Indiana regulators on Wednesday approved Duke Energy Indiana’s $3.3 billion plan — plus financing costs — to replace two coal-powered units at the west-central Cayuga Generating Station with natural gas versions.
Included was a settlement agreement with coal producers to study third-party operation of the retired coal units.
“For generations, our Cayuga power plant in Vermillion County has served the state, and today’s decision ensures it will continue to be a major source of our state’s power generation for decades to come,” a Duke Energy Indiana statement reads, in part.
After more than 55 years in operation, Cayuga is the oldest coal-fired facility left in Duke’s Hoosier portfolio.
After the replacement, the two combined-cycle natural gas units would add more than 470 megawatts to the aging facility’s current 1005-megawatt capacity.
The undertaking was approved as a “clean energy” project with financial incentives, including the authority to charge ratepayers for financing while the units are under construction.
Duke Energy Indiana estimated the approach would save customers $812 million over the project’s life — predicting a total of $5.3 billion instead of the $6.6 billion expected under a traditional general rate case scenario.
The rate impact will hit in six-month increments, helping “reduce any rate shock that could be otherwise associated with implementing a construction project in base rates through a single step,” the Indiana Utility Regulatory Commission’s Wednesday order reads.
The state agency tasked with protecting utility customers previously asked regulators to reject the plan, calling it “ill-advised” in May. Office of Utility Consumer Counselor witnesses cited the sheer cost, rapidly changing regulations and technological advancements in their testimony.
Duke has estimated that the first tracker filed would add $1.87 to the typical residential customer’s monthly bill. But that amount would rise as construction continues — with the OUCC predicting a total impact of $19.37 monthly.
Asked for a response to the approval, agency spokeswoman Olivia Rodrigo wrote, “After the IURC issues an order, the OUCC begins extensive legal and technical review. This order is 80 pages, and our staff has begun the review process, which will take time. I can not offer additional information or comment at this time as I must allow time for staff to conduct their review.”
But another intervenor in the case, utility advocacy group Citizens Action Coalition, condemned the commission’s decision.
“Forcing struggling Hoosier ratepayers to shoulder the burden of the costs and risks associated with the construction and financing of this extraordinarily expensive project is simply unfair and immoral. Duke Energy can afford to pay for this, ratepayers cannot,” Executive Director Kerwin Olson said in a statement.
“It is Duke Energy and their investors who stand to realize enormous profits from this project,” he continued. “Profit is supposed to be a reward for risk, but the IURC order shifts the risk to ratepayers. That’s not right. Hoosier ratepayers can no longer afford to be used as cash cows for these out of state energy holding companies. It’s exceptionally unfortunate that the State of Indiana is continuing to allow this to happen.”
Olson also called the approval a “loss” for the environment, adding, “Doubling down on fossil fuels will not only increase our State’s massive contribution to climate change, but will do nothing to improve the quality of the air we breathe and the water we drink. There’s a better, cheaper, and cleaner alternative path forward that will improve outcomes for all Hoosiers. This order is taking us in the wrong direction.”
Coal unit settlement
Duke Energy Indiana’s regulatory win comes with a settlement with Reliable Energy, a trade association representing major Indiana coal producers, for a study that could result in third-party operation of the coal units at Cayuga. The group previously opposed the coal-to-gas plan.
Reliable Energy President Savannah Kerstiens said the agreement “represents a significant step toward Governor (Mike) Braun’s vision of ensuring reliable, affordable energy, preserving valuable in-state generation, and strengthening Indiana’s power supply.”
“As power demand continues to rise, a central goal of this vision is to position Indiana as an energy exporter rather than an importer — a milestone that can be achieved by keeping every megawatt of capacity online,” she continued. “Enabling third parties to help advance that effort demonstrates the innovative, entrepreneurial approach that defines Indiana’s energy strategy.”
The proceeds from any sale would flow to the utility’s ratepayers.
Duke Energy Indiana also invoked Braun’s name, saying the settlement “aligns” with recent executive orders “encouraging additions to the state’s power supplies and making sure there’s careful evaluation before retiring coal units.”
The utility will look at the technical feasibility of simultaneously operating the coal and natural gas units, including the potential for “full(y) decoupling” the units.
The study was set to begin as soon as regulators approved the coal-to-gas replacement and has to be done in eight months, at most, according to the settlement agreement.
The filing lays out a detailed list of what must be studied, plus a timeline for Duke Energy Indiana to follow on stakeholder engagement, a request for proposals and bidding process, a due diligence and a negotiations period.
The coal units are scheduled to retire in 2029 and 2030. The utility agreed not to shut them down before 2029 — and to pause demolition during the request for proposals process, until regulators say demolition can continue.