Lawmakers with coal ties criticized for weakening Rockport bill

Rep. Matt Ubelhor, R-Bloomfield, is a coal mine manager for Peabody Energy, which owns five of Southwestern Indiana’s biggest mining complexes – including Bear Run, the largest surface mine east of the Mississippi River.

And Senate Utility Chairman Jim Merritt, R-Indianapolis, is the vice president of corporate affairs for the Indiana Rail Road Co., which spent $17 million to build a spur to Peabody’s Bear Run mine and negotiated an exclusive deal to haul its coal.

Since the state’s government is extending tax incentives worth more than $140 million over the next two decades to developers of the Rockport plant if that plant uses Indiana coal, the project could mean new business for both lawmakers’ companies.

The two have played key roles in directing legislation that could determine the fate of the plant and the 30-year contract that Indiana’s government negotiated to buy and then resell its product to Hoosier consumers – a deal that bets 17 percent of all ratepayers’ bills on its wisdom.

Their connections, though not illegal, amount to a troubling confluence of potential conflicts of interest, according to those who are fighting the Rockport project and still hope to get what they want during what will be a frenetic 10-day period of final negotiations.

“The whole point of conflict-of-interest statutes and ethics statutes is to remove the appearance of impropriety and give the public some confidence that these decisions being made at the Statehouse are being made with the public interest in mind,” said Kerwin Olson, the executive director of the Indianapolis-based consumer advocacy group Citizens Action Coalition, which is fighting to block the Rockport project.

“When you have a bill dealing with a highly controversial, very expensive Indiana coal plant, and it is weakened on two different occasions – once in a committee chaired by the vice president of the Indiana Rail Road Company, and again by an executive for Peabody – I can say that there is a questionable appearance in the eyes of the public about how the whole process went down.”

At the proposed $2.8 billion Rockport plant, more than 3.5 million tons of coal annually would be converted into synthetic natural gas. It was pitched as a boon to Indiana’s coal mining industry and a job-creator in the Rockport area.

The coal industry has been among the Statehouse’s most outspoken advocates of the Rockport deal. Nat Noland, the Indiana Coal Council’s lobbyist, urged both the House and the Senate utility committees to protect the project.

The industry currently produces a little more than 30 million tons of coal annually, according to the U.S. Energy Information Administration. It employs 3,500 Hoosiers who work in coal mines located exclusively in the state’s southwestern corner.

And, as aging power plants are shuttered and environmental regulations prompt a shift away from coal as a source of fuel, miners favor the Rockport plant because the state’s tax incentives could turn it into a long-term customer.

The project is being financed by New York-based Leucadia National Corp. and spearheaded by Colorado-based E3 Gasification. It is operating in the state under the company name Indiana Gasification LLC.

After Indiana Gasification’s negotiations with state utilities fell through, former Gov. Mitch Daniels directed his administration’s Indiana Finance Authority to negotiate a deal to help the company secure financing – a controversial move itself, since the company’s Indiana project manager is Mark Lubbers, a former aide and close friend of Daniels.

The 30-year contract would have Indiana serve as the guaranteed buyer of 80 percent of the Rockport plant’s product, at a pre-negotiated price.

The state would buy that synthetic natural gas and then resell it on the open market. If those market rates are lower than the price the state negotiated, Hoosier gas customers would pay for the difference – and opponents, including Vectren Corp., estimate that those costs could be sky-high in the deal’s early years.

The contract has been tied up in legal battles for months. Late last year, the Indiana Court of Appeals voided state regulators’ approval of the deal, ruling that a 37-word provision needed to be removed. Both sides have asked the Indiana Supreme Court to take up the case.

The conflict-of-interest accusations come as the Indiana General Assembly works to decide whether and to what extent it will weigh in on the future of the Rockport plant.

Opponents of the plant’s construction are advocating a measure authored by Sen. Doug Eckerty, R-Yorktown. It would have forced major changes to Indiana’s contract with Leucadia that would beef up the deal’s ratepayer protection mechanisms – and in doing so, Lubbers said, it would kill the project.

That measure, Senate Bill 510, was overhauled in Merritt’s committee. After the senator’s changes, the bill would have deferred to the Indiana Supreme Court, and then – depending on the court’s ruling – it could have sent the deal back to the Indiana Utility Regulatory Commission for another binding review, with instructions to consider whether the deal is in the public’s interest.

