Regulation and Coal and Electric and Gas and Energy & Environment and Utilities

Backers of 30-year gas-purchase deal to press on

October 30, 2012

The Indiana Finance Authority and Indiana Gasification LLC said Tuesday that they plan to amend their 30-year contract in which the state agency is buying the company's synthetic natural gas to satisfy an appeals court ruling that reversed regulators' approval of the deal.

The Indiana Court of Appeals ruled the deal should not include certain industrial companies. Under the deal, the Finance Authority will sell the gas on the open market and Indiana utility customers would receive discounts or increases on their bills, depending on whether the agency makes a profit or a loos.

Finance Authority attorney Andrew Kienle said the agency hopes to get a new deal done by the end of the year. He said the agency expects an amended contract will satisfy the court's concerns.

However, the court's reversal of regulatory approval provided an opening for opponents of the deal who contend it will leave utility customers on the hook for costly synthetic gas at a time when natural gas prices have fallen on the open market. An amended deal would need fresh approval from the Indiana Utility Regulatory Commission, and opponents might have time to ask the Legislature to revisit the agreement.

"There should be no doubt that the Indiana Legislature now has the opportunity to reshape this project in such a way that is balanced and fair," said Mike Roeder, a vice president at gas utility Vectren, which contends the deal will cost Indiana residential customers and small businesses more than $1 billion during its first eight years. Roeder said the company was reviewing the ruling.

Gov. Mitch Daniels has championed the contract but had no comment on the court's ruling, his office said. Daniels leaves office in January

Mark Lubbers, a former aide to Daniels who's now Indiana project director for Indiana Gasification, said the ruling, while a temporary setback for the project, clarified some issues that should speed it up by a year.

Indiana Gasification needs to break ground on the $2.8 billion project by the end of 2013 under the terms of its state air pollution permit, Lubbers said, but he expects Vectren to continue to fight the plan both in the courts and in the Legislature.

The Finance Authority signed a 30-year contract with Indiana Gasification, a subsidiary of Leucadia National Corp., to purchase gas from the plant and then sell it on the open market. Profits would be split with Leucadia.

Lubbers said the plant about 30 miles east of Evansville will take four years to build and should start producing synthetic gas by the end of 2017.

The three-member appeals panel, in the ruling written by Justice Patricia Riley, appeared satisfied with Indiana Gasification's promise that the deal will deliver savings to utility customers. It found the contract inappropriately defined companies that transport natural gas for industrial users as retail customers when that wasn't legislators' intent in a 2009 law allowing the deal.

The appeals panel's chief justice, Margret Robb, concurred on most of the majority opinion but issued a dissent saying the court should have struck down only the portion of the contract dealing with the industrial transport companies and let the rest of the contract stand.

Kerwin Olson, executive director of the consumer advocacy group Citizens Action Coalition, agreed with Roeder that the General Assembly should reconsider the law that allowed the deal because it "throws Indiana consumers to the wolves."

"This law needs to go and here's hoping that the Legislature has the courage to do the right thing for their constituents and get this abomination of the law off the books in the upcoming session," Olson said.

Neither of the two major-party candidates running to succeed Daniels as governor, Republican Mike Pence and Democrat John Gregg, have expressed as much support for the project as Daniels has. During a debate last week, Pence said he would consider hearing from lawmakers if they wanted to discuss the project, and Gregg said he had advisers studying it.

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