DEVELOPER SUSPENDS MOST WORK ON INDIANA GASIFICATION PROJECT

Announcement Comes After Legislature Passes Bill Requiring Another Review

Tamar Hallerman
GHG Monitor
5/3/13

The developer of a controversial $2.8 billion coal gasification facility in southwest Indiana said this week that it is halting most work on its Rockport project after state lawmakers passed a bill calling for a fresh round of regulatory review. “We are suspending all activity in Indiana except for continuing on with the Supreme Court appeal,” Indiana Gasification spokesman Mike Murphy told GHG Monitor. The announcement from the development company, a subsidiary of the New York-based Leucadia National Corp., came days after both chambers of the Indiana General Assembly decisively passed a measure that could trigger a new round of regulatory review from the Indiana Utility Regulatory Commission (IURC). The legislation directs state regulators to consider additional ratepayer protection factors in its review. Indiana Gasification has long argued that the bill—passed on a 43-7 vote in the state Senate and by a 70-28 margin in the House of Representatives early on April 27—imposed too many regulatory burdens on the proposed gasification facility, which has not yet reached the construction phase, than it could sustain.

Review Dependent on Court’s Decision

The new vetting process would only kick in, though, if the Indiana Supreme Court orders any alterations to a 30-year purchasing agreement Indiana Gasification made with the state for the synthetic natural gas (SNG) expected to be produced at Rockport. Portions of that contract were struck down in a lower appeals court ruling last year. Leucadia appealed the decision, but the high court has yet to decide on whether to take up the case.

The legislation that passed out of the Assembly this week cements the fact that the project’s fate now hinges on the Indiana Supreme Court’s decision. “If the Supreme Court takes the case, we think we have a good chance of winning. If the Supreme Court does not take the case, the project is dead,” Rockport Project Manager Mark Lubbers said in an April 30 statement provided to GHG Monitor. Lubbers indicated that if the court takes up the case but then requires even a slight alteration to the 30-year purchasing agreement, the project would be dead since it would trigger the extra IURC review, which Leucadia has said is unacceptable. 

Opponents Criticized 30-Year Contract

The bill now makes the path forward for the gasification facility, slated for a Spencer County site just outside Rockport, Ind., much steeper. Leucadia pitched the facility years ago—before the recent shale gas boom—as a project that could boost the region’s coal industry, lower ratepayers’ electricity bills and limit greenhouse gas emissions. The project would gasify 3.5 million tons of Illinois Basin coal annually, converting the feedstock into SNG and selling the gas to the state at a pre-negotiated rate. It would also capture 5.5 million tons of CO2 annually produced at the facility and pipe the commodity 400 miles south to Denbury Resource’s Green CO2 Pipeline for enhanced oil recovery operations near the Gulf of Mexico.

With the strong backing of then-Gov. Mitch Daniels (R), Indiana Gasification signed a 30-year purchasing agreement with the state in 2011 for the SNG produced at the facility. Under the agreement, Indiana Gasification agreed to sell the state the SNG at a set rate. The state would then resell the gas on the open market, requiring ratepayers to purchase the commodity regardless of price. Indiana Gasification has argued that the 30-year contract provides ratepayers with a more diverse energy portfolio and price protection in the long-term should the cost of natural gas rise over time.

But a broad group of project opponents, led by Vectren Corp., the primary natural gas-provider for central Indiana, expressed doubt that natural gas prices would rise enough to make the 30-year agreement beneficial to residents. Vectren argued that the plant would cost ratepayers more than $1 billion over the facility’s first eight years of operation. It also called into question the lengthy and unchecked nature of the contract. The group then successfully challenged the contract in court.

Lubbers Laments Loss of Support from Governor

Lubbers this week said that even if Rockport wins a victory in court, the project would still face choppy waters due to eroding support from state lawmakers and new Republican Gov. Mike Pence. Even if the project wins in court, “only a clear reversal of position by the Governor would enable the project to go forward,” Lubbers said, arguing that Pence and the legislature’s support of a new IURC review could be a deterrent for potential investors moving forward. “Since this conscious decision was made, the judgment of the state is very clear: neither the legislature nor the Governor support the contract or the project. … The institutions that provide the capital to build a plant of this size will not do business in a state that is so cavalier about the $20+ million dollars we have already invested,” Lubbers said.

Pence did not indicate his position on the project in remarks made earlier this week. “I bring no previous position to what the outcome [of a review] should be with the IURC,” the Indianapolis Star quoted Pence as saying following the bill’s passage. “And I’ve made that very clear to all parties concerned. What I’ve also made very clear is that I‘m going to put the concerns of Hoosier ratepayers first.” Leucadia previously threatened to take its project development money elsewhere if the measure passed the legislature. The company also hinted that it might sue the state of Indiana for breach of contract if the Supreme Court rules against its purchasing agreement.

Project Opponents Claim Victory, For Now

The result of the legislature’s vote on Rockport drew cheers from the coalition of environmental, commerce and consumer protection groups that stood behind Vectren in their quest to kill the project. The Indiana chapter of the Sierra Club led a campaign to pressure lawmakers to vote against what it described as the “Leucadia tax.” The group said it sent more than 6,000 e-mails, postcards and phone calls to whip up support in favor of the IURC review measure. It said it also spent “five figures” with the Indiana Citizen’s Action Coalition on a radio and online ad campaign against the project.

Jodi Perras of the Sierra Club’s Beyond Coal Campaign called the bill an “important step in the fight to guarantee ratepayer savings.” “Today, Indiana lawmakers acknowledged that they heard our calls to ‘Stop the Leucadia Tax,” Perras said in a statement. “We are pleased our elected officials voted to guarantee savings for ratepayers throughout the life of the contract.” But she emphasized that the “fight is not over” and that the group would continue to challenge the project in court.

The Citizens Action Coalition, a consumer protection group, labeled the plant “Indiana’s Enron” in its own campaign against the project. “Leucadia is an out-of-state, multi-national, speculative hedge fund based in New York City and Salt Lake City. … The plant they want to build would convert coal into substitute natural gas. However, the free market will not support this business plan because it is too risky and too expensive,” CAC says in a fact sheet on its website. “So Leucadia devised a scheme and found a willing victim in the State of Indiana.” The opposition groups also gained the support of groups like the Indiana Chamber of Commerce, the AARP and the NAACP.

Legislation Had Been Volleyed for Months

Last weekend’s vote could bring to an end the state legislature’s review of the measure, which has been volleyed between the state House and Senate for months. The original bill would have required Leucadia to reimburse ratepayers for financial losses every three years, instead of once at the end of the 30-year deal with the state. However, the Senate amended the measure last month to scrap the three-year review and instead put in place only a non-binding and informal IURC review. That language later languished on the House floor.