Emails may suggest improper contact: Duke CEO

Duke Energy Edwardsport Cost Overruns spark scrutiny over ex parte communications, regulatory compliance, and ratepayer impacts, as emails, settlements, and hearings reveal governance risks at the Indiana commission and Duke's coal-gasification project.

E-mails between a former Duke Energy official and a top Indiana regulator may suggest they talked privately about settling cost overruns in a power plant construction project, CEO Jim Rogers has told the Indiana Utility Regulatory Commission.

Exchanges of personal e-mails between Duke officials and regulators cost the jobs of former Duke Energy Indiana president Mike Reed and former commission chairman David Hardy last year. Jim Turner, former president of Duke's regulated gas and electric businesses, resigned in December after a newspaper published friendly messages to and from Hardy, as the company braced for ethics fallout across its leadership.

Last November, Rogers testified he knew of no improper communications involving the Edwardsport, Ind., power plant, which has seen large cost overruns. Duke now estimates construction costs at $2.88 billion, compared to an earlier estimate of $2.35 billion.

Customers will pay some of the overruns, but Duke could be forced to swallow the rest even as Duke executives expected slow growth ahead for the business.

Rogers has filed an addendum. A review of 9,000 internal emails found some that "taken together, might be construed to suggest" that Hardy and Reed talked about settling the cost issue. Indiana law prohibits substantive private communications about pending cases.

Duke withdrew a proposed settlement dividing up the cost overruns in December, after Turner's resignation, even as it would later reopen the Edwardsport deal amid continued scrutiny.

"I do not believe that these emails constitute any conclusive proof that there were improper communications," Rogers wrote the commission, "nor do I believe that if such conversations occurred it constitutes any evidence of undue influence" because the settlement was withdrawn.

Rogers' letter included several e-mails.

Last August, Reed wrote Turner that Hardy, the Indiana regulator, had "asked if a cost cap was on the table. I said not at this time."

Turner responded: "Did Hardy's question lead you to believe he thinks one needs to be on the table?"

Reed: "Perhaps or signaling me."

The following month, Turner wrote Rogers: "Mike R thinks, based on late breaking intel, that we're going to get a soft cap at some level well below 2.88 billion dollars... and hard cap at 2.88."

Rogers wrote that Duke has been unable to learn more about conversations between Reed and Hardy that the e-mails refer to.

The Indianapolis Star reported in February that Rogers met privately with Hardy in early 2010 to alert him to cost-overrun estimates of $530 million, around the time of an Energy Summit for Gov. Daniels. Duke later said Rogers was just passing on information, not pleading his case.

The Indiana commission held new hearings on Edwardsport costs as the state counselor voiced deep concerns about the plant. Construction is 60 percent complete.

Neither Duke nor the Indiana commission had further comment on Rogers' letter. "We'll let the statement stand on its own and respect the process," said Duke spokeswoman Paige Sheehan.

Tim Stewart, a lawyer representing Duke's large industrial customers in Indiana, told the Star that he's convinced Duke took part in improper talks with regulators. His clients pulled out of the settlement before it was withdrawn, he said, because they suspected inside dealing as groups sought to derail the plant during the dispute.

"This pretty much puts the nail in the coffin," Stewart said.

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