Stephen Obermeier pens an excellent column in the Spencer County Journal laying out the facts behind the 30-year coal gasification deal Gov. Mitch Daniels has inked with some of his political cronies and how raw of a deal it could prove to be to Indiana utility consumers if it's allowed to go forward. Daniels entered into a 30-year contract with Leucadia and Indiana Gasification, LLC, to purchase snygas from a plant they propose to build in Rockport, which puts residential consumers on the hook for the gas generated from the proposed plant if the price garnered from sales falls below a target price. Major business users balked at being required to purchase gas produced at the facility when it was first proposed and will not be required to buy the plant's gas.
A key criticism Obermeier makes in his column is the cost of the syngas that would be manufactured from coal as opposed to purchasing natural gas on the spot market. Obermeier, a retired scientist with the U.S. Geological Survey, notes the large reserves of natural gas in the U.S. have already led to a halt in further exploratory efforts. A new method of extracting natural gas from shale has ensured the U.S. ample supplies for the next 20 to 50 years. Other cheap sources of natural gas are being tapped as well. While natural gas prices have remained stable, coal prices have surged due to growing demands from China and India according to Obermeier. Coal prices have increased 15% since last summer he notes. Obermeier doesn't mention this point, but I understand the contract does not require the plant to use Indiana coal. In fact, it would probably be the case that coal would be purchased and shipped there from out-of-state because of sulphur content issues and the higher cost of using Indiana coal than coal found elsewhere. As a consequence, it is doubtful the plant will generate any Indiana coal mining jobs.
Under Daniels' 30-year contract, a $150 million escrow fund is being established to cover any difference in costs for public utilities in Indiana like Vectren or Citizens Energy over the next 30 years to purchase the syngas from Indiana Gasification and natural gas Obermeier explains. "That sounds like a lot of money until one realizes the dollar value of the projected sales that would be forced onto ratepayers would be $6.9 billion," Obermeier writes. Obermeier notes the governor's office originally pegged the target price for the syngas at $6 when it announced the deal, the price that would serve as a benchmark for passing on higher costs to utility users if the actual price of gas is lower than that amount. That price has subsequently been adjusted to $7 according to Obermeier. The loss represented by the difference in the target price and the market price will be recouped through higher charges to residential utility users. The spot price utilities can purchase natural gas over the past year has ranged from $4.00 to $4.50 Obermeier notes, well below the target price pegged for the syngas. "Given the large price difference between natural gas and syngas, and the fact that the escrow money is only a little more than 2 percent of projected sales, the escrow money would be used in a short time," Obermeier explains.
Obermeier disputes the claim by the governor's office that private industry would assume the risks of constructing the coal gasification plant at Rockport. "In fact, the money to build the plant would be subsidized by a taxpayer-funded, low-cost federal loan," he writes. "Thus it is taxpayers who would be assuming the construction risk. And it is the ratepayers such as you and me who would be assuming the high cost of syngas." Obermeier asks, "Given the economic and production facts above, how could the governor and developers even consider a contract to force Indiana ratepayers to purchase the syngas over a 30-year period?" The total cost of the project is expected to be $2.6 billion. Obermeier concedes the economic benefit of construction jobs that will be created that will help stimulate the local economy, as well as the permanent jobs created by the plant, but he wonders if it is worth the risk federal taxpayers will bear for the low-cost loans if the project fails, and the higher prices utility consumers may wind up paying to purchase syngas from the facility. He also looks at the potential negative environmental impact the plant will bring to the Spencer County area. Read his full column by clicking here.
The Indiana Senate recently dealt a setback to Gov. Daniels' plans for the coal gasification plant at Rockport when it voted down legislation to facilitate the construction of a pipeline that would help carry carbon dioxide produced during the coal gasification process to the Gulf states where it would be used in offshore oil drilling operations. The investors in the project claim they would be unable to qualify for the federal low-interest loan guarantees if the eminent domain powers granted by the legislation to construct the pipeline is not approved. That legislation would give that authority to the Department of Natural Resources instead of the Indiana Utility Regulatory Commission, which typically exercises such authority on behalf of public utility companies. Many lawmakers are hesitant to move forward on a deal big utility customers in Indiana have questioned from the beginning and want not part of, as well as the unusual arrangement proposed for construction of the pipeline. They are as confused as Obermeier is with the 30-year contract Daniels signed with the backers of the plant. "That document is an exercise in obfuscation, and it is difficult to determine what is actually being said," Obermeier lamented. Hopefully, the adults in the room will tell Gov. Daniels and his political cronies pushing this deal where they can permantently shove it before all of us wind up footing a big bill for it.
UPDATE: WRTV's Norm Cox weighed in with a story on the proposal tonight. Click here to read it.
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