Duke Power Plant Boondoggle to Cost Customers Plenty

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A $3.3 billion coal gasification and carbon dioxide capture power plant owned by Duke Energy, built in order to pacify concerns over the fake global warming scare, will increase rates for its Indiana customers by 14.5 percent the next two years.

The Indianapolis Star reported last week that ratepayers will cover nearly $2.6 billion of the plant’s costs, as the result of a deal between the utility, its industrial customers, and Indiana’s government advocate for electricity consumers. Duke’s shareholders will pay for the remainder of the facility, built in Edwardsport, Ind. Between the Charlotte-based utility and its main contractors on the plant – General Electric and Bechtel – construction costs soared from an estimated $1.985 billion in 2006 to $3.3 billion. Carbon dioxide capture and storage, like much renewable energy, is a technology that has not proven viable on a scale that would meet the electricity demands of a large population.

The deal must be approved by the Indiana Utility Regulatory Commission.

The disastrous project stands as a symbol of the failed leadership of Duke CEO James Rogers, a cap-and-tax proponent who has often engaged in corporate-government cronyism to win tax breaks and grants that make boondoggles like wind and solar plants profitable for his company, but costly for his customers and for taxpayers. Rogers is so aligned with President Obama’s policies to make electricity prices “necessarily skyrocket” that he committed Duke to guarantee a $10 million line of credit for the Democratic National Committee to hold its convention in Charlotte later this year.

With Edwardsport, company officials extended their crony practices to Hoosier State officials and regulators, in attempts to recover their cost overruns. The Star reported in November that Rogers, frustrated with the skyrocketing costs associated with Edwardsport, met with Indiana Gov. Mitch Daniels in February 2010 to discuss problems with the project. According to a copy of a memo the newspaper acquired, it appeared that Rogers wanted from Daniels some kind of mediation or intervention between Duke and its subcontractors, GE and Bechtel. Also, two Duke officials were fired after the successful recruitment of an IURC lawyer to join Duke, while the lawyer still oversaw cases that concerned the utility.

Gov. Daniels fired IURC chairman David Hardy over the scandal because he was aware of the lawyer’s conflict of interest and neglected to do anything about it. Hardy was indicted in December for failure to disclose secret meetings with Duke executives, and for his aid to IURC’s top lawyer in his effort to get a job with Duke. The Star, after it obtained emails via open records request, had revealed over several months “that Hardy had been chummy with industry executives.” That “raised questions about whether Hardy had compromised the agency’s mission of balancing the needs of utilities and ratepayers.” 

In recent months the Indiana Office of Utility Consumer Counselor, a government agency that is supposed to represent the interests of electricity customers subject to a monopolistic industry, was sharply critical of Duke’s management of Edwardsport. According to The Star, the advocate agency believed Edwardsport illustrated “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.” OUCC characterized Duke’s management of the project as “woefully unqualified” and its methods led to “unnecessarily complicated” engineering and construction costs.

“Duke has not demonstrated any budgetary constraints on this project,” testified Barbara A. Smith, director of OUCC’s resource planning and communications division. “There appears to be a lack of responsibility or accountability on the part of those causing these multimillion-dollar cost overruns.”

As for Duke, Rogers said in an IURC hearing in January that “the estimates were just flat wrong.”

Nevertheless, agency counselor David Stippler approved dumping most of the billions of dollars in costs on Duke’s customers.

“I think it’s a solid deal,” he told the newspaper. “It’s time to move on.” 

So now Duke has a minor setback in its earnings report, taking a $420 million charge for the overruns. According to the Wall Street Journal, the project benefited from $460 million in federal, state and local subsidies. So both taxpayers and electricity users take it on the chin.

Meanwhile its customers in Indiana will have to pay nearly $2.6 billion for a project that citizens groups deemed experimental and unnecessary. In light of the farce and public disbelief in what the global warming scare has become, Edwardsport was an absolutely foolish idea, marred by scandal and waste.

Rogers’s seemingly endless pursuit of government favors via carbon trading schemes, regulations, tax credits, and grants is self-serving, at the expense of taxpayers and consumers who have no way out. This stuff isn't even transparent; it never shows up on customers’ bills. It’s a hidden tax.

There is no public benefit, either – environmental or otherwise – to replacing affordable electricity generated by coal and natural gas with expensive alternatives like wind, solar or coal gasification. It will not change the global temperature a fraction of a degree. Rogers’s plan to “de-carbonize” (really, de-carbon dioxidize) Duke by 2050 is a goal that accomplishes nothing. 

Yet because investor-owned utilities are a quasi-monopoly in each area they serve, they are guaranteed to make money on their power plant investments. State utilities regulators make sure of that. Edwardsport is a blip on Duke’s accounting books, especially thanks to the government consumer "advocates."

And because utilities like Duke don’t have to compete for customers, CEOs like Rogers survive so long as the government gravy train rolls on, both with handouts and regulatory favor. Even a boondoggle like Edwardsport is survivable in the crony redistributionist world where he resides.

Paul Chesser is an associate fellow for the National Legal and Policy Center.