Governor could have final say on Rockport as lawmakers finish session

The highest-ranking Republicans in the House and Senate have both publicly floated an idea that would launch a second regulatory analysis of the $2.8 billion project -- but one that falls far short of what opponents of the project hoped would happen.

Under that scenario, the Indiana Utility Regulatory Commission would launch a review to determine whether the state’s 30-year deal to buy and then resell the plant’s product remains a wise one in light of the shale gas boom.

Then, the Indiana Finance Authority – a state agency, and therefore under Pence’s control – would get a final sign-off before the deal could move forward.

Senate President Pro Tem David Long, R-Fort Wayne, said that “there ought to be another look at a couple key factors by the IURC. Not a binding look, but if nothing else, a will-make-us-feel-better-or-not look.”

It is emerging as a possible solution to a sticky situation that Indiana lawmakers are still trying to solve as the General Assembly enters what is likely to be the last week of its four-month 2013 legislative session.

The complicated debate is over what should happen after the Indiana Supreme Court rules on the project. The court’s ruling will likely trigger further regulatory action – but developers want to keep that narrow in scope, and opponents see it as an opportunity to have the deal fully reconsidered.

Lawmakers are in near-universal agreement that the Rockport project deserves a second evaluation by the IURC. The questions, though, are what regulators would consider and whether the results of their review would be binding.

These are critical points – potentially the difference between killing the deal by re-starting the regulatory process with a new set of rules and allowing it to move forward mostly unencumbered.

Initially, legislative leaders favored a binding review no matter its consequences. Now, they appear to have eased up.

“We all are in agreement that the utility regulatory commission needs to take a substantive look at this,” said House Speaker Brian Bosma, R-Indianapolis.

“The concern is, is it a look that will lead to two years of extended litigation, which I don’t believe most of us desire? Or a look that is something short of that that gives a strong opinion to an authority that has the right to either say ‘yes’ or ‘no’ to this.”

That “authority” would be the Indiana Finance Authority, which under former Gov. Mitch Daniels negotiated the deal to buy 80 percent of the Rockport plant’s product over its first 30 years at a pre-negotiated price and then resell it on the open market.

That deal means Indiana residential and commercial gas customers, who would see 17 percent of their bills tied to the Rockport project’s rates, would benefit when those rates beat the market price and would pay more when they don’t.

The contract includes language that gives the Indiana Finance Authority a chance, “in its sole discretion,” to decide whether it is satisfied with a loan guarantee developer hope to secure from the U.S. Department of Energy.

Opponents of the project, led by Vectren Corp., said that was included as a procedural step and falls far short of giving Pence a final say.

“This provision in the contract only relates to the provisions of the federal loan guarantee. It has nothing to do with some type of overall veto power,” said Mike Roeder, vice president of government affairs and communications for Vectren.

However, Mark Lubbers, the project manager for Indiana Gasification LLC, the company started to helm the project being financed by New York-based Leucadia National Corp., said he negotiated the deal from its outset and disagreed with Vectren’s conclusion.

He said the contract was originally negotiated to give the state broad latitude to make a final decision, and suggested that his company would be willing to put that in writing – under certain conditions.

“If the government would like something that’s clearer, stronger, more tangible, I certainly understand that and it’s not an unreasonable request. But I’m not going to spend any time on it if people are still trying to kill the project,” Lubbers said.

That written agreement would be critical.

Bosma said in order for lawmakers to proceed with a non-binding review, the authority of Pence and the IFA to make a final decision after receiving that review would need to be clarified – and it would need to be clear that such a final decision would not put the state in legal jeopardy.

“There’s been some discussion that if that issue was clarified, and it’s clear that the IFA and hence the governor could make an absolute yes or no decision on this without financial consequence, then a strong advisory opinion by the IURC may be in order,” Bosma said.

“In any event, we’re going to have someone – either the IURC or the IFA – with a final ability to review and say, ‘this deal is appropriate for ratepayers.’”

Pence said last week that he would like the Rockport project to get “a fair second look.” But he would not specify whether he prefers that such a review have binding consequences or come in the form of an advisory opinion.

“What I’m interested in is making sure that we put Hoosier ratepayers and ultimately the very broad interests of Indiana in the forefront. I think that happens if we do a fair second look, and we’re in the process of discussions about how that takes shape,” Pence said.

“But I’ve expressed my support for having the Indiana Utility Regulatory Commission take a fair second look at this deal, and I’m not predisposed one way or the other about what the outcome of that review should be.”

The debate about how to handle the Rockport project’s future comes as those on both sides rush to show lawmakers data that backs up their arguments.

Vectren has long questioned the average price – $6.60 per million British thermal units – that Rockport developers and the Indiana Finance Authority said would be charged to ratepayers for its product.

The Evansville utility now points to a similar project in Illinois, where public price estimates show that the synthetic natural gas produced there would have cost much more – between $9.60 and $10.85 per unit.

Some of the pricing information considered by Indiana regulators is not public record, and Vectren says developers have exploited that fact to show artificially low price estimates. They say it depends on flat coal prices and operational costs, and is also based on a bullish outlook on the developers’ ability to sell the plant’s extra gas and byproducts for a profit.

“This entire public policy debate is about protecting natural gas customer bills. It is bad policy to ask natural gas customers to guarantee a private developer a profit for 30 years, particularly in this case where there has been a complete lack of transparency,” Roeder said.

Michael Walker, who is involved in the Rockport project for E3 Ventures, one of the developers, said in today’s dollars, the plant’s rates would be between $6.50 and $7.50 per unit.

He said the Illinois plant is an apples-and-oranges comparison because that state projected higher capital costs than Indiana’s, which would be fixed at $3.50 per unit for the life of the contract, and because it did not include revenue that ratepayers would gain through the sale of the plant’s byproducts.

That includes selling carbon dioxide that would be piped to the Gulf Coast and pumped into the ground to assist in oil production.

Meanwhile, the plant’s developers are pointing to the current price of natural gas – $4.40 per unit, up 133 percent from its price just below $2 a year ago. They say that fluctuation underscores the wisdom of their efforts.

Lubbers said that’s why he would be pleased to see Indiana regulators conduct a second review of the project – an advisory one, rather than a binding review that could halt the deal – to determine whether the shale gas boom has done anything to change the natural gas market since those regulators first approved the deal two years ago.

“If it goes there and receives what we believe will be a thumbs up, it will make everyone confident that this is really the right thing to do,” Lubbers said. “I can’t get that any other way. There’s no way to purchase that kind of public confidence. It’s not the kind of thing that you can buy, but it’s available. I’m in favor of it. I wouldn’t miss it.”

Roeder said that review ought to come with instructions that the IURC consider whether the deal protects ratepayers and should be binding.

“We have one week left,” Roeder said. “Will the legislature protect customers or risk 30 years of government-mandated, line-itemed charges on natural gas bills?”