Vectren and Indiana Utility Regulatory Commission and Regulation and Coal and State Government and Gas and Energy & Environment and Utility rates and Utilities and Government & Economic Development and Government

Utility exec: Coal-gas plant's 'time has passed'

February 14, 2012

A utility executive told a legislative committee Tuesday that a drop in natural gas prices as a result of the nation's shale-gas boom have made a proposed southern Indiana coal-gasification plant a project "whose time has passed."

Jerry Ulrey, Vectren Corp.'s vice president for regulatory affairs, also told the House Ways and Means Committee that the utility estimates the proposed plant would lose more than $800 million over its first eight years in operation given current natural gas price projections.

He testified as the panel considered a bill exempting large industrial customers from rate hikes resulting from a state-negotiated gas supply deal for the plant proposed near the Ohio River town of Rockport. The Senate passed the bill earlier this month.

Ulrey told the committee that excluding large industrial customers from sharing in the plant's production costs could end up doubling the rate increases for some of Vectren's 760,000 residential and small business customers in Indiana.

Mike Roeder, Vectren's vice president of government affairs and corporate communications, told the Evansville Courier & Press before the hearing that such an exemption would "pick customer classes that win and lose."

In November, the Indiana Utility Regulatory Commission approved a 30-year contract under which Indiana would become the primary buyer of the synthetic natural gas developer Leucadia Corp.'s Rockport plant would produce.

Indiana's natural gas-supply deal calls for the plant's gas to be bought for a fixed price and the Indiana Finance Authority to resell it to consumers through utilities, guaranteeing the plant's developers a customer.

Vectren contends that under that 30-year contract, the gas price has some room to increase over time, but would start at about $6 per million BTU. Right now, that much natural gas sells for $3. Estimates are wide-ranging, but Vectren officials believe the price will stay low because natural gas is being extracted from shale deposits by a booming industry.

Vectren said its customers could end up paying more for their gas because the state would buy the Rockport plant's synthetic gas no matter whether it's cheaper or more expensive than the market rate for natural gas.

"All we're saying is, the world's changed because of shale," Roeder said.

Gov. Mitch Daniels has said the deal would lock in low rates for Indiana's natural gas users and would help economically depressed southwestern Indiana.

Mark Lubbers, a former Daniels aide who is an Indiana consultant for Leucadia, said large industrial customers are able to buy from diverse sources, which enables them to hedge against price changes.

He told the Ways and Means committee Tuesday that the Rockport project would do the same for other natural gas customers since the coal that will be bought for the plant historically has had more stable prices.

"It is still the smart play to diversify your supply portfolio," Lubbers said. "Today you are 100 percent at risk to market prices."

Rockport developer William Rosenberg said the facts Vectren laid out were all in front of the IURC when it unanimously approved the Rockport plant in November.

He said the plant owned by New York-based Leucadia would have a strong incentive to beat the market rate. The contract guarantees that over the 30-year life of the deal, and it will save consumers $100 million, Rosenberg said.

"The one thing that's certain is that gas prices are uncertain. Gas prices over the last five, 10 years have ranged from $3 to $13," he said. "It's in the interest of the ratepayer to have a diversification of supply."

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