That proposal was tweaked in the House Utility Committee, chaired by Rep. Eric Koch, the Bedford Republican whose personal portfolio is rich with natural gas holdings. Lubbers said Merritt’s version would scuttle the project and Koch’s changes were even worse.

But the bill was overhauled yet again on the House floor last week, when Ubelhor offered an amendment that removed that second binding regulatory review – a change that would make the project much more likely to proceed.

The decision to adopt Ubelhor’s amendment was made using a parliamentary move called a “division,” which allowed members to cast their votes without their positions being recorded in a roll call.

That turned the grumbling of the project’s opponents into howls.

For Ubelhor, the potential for a conflict is most direct. In addition to Bear Run, Peabody owns several other Southwestern Indiana mines, including the underground Francisco and Viking mines and the surface Wild Boar Mine and the Somerville Mine Complex.

“Since Peabody is the biggest coal miner in Indiana, I would think that they would be definitely in consideration for getting the contracts” to sell coal to the Rockport plant, said John Blair, an environmental advocate and head of Evansville-based Valley Watch.

Ubelhor brushed off the complaints.

“I’m a coal miner and proud of what I do,” he said, adding that he understands the criticism but wants to wait until lawmakers have addressed the Rockport project’s future before he answers more questions.

And as he pitched his amendment, he was open about both his employment and his intentions.

“Are we going to sit here and look at all these plant closings?” he asked, criticizing U.S. Environmental Protection Agency regulations.

“This adds about 3.8 million tons of coal production to our coal,” he said. “This will put the industry back on footing to compete with the markets that are out today, and that’s all we’re asking for as miners – if we can compete and be part of the next century.”

In fact, other House members touted Ubelhor’s work in the coal industry as the reason they voted for the amendment he offered.

“I think that Rep. Ubelhor has just demonstrated a perfect example of how important it is for all of us to bring our particular areas of expertise,” said Rep. Chuck Moseley, D-Portage. “I feel a heck of a lot more confident.”

Merritt, meanwhile, said his company “would not benefit very much, if at all” from the Rockport plant – and as a result, he said, his involvement in the legislation shouldn’t be a problem.

He said even if Peabody were to sell coal from its Bear Run mine to the plant in Rockport, the loads his railroad carries would need to be passed on to two other rail companies – a costly proposition – in order to reach Rockport.

“That’s compounding the problem – the distance. There’s available coal near Rockport, and we couldn’t just take it from A to B. It would be on two other railroads,” he said.

Also a member of the Senate’s transportation committee, Merritt said he has left committee hearings and declined to vote on measures that would directly affect company.

He said state Senate leaders have never mentioned his job while discussing the Rockport issue, and his company has not asked him to do anything but “make the best decisions for public policy.”

“When it left my committee and the left the Senate, we were really trying to make the bill better for the public interest,” Merritt said. “There’s no conflict whatsoever because of the fact that Indiana Rail Road would not benefit from Rockport going on.”

The passage of Ubelhor’s amendment last week was a surprise to House Speaker Brian Bosma, R-Indianapolis.

As a result, he and the House sponsor of Eckerty’s Rockport bill, Rep. Suzanne Crouch, R-Evansville, opted Monday to let the bill flounder without receiving a final vote, rather than risking the possibility that the bill with Ubelhor’s language in it would be defeated.

That parliamentary move gives lawmakers the option to try to find another home for Rockport-related language during joint House-Senate conference committee negotiations – the sessions where compromises on the toughest issues are typically hammered out.

On this issue, lawmakers must also deal with an unusual problem: The possibility that Leucadia could sue the state for changing its rules after the contract was signed.

Advocates of the Rockport project said they were frustrated by the House’s decision.

“I would describe this as an attempt by one legislator to thwart the will of the House and to kill the only language out there that would have saved the Indiana Gasification project,” said Mike Murphy, an Indiana Gasification spokesman.

“What we know now is that we have 48 very loyal friends who believe in economic development and jobs and they believe in keeping the word of the state of Indiana, which is heartening. The next 10 days is always crunch time at this point in the session.”

Still, Bosma said Gov. Mike Pence and Senate President Pro Tem David Long, R-Fort Wayne, tend to agree with his stance – that the project ought to go through another in-depth and binding round of regulatory reviews.

He said he is confident that legislation that defers to the Indiana Supreme Court first, but could then mandate such a review, will become law.