My View: Gasification plant stands apart from the rest

By Bill Rosenberg

Indiana Gasification’s $2.5 billion plant to be built in Rockport uses advanced technology to convert coal and water into pipeline-quality natural gas and liquid CO2, with the CO2 transported by pipeline to the Gulf Coast to be used for enhanced oil recovery. The eventual air permit for the plant will show that this will be the cleanest coal plant in the world.

Dan Carpenter’s Nov. 27 column criticizing the project requires response. Carpenter’s accusation of “crony capitalism” — the notion that Gov. Mitch Daniels supported this project because of his association with Mark Lubbers — is unfounded. Any governor eager for economic growth would be supportive, which is true here and with our similar projects in Illinois, Louisiana and Mississippi. This project was discussed with the governor and received his support in 2006, before Lubbers joined the development team.

I recruited Lubbers based on our experience together in the mid-1980s when he was playing the lead staff role for then-Gov. Robert Orr in the cancellation of the Marble Hill nuclear power plant, where massive cost overruns threatened to greatly increase Indiana’s electricity rates. This decision proved crucial for consumers and the state’s manufacturing base. After cancellation, Lubbers was instrumental in devising a way for then-Public Service Co. of Indiana to keep from defaulting on its bond indentures. His experience and talent have been essential to the Indiana Gasification project.

Also, the governor was only one important part of the government support for the project. The Indiana General Assembly passed several pieces of enabling legislation over several years by overwhelming bipartisan majorities.

Last week, the contract was approved unanimously by a 3-0 vote of the Indiana Utility Regulatory Commission, with two of the three votes cast by commissioners who were originally appointed by Govs. Frank O’Bannon and Evan Bayh. The commission declared the contract to be in the public interest, citing as reasons: guaranteed consumer savings, mitigation of gas utility rate volatility, supply diversification and economic development and job creation.

Carpenter characterizes our sale of substitute natural gas as a “gamble” for Indiana customers. Actually, it is just the opposite. Today, every gas customer in Indiana is 100 percent exposed to the historically wild swings in natural gas prices. Recent prices have been about $4 per 1 million BTU; but in the summer of 2008, they were more than three times higher at $13. Our projected price is at $7.50. The status quo is the “gamble.” Indiana Gasification diminishes the risk to consumers by diversifying the supply portfolio for 17 percent of the gas demand.

Carpenter says that “the state has promised to shell out $7 billion” to buy the output of our plant — leaving the impression that state tax dollars will fund these purchases. However, these purchases are paid for by gas customers the same way the other 83 percent of the supply is purchased. To put things in perspective, Indiana’s total natural gas purchases during the 30 years of the contract will be more than $40 billion. So, with the production from the IG plant, $7 billion of Indiana’s $40 billion in gas purchases will remain in Indiana instead of being sent to Texas, Oklahoma, Canada or Algeria.

Carpenter questions our project saying that “private money — utilities and banks — ran the other way.” In fact, the project’s equity sponsor, Leucadia National, will commit $700 million of private equity capital.

After the past year of utility stories reported so thoroughly by The Star, we are hopeful that the strong contrast between IG and a traditional utility project will be noticed. The IG project takes an approach that is different from traditional utility regulation, using a contractual agreement in which many risks normally borne by the ratepayer are shifted to the owner. For example, in our project, ratepayers bear no risk of construction cost overruns. Similarly, consumers bear no risk of operations; there is no assured return on invested capital paid by ratepayers as is the case in a traditional utility rate structure. Rather, IG gets paid only when gas is produced.

Finally, the contract provides to consumers a guarantee of $100 million in savings versus what would otherwise be paid for natural gas. No Indiana utility has ever made such a guarantee to its ratepayers.

Indiana Gasification is proud to be investing $2.5 billion to deploy advanced technology that benefits consumers, the environment and the economy.

Rosenberg is president of E3 Gasification, one of the Indiana Gasification developers.

See article here.