Tamar Hallerman and Lindsay Kalter
GHG Monitor
4/5/13
A committee within the Indiana House of Representatives advanced legislation this week that could open up a new round of regulatory review for a proposed $2.8 billion gasification plant, a measure developers say would kill the project if passed. The Utilities and Energy Committee voted 8-5 to pass an amended version of a bill previously cleared by the state Senate that mandates that the state Supreme Court decide whether a 30-year synthetic natural gas purchasing agreement the project’s developer, Indiana Gasification, signed with the state is constitutional. The legislation stipulates that if the high court rules against any portion of the agreement—which was voided last year by a lower court and is now on appeal—it will be sent back to the Indiana Utility Regulatory Commission (IURC) for a fresh round of review.
Officials from Indiana Gasification, a Leucadia National Corp. subsidiary, have said that the bill, if cleared by the legislature, would effectively kill the gasification project, planned for a site near Rockport, Ind. “It’s very disconcerting to see what happened [this week]. As it stands, this bill kills the Indiana Gasification project cold,” Indiana Gasification spokesman Mike Murphy told GHG Monitor. “The problem is that it restarts the clock on the regulatory process. The Indiana Gasification project has already been through two years of intense negotiations with the state, the IURC and the courts. To restart an entire regulatory process could add years onto what has already been a long process.”
Bill Omits Third-Year Review
The legislation leaves out some of the most contentious language once considered by the state Senate, which would have forced Indiana Gasification to reimburse the state every three years for any losses that customers might incur as a result its 30-year purchasing agreement. Under the original 30-year IFA agreement, the developer would only have to reimburse ratepayers for losses once, at the end of the 30-year deal. Indiana Gasification has said the three-year provision would effectively make the project dead on arrival. Instead, the measure that passed the House committee this week leaves it to the IURC to determine the intervals at which reimbursement reviews would need to occur.
The measure cleared out of the House Utilities Committee does, however, require the IURC to conduct a study by year’s end that considers how much money the project would actually save ratepayers in the long term. “There was a sense in the committee that a second look at the project through the eyes of the ratepayer was necessary, particularly given the changes in natural gas discoveries and advances in drilling technology,” Committee Chairman Eric Koch said in an interview with GHG Monitor. “I don’t really think anybody is against the project per se, it’s just a question of whether or not ratepayers will realize guaranteed savings.” An amendment from Koch also stripped language from the bill that would have required the losers of the Supreme Court case to pay the winner’s legal fees. The measure is expected to be considered by the full House chamber next week.
Ratepayer Stability?
The measure is the latest roadblock for the Indiana Gasification project, which plans to gasify 3.5 million tons of Illinois Basin coal annually, converting the feedstock into substitute natural gas. The project’s financial success hinges on a 30-year contract between the state-run Indiana Finance Authority and Indiana Gasification. Under the agreement, the developer would sell the state the synthetic natural gas at a set rate. The IFA 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 project opponents, led by Vectren Corp., the primary natural gas-provider for central Indiana, have expressed doubt that natural gas prices will rise enough to make the 30-year agreement beneficial to residents. The utility predicted the contract would cost ratepayers $1 billion over the plant’s first eight years of operation. It has also argued that the agreement is limiting for the state’s natural gas providers and called into question the lengthy and unchecked nature of the contract.
Kerwin Olson, executive director of the Indiana chapter of the Citizens Action Coalition, another group against the project, said in an interview that the legislation is not aimed at killing the Rockport facility. Instead, he said it will provide ratepayers with an extra layer of protection. “The intent is more to put in place something that will ensure that ratepayers face certainty and actual savings guarantees throughout the term of the project and not at the end of the 30-year contract. Ratepayers who are captive by law deserve some sort of regulatory oversight to make sure they’re not getting gauged,” he said. Indiana Gasification also plans on capturing 5.5 million tons of CO2 from the Rockport facility annually and—through a contract with Denbury Resources—pipe it more than 400 miles to the Gulf Coast for enhanced oil recovery operations.
Developer May Sue State
Indiana Gasification has indicated that it might sue the state for breach of contract if the Supreme Court rules against its IFA contract. It has also threatened to take its money elsewhere. “Private capital goes where it is welcome. If the private capital behind Indiana Gasification is not welcome in Indiana, I’m sure there are other places where [Leucadia] can use its capital very effectively,” Murphy said.
Olson said the fact that the facility requires a 30-year contract without any more state scrutiny shows its weakness. “This project is such a boondoggle that they do in fact need the absolute certainty of a 30-year, no look-back contract with ratepayers to make this deal happen. That just shows just how financially unviable this project is,” he said.
