s trust in our regulatory process.

Duke is looking to pass on the cost overruns to its customers in the state and has indicated that customers should pay up for the $2.35 billion capital costs for the project. Meanwhile, the consumer agency and Duke have been at loggerheads on the reimbursement amount receivable by Duke. The agency has recommended that Duke absorb all the project cost overruns and only the original cost of $1.98 billion be reimbursed. Industrial customers have also objected to the increased rate and have urged the state regulators to limit the costs.

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Duke Energy may be forced to some or all of the $1 billion cost overruns posing a significant setback to its profits considering that it had profits of $1.3 billion in 2010.

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