Wednesday 19 October 2011

Duke Energy's Coal Gasification Plant

Daniels: Duke Energy Should Underwrite Edwardsport Plant says:
Utility Company Duke Energy wants customers to underwrite $920 million in over budget expenses at its Edwardsport plant.

The Indiana Utility Consumer Counselor's Office said Duke was unqualified to build the plant and should be held responsible for going over budget, 6News' Norman Cox reported.

Indiana Gov. Mitch Daniels said he supports the recommendation and said he just wants to see the plant finished.

"I just want to see it there, using Indiana coal, paying Hoosiers, as opposed to people in other states paying for the energy we need," Daniels said.

Upon completion, Edwardsport will be the largest coal gasification plant in the world.

The plant will process Indiana coal into cleaner-burning natural gas which it will burn to produce electricity.

The Consumer Counselor's Office testimony said that Duke essentially botched the construction of the plant because it refused to hire a qualified outside construction manager to build it.

As a result, the plant, which was supposed to cost $1.98 billion, ballooned to $2.9 billion.

This looks bleak for Duke Energy. Can you think of any excuses they might have that would justify putting the entire $2.9 billion in the rate base?

15 comments:

  1. I can think of no excuse which justifies the government lending additional support to this terrible project. The continued use of fossil fuels as our main source of energy is irresponsible, unethical, and immoral. We are in the midst of a climate crisis, we are destroying our own environment, and we cannot continue America's addiction to fossil fuels. The costs of this project could have gone towards clean tech renewable energy generation. This could have created Hoosier jobs just the same and it would have prevented numerous premature deaths.

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  2. How irresponsible of Duke to assume that their negligence and failure to hire a qualified construction manager could easily be passed on to the pocketbooks of their customer base? While Governor Daniels discussed the positive effect that the Edwardsport plant would have on Hoosier employment, I'm doubtful that consumers would ever recover the almost extra million dollars that are incurred within the project.

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  3. It seems that Duke knew its power position, that Hoosiers need jobs, and given something goes wrong they knew they'd be bailed out.

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  4. Duke energy has no right asking the customers to have to pay more because they failed to properly plan and forecast. Putting the extra million into the base rate will only push the price customers are paying through the roof. Its no excuse that hoosiers will be gaining jobs, and does not rectify Dukes poor planning.

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  5. Matthew, that's the risk with rate-of-return regulation-- that a firm will act carelessly because it thinks its costs are all covered. Here, it does look as if Duke may end up paying, though.

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  6. I can't think of any excuse that would allow Duke to use the $2.9 figure as the rate base. Clearly Duke's management was looking to cut corners at the start of the project, and this resulted in a poor job and extra costs. This is a completely irresponsible way to manage a business, and it is not fair to use $2.9 as the rate base. I also agree with Sumner's comments about the irresponsibility of coal energy as the primary source of energy in the state of Indiana. It is not a sustainable source of energy that can be maintained for future generations.

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  7. Yes, I think that the justification is quite simple on their part. They are a company who wishes to maximize their profits. Because they are essentially guaranteed a steady profit I feel like they don't really feel they have a responsibility to their customers as there is nowhere else for them to go to. Maybe more choice would change this?

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  8. The rate bate of 2.9 billion is the amount of capital needed to complete this project. I do not think it is fair to pass on this much money to the consumers to have to pay for. Gas is already extremely expensive, and since heat is a necessity in the winter time, the consumers cannot avoid these extra costs. Duke should have to pay for their own mistake instead of making consumers pay.

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  9. This is inexcusable by Duke energy. This extra cost will be passed on regardless of how it is paid. If prices increase there will still be losses for consumers. I just wonder what would be the most efficient way to pay it off. I feel like I would need more information to make a decision as to what the best move would be.

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  10. This is not a responsible behavior by Duke Energy. It is clearly their fault that they didn't hire a qualified outside construction manager to build the plant. They should be sorry about their incorrect estimation or wrong decision instead of putting the entire $2.9 billion in the rate base. Putting the costs in the rate base will definitely decrease its consumer surplus and benefits.

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  11. More incentive should be given to the managers of those public utilities. They are supposed to be compensated by good management and lowered cost and also punished by poor performance. Absent take-over threat is the low efficiency for government-owned companies. It has been proved and seen in China...

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  12. I am not sure that management so much as cost itself is to blame. This sounds like fairly advanced technology, and we need to think about our personal investment in the next generation. Cleaner energy is a really effective way to start undoing some of the harm we have already done to this planet.

    That being said, it is obviously not good when projects go over budget, but when I compare this project to Carmel's performing arts center or various roadway construction projects that have gone awfully wrong in the past few years both cost and schedule wise, I think this is a lesser burden because it offers us something substantial in return.

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  13. Maximilian Roedder2 November 2011 at 12:56

    The only strong argument I can think of is that Duke might be able to prove that they might face serious financial distress, if they were not allowed to put the entire amount in the rate base. This might be the only valid argument if the region is dependent on Duke delivering energy. If Duke can take the hit, however, there should be no reason to put the extra costs in the rate base.

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  14. In this scenario, Duke energy is dealing with strong mismanagement of funds and in an attempt to recover loses, they are trying to include the ballooned cost in the rate base. It is unjustified for the corporation to pawn this cost of onto the consumers due to Duke's inefficient allocation of funds.

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  15. This was very careless of Duke Energy, but I still think that MItch Daniels is right in making sure that the plant be completed. In my opinion, the long term benefits outweigh the costs.

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