Indiana Utility Regulatory Commission and Regulation and Coal and Electric and Gas and Energy & Environment and Utilities

Regulators approve deal on $2.65B gasification plant

November 22, 2011

A $2.65 billion southern Indiana coal-gasification plant took a major step forward Tuesday when state regulators approved a separate state agency's 30-year contract to buy synthetic natural gas from the plant.

The Indiana Utility Regulatory Commission endorsed the plan that Gov. Mitch Daniels has promoted as locking in low rates for Indiana's natural gas users, increasing the use of Indiana coal and creating about 200 jobs.

"This decision will make possible hundreds of new jobs while ensuring a long-term supply of reasonably priced natural gas which we will buy from Hoosiers, not foreign governments or someone elsewhere," Daniels said in a prepared statement. "Best of all, it's an important boost to an economically struggling part of the state."

The plant will be built and operated at the Ohio River city of Rockport, about 30 miles east of Evansville, by Indiana Gasification LLC, a subsidiary of New York-based investment firm Leucadia Corp., whose top Indiana executive is former Daniels senior advisor Mark Lubbers. The company has said it wants to have the plant operating by 2015.

Under the deal, the Indiana Finance Authority will spend an estimated $6.9 billion over three decades to buy synthetic gas from Indiana Gasification LLC. The agency then will sell the gas on the open market.

Indiana's 1.5 million natural gas customers will save money if the synthetic gas costs less than market rates, but will pay higher gas bills if the market rates are lower.

Consumer activists have said the deal could lock Indiana customers into higher gas bills if commodity prices for coal rise while natural gas falls.

Kerwin Olsen, executive director of the private consumer advocacy group Citizens Action Coalition of Indiana, criticized the deal as "crony capitalism." He said forecasts show Indiana gas customers will pay twice as much for fuel under the deal as they would otherwise.

"We're not surprised. We fully expected the commission to rubber-stamp the Daniels agenda," Olsen said.

The project still needs environmental permits and zoning approval. It also is seeking a federal construction loan guarantee.

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