Duke, Daniels conversations on Edwardsport remain “trade secrets”

The five-page report from March 2010, on file with the Indiana Utility Regulatory Commission, is almost completely blacked out. “Privileged and Confidential,” the report says. “Not for Public Access.”

Or maybe you’re curious about what Duke Chairman James Rogers discussed with Gov. Mitch Daniels as the utility was preparing to ask Indiana regulators to pass along hundreds of millions of dollars in cost overruns to customers.

A summary of the meeting, written by a Duke vice president, also is completely redacted.

Then there’s a wide range of testimony and exhibits from an outside expert that purport to outline how Duke concealed vital material from regulators about the plant’s financial risks. That information, also on file at the IURC, is hidden from the public. “Confidential. Pages 16-99 redacted,” the document says.

Duke, already under a cloud of suspicion over its conduct with the IURC, has so far kept secret the most telling details of the plant’s history. Now it will be up to the IURC, in hearings next week, to determine whether Duke should swallow nearly $1 billion in cost overruns, or pass part of them along to its 780,000 Indiana customers in the form of higher electricity bills.

Some open-government advocates say it’s time to shine a bright light on the entire matter.

“This whole project has been tainted by secrecy and lack of transparency,” said Julia Vaughn, policy director of Common Cause Indiana. “This process just continues that. It doesn’t put people’s fears at ease that this project was handled in a way that was fair.”

The hearings will examine two broad issues: whether Duke committed fraud, concealed information from regulators or mismanaged the project; and broader questions of whether Indiana needs the Edwardsport electricity, and the reasonableness of continuing with a plant some say has costly, unproven technology.

The construction of what would become the world’s largest coal gasification plant is more than 90 percent complete, but the project has run into numerous problems. The plans vastly underestimated the amount of concrete, pipe and other materials needed. A shortage of skilled labor pushed up costs. Several major accidents shut down work areas for hours or days.

With every delay or setback, the cost went up. The price tag climbed from $1.9 billion in 2007 to nearly $2.9 billion today.

Duke is in the fight of its life, hoping to convince regulators it has managed the project responsibly and honestly.

Meanwhile, Duke has been rocked by revelations of chummy, inappropriate communications between the utility’s executives and state regulators. Three people have been fired in connection with the scandal, including David Lott Hardy, the former chairman of the IURC, and the president of Duke’s Indiana operations.

Another Duke official, the company’s second-highest-paid executive, James Turner, resigned in December after The Indianapolis Star reported that he sent hundreds of compromising emails to Hardy, bantering about alcohol and cars, his vacations and Duke personnel decisions.

Much of the hearings could wind up being held behind closed doors. Every time a redacted document is brought up for discussion, the commissioners will have to clear the hearing room.

Citizens Action Coalition of Indiana, an outspoken critic of the Edwardsport plant and the way it was regulated, said the sweeping redactions, if they stand, will only hurt public confidence.

“This clearly obstructs the public’s understanding of all these serious issues, for no good reason,” said Kerwin Olson, the group’s interim director. “It’s an abuse of the redaction process.”

It’s a common practice for state agencies to redact certain information from public inspection, but only for such things as protecting trade secrets and certain personnel information. Some advocates of open government say that in a case like this, the state should take extra pains to promote transparency.

Doug Webber, general counsel for the IURC, said the redactions are there for good reasons: protecting the trade secrets of Duke or its contractors.

“I’ll bet you 90-some percent of the redactions deal with trade secrets,” Webber said. “That’s the main reason.”

Another reason, he said, is that some of the exhibits, such as email and internal memos, have been redacted during the pre-hearing discovery process “as being irrelevant.”

When asked whether public confidence would suffer if large portions of the hearings and supporting testimony and exhibits were hidden from the public, he responded: “I’m not going to second-guess the administrative law judge’s rulings. There’s a formal process that was followed.”

Most, if not all, of the documents were turned over to the IURC at the request of several public-action organizations and a group of large Duke customers, who are challenging the cost of the plant and the regulatory history behind it. They have been granted legal status to participate in the IURC’s oversight of the plant.

But the groups were required to sign confidentiality agreements with Duke before the utility would release the records. Now those groups say they are prohibited from discussing or sharing the redacted contents, for fear of being sued.

