EPSA PowerFact: UTILITY PLANT CAPITAL COSTS SKYROCKET WITH INCREASED KEY CONSTRUCTION INPUTS
"At a time of escalating capital costs for new power plants, policymakers in states that did not restructure should quickly move to require utilities to consider all sources of power supply, not just the utilities' own generation built on a cost-plus basis. Competitive power procurement must become a reality to protect consumers."
John E. Shelk, President & CEO, EPSA
<center>DUKE ENERGY - CLIFFSIDE PROJECT</center>
- In May 2005, Duke Energy Carolinas requested approval from the North Carolina Utilities Commission (NCUC) to construct two 800 megawatt coal-fired units at Duke's existing Cliffside plant for a total of $2 billion (i.e., $1 billion each) with guaranteed cost recovery from ratepayers.
- In October 2006, Duke Energy announced that the twin units would now cost $3 billion, warning the NCUC that this was just an estimate, and costs could increase further. Price increases in air quality control systems, boilers, and steam turbines were among the reasons offered for the revised estimate. A Duke Energy consultant also cited the rising price of steel, unexpectedly strong electricity demand growth and high natural gas prices.
- In March 2007 the NCUC approved construction of only a single 800 megawatt unit. Duke Energy calculated that the latest cost for the single unit would be $1.8 billion, an 80% increase from the original estimate that stood until only six months earlier ($2.4 billion with financing costs). Duke Energy plans to prepare more detailed estimates and remains only "reasonably confident" that the project can be completed for the latest estimate.
<center>ENTERGY LOUISIANA - LITTLE GYPSY REPOWERING</center>
- In April 2007, Entergy Louisiana filed with the Louisiana Public Service Commission for approval to repower a natural gas unit at its Little Gypsy site to a 538 megawatt petroleum coke- and coal-fired one. The repowered unit would cost ratepayers an estimated $1 billion to construct even though other power sources are available.
- On July 11, 2007, only three months later, Entergy filed a revised cost estimate raising projections by more than a half billion dollars, to $1.55 billion, an increase of over 50 percent. According to Entergy, the new estimate was higher due to a revised engineering and design study and increased labor and commodity costs.
<center>COSTS INCREASING FOR A MYRIAD OF REASONS</center>
- Recent articles ("Costs Surge for Building Power Plants," The New York Times, July 10, 2007) and filings in state public service commissions confirm that capital costs for power plants are rising in every region. Costs are increasing in part due to more expensive natural resources - copper, nickel, stainless steel, concrete and others - and increased electricity demand in the United States as well as in China and India, which is straining both the supply of materials and skilled labor.
- When costs are rising so rapidly, and vertically-integrated utilities make more money as approved costs rise, consumers are best served by a fair evaluation of alternative supply options from the marketplace.
CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.