Gov. Mitch Daniels says it's a smart way to lock in low rates for Indiana's 1.5 million natural gas customers.
Indiana utilities and consumer advocates have warned it's a risky gamble that could backfire, forcing up monthly gas bills.
Smart or risky, a plan championed by Daniels to build a $2.65 billion coal-gasification plant on the Ohio River in southwestern Indiana has taken a big step toward reality.
On Tuesday, the Indiana Utility Regulatory Commission approved the project's most controversial aspect: a 30-year contract for the state to buy synthetic gas from the plant.
The Indiana Finance Authority will spend about $7 billion over three decades to buy synthetic gas from Indiana Gasification LLC.
The state agency would resell the gas on the national market.
Selling the gas at a profit would lower monthly bills for gas customers in the state. But selling at a loss would lead to higher bills . . .Yep, this deal demonstrates how a man like Mark Lubbers, who has absolutely no background in public utilities or natural gas, can be tapped to run a company because he had the political muscle to convince Gov. Daniels to risk totally screwing over Indiana utility ratepayers in order to make his long-time political crony a multi-millionaire. Lubbers saw how much money rent-a-civic leader Jim Morris made off of his Indianapolis Water Company antics and wanted his piece of the political pie. Two of Daniels' five IURC members couldn't even cast votes on the deal because of their conflicts of interest.
Several Indiana utilities took a look at the project several years ago and balked at the idea of signing long-term orders with the plant. Without their support, banks would not finance the project. That prompted Daniels to get the state involved as a financial middleman.
Indiana Gasification is owned by New York investor Leucadia Corp., whose top Indiana executive is former Daniels chief of staff Mark Lubbers.
Under the plan, the Rockport gasification plant would take in 3.2 million tons of coal each year, produce 47 million BTUs of natural gas and sell 38 million of those BTUs at a firm price to the Indiana Finance Authority every year for 30 years. The state agency would resell the gas daily on the national market . . .
The risk for Indiana consumers is in the firm price. In sales on the open market, gas prices routinely rise or fall every day with supply and demand.
But the Rockport investors always would receive from the state a firm payment: about $7.57 per 1 million BTUs, or about $7 billion over 30 years. This would cover plant operations, coal costs, shipping the natural gas and loan repayments, plus a small profit of about 5 percent on the $500 million the investors plan to spend on the plant.
On Tuesday, natural gas futures were trading for $3.39 per 1 million BTUs, or less than half the price built into the state's model.
Nevertheless, the Indiana Finance Authority has projected that the project could cut the monthly bill for the average home by 71 cents. That would add up to savings for the typical home of $255.60 over 30 years, which means the gas-burning residents of the state altogether would save about $8.5 million per year.
Two of the five commissioners on the IURC, Kari Evans Bennett and Carolene Mays, have recused themselves from the Rockport matter. Bennett came to the IURC in January from Barnes and Thornburg, a law firm representing Vectren in the Rockport case. Vectren is on the record opposing the Rockport project. Mays is related to a Vectren director.
The IURC's three remaining commissioners -- James Atterholt, Larry Landis and David Ziegner -- voted for the project. All five commissioners were appointed or reappointed by Daniels.Like I've said before, Indiana has the most corrupt public utility commission in the country. It's nothing but an auction run to line the pockets of the political cronies of whoever is running the state at the time. If the Public Integrity Section of the Justice Department was doing its job, it would have long ago assembled a team of investigators to unravel all of the shenanigans that have been going on at this state agency for decades regardless of which political party is in charge of the governor's office.
As for those 200 miners Daniels says will be put to work because of this deal, keep an eye on that claim. I'm told if Leucadia is looking to operate this new plant efficiently, it won't be buying Indiana coal because of the higher costs associated with using it to produce natural gas. Just a small detail I realize.