05/01/2008

Associated Press

Duke Energy says its coal gasification power plant under construction in southwest Indiana will cost $365 million more than previously expected — possibly increasing rates for customers by 2 percent.

The company filed a progress report with state regulators Thursday, raising the expected cost to $2.35 billion for the Knox County plant in Edwardsport, about 60 miles north of Evansville.

"In North America, the cost of building all types of power plants has risen substantially in the past year," said James L. Turner, president of Duke Energy U.S. Franchised Electric and Gas. "While we're not seeing as big an increase as some projects, the same pressures are driving up the costs of contracts from our major vendors. We're now in competition with developing nations such as China and India for materials, and we are seeing increased labor costs to build power plants."

If approved by the Indiana Utility Regulatory Commission, the additional cost in construction would result in a rate increase of another 2 percent by 2013, Turner said.

The 630-megawatt plant along White River will replace a 160-megawatt coal-fired plant that Duke now operates there. It is scheduled to be completed in 2012.

The new plant will produce 10 times as much power as the existing plant and will emit less carbon dioxide, sulfur dioxide, nitrogen oxide and mercury, Duke Energy Indiana president Jim Stanley said.

"When it's completed, this will be one of the cleanest, most efficient coal-fired plants in the world," Stanley said. "If we didn't pursue this project, our primary alternative would be to rely on natural gas. Natural gas is more costly than coal, and gas prices and supplies are volatile and unpredictable."

Duke is the largest electricity supplier in Indiana, serving more than 780,000 customers.

The company is to receive more than $460 million in local, state and federal tax incentives, which will help reduce the expected total rate increase of about 18 percent to be phased in between now and 2013, Stanley said.