Summary
Duke Energy Corporation (DUK) announced a revised project cost estimate for its Edwardsport Integrated Gasification Combined Cycle (IGCC) project. The estimated cost has increased from approximately $2.72 billion to $2.98 billion (excluding financing costs). This escalation is attributed to unfavorable labor productivity trends and changes in material quantity and scope. As a consequence of these cost overruns exceeding a previously proposed cost cap, Duke Energy will recognize a pre-tax impairment charge of approximately $220 million for the quarter ended September 30, 2011. This charge, which impacts earnings per share by approximately $0.10, will be treated as a special item and excluded from adjusted diluted earnings per share. The proposed cost cap, if approved by the Indiana Utility Regulatory Commission (IURC), would limit the amount of project construction costs recoverable from Indiana customers.
Key Highlights
- 1Duke Energy revised the cost estimate for the Edwardsport IGCC project upwards by approximately $260 million (from $2.72 billion to $2.98 billion, excluding financing costs).
- 2The cost increase is driven by labor productivity issues and scope changes.
- 3The company will record an approximate $220 million pre-tax impairment charge related to costs exceeding the proposed cost cap.
- 4This impairment charge is expected to reduce diluted earnings per share by approximately $0.10.
- 5The charge will be excluded from the company's adjusted diluted earnings per share as a 'special item'.
- 6The proposed cost cap limits the project construction costs that can be recovered from Indiana customers.
- 7As of September 30, 2011, the company had incurred approximately $2.9 billion on the project, including financing costs.