Duke defends the need to keep the information tightly under wraps. The company said it has turned over thousands of documents but must protect trade secrets and confidentiality obligations to its vendors and contractors.

The utility added, however, that some of the redactions may not be necessary. Duke had to turn over a large number of documents in a relatively short time and could not review them all to determine exactly what met the exemptions, Duke spokeswoman Angeline Protogere explained.

“So instead Duke filed a request to keep confidential categories of information,” she wrote in an email, “and the IURC preliminarily approved that request.”

She added that Duke and parties are now reviewing the testimony to determine whether more exhibits can be made public.

“It’s likely more information will be made publicly available prior to the hearing as a result of the parties’ meetings,” she wrote. “The IURC will ultimately decide if the parties cannot agree.”

Tim Stewart, a lawyer for Lewis & Kappes, which represents Duke’s industrial customers, said he is working with Duke to unredact “substantially all” of its testimony. But as of Wednesday, the two sides had not reached an agreement.

He said his clients have been frustrated by the sweeping redactions. For example, one of Stewart’s witnesses is Michael Banta, a retired utility lawyer and former executive with Indianapolis Power & Light Co. Banta testified in writing, prior to the hearings, that Duke concealed vital information from Indiana regulators. But more than 80 pages of his testimony have been redacted by Duke as “confidential.”

Another redaction keeps secret a meeting with Daniels.

Duke met privately with regulators and other state officials to discuss the plant but said it did not break any laws because the meetings were only procedural. Under state law, utilities and other interested parties are prohibited from holding private meetings with regulators on pending matters.

On Feb. 24, 2010, Duke CEO Rogers and his top lieutenants met with Hardy, then chairman of the IURC, at a private breakfast at the Capital Grille restaurant Downtown. Duke said it did so only to give Hardy a heads-up on the latest cost estimates at the plant.

Several hours later, Rogers was set to meet with Daniels when he and Turner received an email from Hardy with the subject line, “terseness.”

“Whoever reports on the meeting might consider a one-word characterization and a number where you can be reached,” Hardy wrote.

Turner wrote back: “Got it.”

What was said in that meeting with the governor remains a mystery to outsiders. No report has ever been released to the public.

Turner, however, informed Hardy hours later of the meeting with the governor, a move that has been criticized as an improper intrusion on the regulatory process.

The meetings with Hardy and the governor were important enough to Duke that Rogers wanted to convey their contents to Duke’s board of directors. Two days later, Rogers sent an email to Turner: “Jim, please write several paragraphs describing our meeting with the Chair and Gov,” a reference to Hardy and Daniels.

Turner, however, was cautious: “I don’t think it’s a good idea to put chm mtg in writing. Happy to do gov mtg.”

A few minutes later, Rogers replied: “I agree.”

Turner wrote a summary and emailed it to Rogers, who used it a few weeks later as part of a report to Duke’s board of directors.

Turner’s email and Rogers’ board report were later filed with the IURC, but the documents are heavily redacted, at Duke’s insistence.

More than a year after that meeting, Turner testified under oath about the meeting with Daniels.

“The governor was concerned, interested in what was happening,” Turner said in his deposition. “The governor made the observation green isn’t cheap. And that overall although everybody was alarmed and distressed about costs going up for consumers, and we certainly let the governor know ways we were trying to mitigate costs.”

Overall, Turner said, the meeting had gone “reasonably well.”

Daniels did not respond to several requests from The Star to discuss the meeting. His press secretary, Jane Jankowski, called the meeting “routine” and “one the governor does regularly with business leaders.”

She said the topics discussed at the meeting would have been wide-ranging, including an update on the Edwardsport project and economic development opportunities.

“The governor would in no way discuss specific details of a project before the IURC,” she said in an email to The Star.

Protogere, the Duke spokeswoman, said the company simply updated the governor that the plant’s costs were rising, and the reasons for it.

“Nothing was asked of the governor,” she wrote in an email to The Star. “It was a courtesy heads-up meeting.”

She declined to make the redacted reports available, saying such correspondence to the Duke board is routinely labeled as confidential because it often deals with proprietary business information.

“We regularly update our board on major projects such as Edwardsport, and the draft basically summarizes a meeting where we told the governor that Edwardsport costs were rising,” she wrote.