Ind. coal-gasification plant cost reaches $2.5B

AP News
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Posted: Nov 25, 2009 4:42 PM

Duke Energy Corp. says the cost of the coal-gasification power plant it's building in southwestern Indiana has risen another $150 million, boosting the project's estimated price to $2.5 billion _ nearly twice the original estimate.

And the latest increase won't be the project's last.

Charlotte, N.C.-based Duke Energy said in documents filed Tuesday with the Indiana Utility Regulatory Commission that the 630-megawatt plant's cost has gone up because its design has required more steel, piping, electric cable and other materials than originally expected.

"Because this is the first time this technology has been used on this scale, there was not nearly as much guidance on size and quantity as there would be for a typical project with a design that had been constructed many times," Duke Energy Indiana President Jim Stanley said in a statement.

The plant is being built along White River near Edwardsport, about 15 miles northeast of Vincennes, replacing a 160-megawatt coal-fired plant that Duke operates there. The company said construction is about 28 percent complete.

Unlike traditional coal-fired power plants that burn coal to produce electricity, coal gasification converts coal into a synthetic gas that's processed to remove pollutants such as mercury and sulfur. That gas is then burned in a traditional turbine power plant to produce electricity.

Duke officials say the plant, slated to begin operation in 2013, stands to be the first in the nation to use coal gasification technology on such a large scale.

The company expects to provide another cost revision by next March covering labor, engineering, procurement and plant startup costs. Duke spokeswoman Angeline Protogere said the utility would file for a rate adjustment to cover the increased cost then.

Rate increases covering the cost of the plant are being phased in over time, and so far customers have paid about $20 million toward financing costs for the plant, Protogere said. Construction costs won't be reflected in rates until the plant is complete.

Protogere said the latest cost increase might also be phased in or the Utility Regulatory Commission might handle it differently.

The estimated cost of the plant has grown steadily since it was announced in 2007, when Duke said the plant would likely cost between $1.3 billion and $1.6 billion.

Kerwin Olson, the program director for the Citizens Action Coalition of Indiana, said the group had believed the original estimate was "way off" and had expected the cost to spiral.

Olson said he expects the Utility Regulatory Commission to approve the latest cost increase. But he said the watchdog group wants Duke Energy's case reopened and re-examined.

"We don't think the plant is needed and we don't think the IURC is looking at the true cost of this facility," he said.

He said it would be cheaper to stop building the plant now than to complete and operate it.

The Office of Utility Consumer Counselor, which represents ratepayers before the Utility Regulatory Commission, has not reviewed the Duke filing. Anthony Swinger, a spokesman for the utility consumer counselor's office, said that could take several weeks.

"However, it does concern us that the utility is announcing expected cost increases for this project for the second time in less than a year," Swinger said. "This comes despite Duke's previous expressions of confidence that the project could be completed under the previous revised cost estimate of $2.35 billion that was approved earlier this year."

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Duke noted that labor costs would be a key factor in the plant's final cost. But Olson noted that the estimate so far doesn't include the potential costs for developing technology to capture and store carbon dioxide emitted by the plant.

The commission already gave Duke approval to charge ratepayers $17 million to study the feasibility of carbon capture, and a request for $121 million for a geological study for underground carbon storage is pending.

Such emissions are blamed for global warming, and Congress is considering legislation that would set caps on the amount of carbon dioxide and other greenhouse gases power plants could emit.

Olson said some studies show that carbon capture requirements could double the cost of a power plant.

Duke doesn't know how much capturing and storing carbon from the plant would cost, Protogere said. Duke has applied for a federal grant that could potentially cover up to half of those costs, she said.

Duke's Indiana customers have been expected to see about an 18 percent rate hike to pay for the project, which is receiving more than $460 million in government tax incentives. But that rate increase doesn't reflect the latest cost increases.