Duke Energy’s ‘Clean Coal’ Power Plant Off to Bad Start

Published August 9, 2013

Duke Energy‘s “green” initiative to gasify coal for allegedly “cleaner” burning at its Edwardsport, Ind. power plant has already been vilified for cronyism, corruption, conflicts of interest, cost overruns, delays, waste, and mismanagement, but at least it became operational in June.

For six days.

The so-called “clean coal” project that was intended to have a carbon dioxide capture-and-storage component suffered breakdowns that left it inoperative on June 13, almost a week after Duke’s formal announcement that Edwardsport was on line, and only a day after the nation’s largest utility showed media members around the plant. The Indianapolis Star broke the news on Friday.

Eyebrows furrowed and heads shook not simply over the unexpected early stoppage, but given the questionable behavior surrounding the plant by previous CEO James Rogers and other Duke executives, the timing of the announcement followed by the quick shutdown only raised more suspicion. Edwardsport’s costs were expected to be around $2 billion, but that was exceeded by $1.5 billion as news of conflicts with contractors seeped out to the public and underhanded efforts to recover those costs from either taxpayers or ratepayers (or both) were strongly criticized. An agreement was reached between the Indiana Utility Regulatory Commission and Duke that foisted $2.6 billion – plus some financing costs – on Hoosier State customers that hiked their electric bills by 14.5 percent.

And now that the plant has opened “officially,” additional costs for fixes and maintenance no longer have to be contained within the original construction agreement. Those expenses can now be recovered, pending approval from the IURC, from customers with likely even greater rate increases to come.

“This has nothing to do with whether the plant is operational,” said Kerwin Olson, head of Citizens Action Coalition, to the Star, “and everything to do with Duke Energy bilking ratepayers for costs they should not be able to recover.”

According to the Indy Star story, Duke’s reports with the IURC revealed a “long list” of problems at the plant this year including cracked pipes, broken drive shafts and failed pumps. “Plant manager Jack Stultz testified that some of the issues have been resolved, but others remain an ongoing concern and require further analysis,” the newspaper reported, adding that Duke critics believe the utility declared the plant operational prematurely.

“There are no protections in place for ratepayers from a white elephant,” Olson told the Star. “At what point does the commission finally do their job and cut off the tap?”

The now-departed Rogers was tireless in search of those spigots, regardless of whether they drew from taxpayers or the utility’s monopoly-enslaved customers, so long as Duke’s shareholders were never harmed. Had the carbon dioxide-conscious CEO not green-lighted the unproven and unnecessary (a natural gas plant would have been one-fifth of the cost) Edwardsport scheme in the first place, he wouldn’t have needed to scramble to pay for it.

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 $3.5 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 disastrous project stands as a monument to Rogers’s failed leadership. He was a cap-and-tax proponent who often engaged in corporate-government cronyism to win tax breaks and grants that made boondoggles like wind and solar plants profitable for his company, but costly for his customers and for taxpayers. Rogers was 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 in 2012. The DNC never raised the cash to cover it, so Duke was stuck with the bill.

 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 2011 that Rogers, frustrated with the skyrocketing costs, met with then-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. The best they could extract from the former governor was some sage advice: “Well, green is not cheap…”

Also, two Duke officials were fired after the successful recruitment of an Indiana Utility Regulatory Commission lawyer to join Duke, while the lawyer still oversaw cases that concerned the utility. Daniels terminated 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 2011 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.” Hardy still awaits his trial.

Besides Indiana, Rogers sought relief in the nation’s capital as well. A memo prepared for the CEO to address Duke’s board of directors said Rogers was “committed to working aggressively in Washington to secure any federal money that might be available for clean coal technology given that this plant – because of its size and CO2 capture/storage potential – is truly the premier clean coal facility in the world.”

In fact, Rogers sounded like he thinks public money is the utility’s entitlement, which wouldn’t surprise since upward of $460 million in government subsidies got it launched in the first place. In a “Washington Update” summary he wrote to Duke’s board, he explained a trip he made to the nation’s capital in which he sought funds for Edwardsport out of the FutureGen program, which the Bush administration created as a public-private partnership “to add carbon capture and sequestration technology to (a coal gasification) plant.” Rogers noted that the Obama administration promised $1 billion for FutureGen, despite minimal private involvement.

“We have long held the view that Edwardsport represents ‘FutureGen 1.0,'” Rogers wrote to the board, “so we should have access to some of the support.”

Rogers then explained a meeting with Secretary of Energy Steven Chu and Under Secretary Kristina Johnson, who heads FutureGen, and then bemoaned the obstacles in Washington to getting the money he seems to believe Duke is entitled to.

“I called the issues ‘difficult’ because of the climate in DC and the partisanship that blocks getting anything done right now,” Rogers told the board. “But, success…would be a huge win for our shareholders and customers.”

Shortly thereafter in early 2012 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.”

Nevertheless, agency counselor David Stippler approved dumping most of the billions of dollars in costs on Duke’s customers. Now that Edwardsport is officially launched and no longer in start-up mode, it appears a lot more of the “unnecessarily complicated” engineering and construction costs can be unloaded on Indiana electricity customers.

“It all depends on the repair,” said a Duke Energy spokeswoman about the future of Edwardsport maintenance. “Some of it would be considered construction under the hard cap. Others would be considered operation and maintenance costs.”

With Rogers’s replacement, former Duke chief financial officer Lynn Good, at the helm, fuzzy accounting can always be employed. You can count on much more of the Edwardsport outlays to cost Indiana customers even more, for what appears to be an extremely inefficient facility. The Star reported that IURC documents showed Edwardsport ran at less than 10 percent capacity in June, even though it was designed to produce 10 times the amount of electricity that its previous coal-fired power plant at the location generated, but with 70 percent less emissions. As reporter Tony Cook wrote, “that’s only true if it works.”

A big “if.”

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.