Just two months ago, Duke Energy had reported to state utility regulators that the twin coal plants plants would cost $2 billion. The electric utility is seeking regulatory approval to build the Cliffside plants by 2011 and would pass along the cost to customers.
Duke Energy officials say that even at $3 billion, coal plants are still the least expensive option to meet future energy demand, because costs also are increasing for other forms of energy. Natural gas prices are volatile, as is the cost of buying electricity from other utilities.
But the dramatic price increase -- pushed up by the rising cost of skilled labor, materials and equipment -- doesn't help Duke Energy's case that the proposed 1,600-megawatt coal plants are economical.
Robert Gruber, director of the Public Staff, had backed the construction of the Cliffside plants at $2 billion but said more analysis would be necessary before he could support a $3 billion project. The Public Staff is the consumer advocacy arm of the utilities commission and represents the interests of consumers.
"It makes it much more difficult to approve it," Gruber said.
The surprisingly high cost of the coal plants signals that North Carolina's electricity costs, among the lowest in the nation, are not immune to broader economic trends and are destined to increase. Duke Energy is planning to build two nuclear reactors at a cost of $4 billion to $6 billion, and Progress Energy expects to build a nuclear reactor within a decade.
Duke Energy's cost overrun further raise the possibility that the plants' total expense could continue ballooning in the five years it will take to build the facilities.
"The credibility of Duke has been called into question when they missed the mark by $1 billion," said Stephen Smith, executive director of the Southern Alliance for Clean Energy, which opposes the Cliffside plants. "I don't think Duke has got a good read on that number, until they actually ink the contracts with the vendors and lock in the prices."
Duke Energy has 1.6 million customers in North Carolina, including about 115,000 in Durham County, 45,000 in Orange County and 1,700 in Wake County.
Last month, Duke Energy filed a confidential update alerting the state utilities commission that the projected price for the Cliffside project would be much higher than originally anticipated.
The amount of the updated cost estimate was known to the utilities commission and its staff. The updated amount had also been provided to environmental activists involved in the case who had signed confidentiality agreements not to disclose the new figure.
Duke Energy initially kept the new cost estimate secret because the company said it was engaged in sensitive price negotiations with equipment vendors. The utility reversed its position, however, concluding it couldn't justify concealing the price of a project of this magnitude.
"Releasing this doesn't really affect the cost of the overall project," said spokesman Tom Williams.
Environmental groups had asked the utilities commission to force Duke Energy to publicly disclose the new cost estimate to the company's customers, who would ultimately pay for the plants through rate increases.
The utilities commission was set to rule this year on Duke Energy's application, but the regulatory agency has since scheduled more hearings for Jan. 17 to reconsider the plants in light of the 50 percent cost increase.
Environmental groups are opposing the proposed construction of new coal-fired plants and nuclear plants, instead urging the state to promote energy efficiency, conservation and renewable resources such as solar and wind power. Environmentalists oppose coal because it is a source of greenhouse gases and other pollutants, and nuclear power because they regard nuclear power plants as unsafe.
Duke Energy's $2 billion estimate was based on year-and-a-half old industry projections, Williams said. Recent labor market surveys and pricing trends for power plant equipment indicate that fewer vendors are bidding on utility projects, contributing to higher prices, earlier payment schedules and longer delivery times, the company said in a filing with the utilities commission.
Coal faces other financial uncertainties as well.
"Another thing to consider is what if five 10 years from now we start having a carbon tax?" Gruber said. "That will make coal less competitive. We have to give some thought to that."
