Sunday, September 30, 2012

Daniels' Corrupt Leucadia Deal Could Cost Indiana Gas Customers $1.1 Billion

That controversial coal gasifacation plant being built at Rockport by Leucadia that Gov. Mitch Daniels forced Indiana's gas utility customers to subsidize could wind up costing them $1.1 billion in the form of higher gas prices over an 8-year period, or about $375 per customer according to an estimate by Vectren the Star is reporting. The deal that puts the state's natural gas consumers on the hook to purchase gas produced by the plant at inflated prices was hatched to ensure that the plant pushed by one of Daniels' closest political cronies, Mark Lubbers, who works for Leucadia, would be built when Leucadia couldn't find traditional financing for its plans to construct the coal gasification plant. Vectren has opposed the plant from the beginning because of plentiful natural gas that is already available on the open market at low prices. The part of the story that struck me was the unwillingness of either gubernatorial candidate to take a firm position on the plan:

Neither of the two candidates running to replace Daniels as governor -- Republican Mike Pence and Democrat John Gregg -- has expressed the same level of enthusiasm for the project, creating a potential opening for opponents.
Pence said he's committed to working with both opponents and supporters of the project, while "honoring the commitments the state has already made."
Like most of these crony capitalism deals financed by the government, it's a win-win proposition for Leucadia. The state has signed 30-year contracts to purchase natural gas at a guaranteed price that is higher than current market rates regardless of the price of gas at the time it is produced. In the unlikely event that natural gas prices are higher than the guaranteed price, Leucadia would split the profit with natural gas consumers. If the price is lower than the guaranteed price, which is the more likely scenario, then consumers will pay the difference in the form of higher utility rates. Large industrial consumers are exempt from paying the higher costs because they had the political muscle to get themselves exempt from the deal. Small industrial consumers, however, could pay as much as $250,000 in higher utility bills. Small business owners could pay $2,500 in higher utility bills.


Citizen Kane said...

You would think the people would be storming the gates, particularly with the large industrial users exempt (What is the cutoff point). It is so outrageous, yet so typical. Governments (which have no money of their own, of course, guarantees someone else's profits by obligating taxpayers. Same song, different verse.

Paul K. Ogden said...

When I read that in the Star I couldn't believe it. We ratepayers have been placed on the hook for a bet that natural gas prices will go up. If it goes up and we win, then the profit on the bet is split 50-50. If it goes down then the loss is 100% the ratepayers.