INDIANAPOLIS - The developer of the proposed coal-to-gas plant in Spencer County is confident synthetic gas can be produced there less expensively than natural gas.
So confident is Indiana Gasification LLC that it made a promise to state lawmakers Thursday: If the coal-gasification plant does not achieve $400 million in savings over 30 years from what natural gas would have cost, the company will turn the plant over to the state or pay the state $400 million.
Indiana Gasification is trying to get state lawmakers to pass a bill that would allow it to apply for federal loan guarantees to build the plant - something it says it cannot do without the state legislation.
Upping the ante seemed to work. After a five-hour hearing, an Indiana House committee approved the bill the developer is requesting, Senate Bill 423, which now moves to the full House.
Since 2006, the developer has wanted to build a coal-gasification plant near Rockport that would convert high-sulfur local coal into a substitute form of natural gas. The pipeline-quality synthetic gas then would be purchased by utilities to serve their home-heating customers.
The scope of the project in Southwestern Indiana would be massive: A $2 billion investment employing 1,000 construction workers for 3-1/2 years, followed by a permanent operational staff of at least 200.
Gov. Mitch Daniels strongly has endorsed the project, but the developer's repeated attempts to hammer out gas-purchasing agreements with utility companies failed despite laws the Legislature passed in 2007 and 2008 to clear regulatory hurdles.
Now Indiana Gasification, the Daniels administration and lawmakers of both parties are making another attempt with a different strategy.
Under Senate Bill 423 that Rep. Russ Stilwell is sponsoring in the House, the Indiana Finance Authority would act as a go-between for the plant and utilities. The agency would purchase synthetic gas from the plant and immediately resell it to the utilities at the same price under 30-year purchasing contracts. Using the state as a pass-through would mean utilities would avoid long-term accounting implications that thwarted the earlier proposal, witnesses testified.
William Rosenberg of Indiana Gasification told lawmakers that with a 30-year contract, the Indiana Finance Authority could lock in a price for the synthetic gas refined from coal that would serve as a hedge against volatile price spikes in the market for natural gas.
If the plant produces the gas as promised, it would be paid the state-approved amount. If it doesn't produce, utility ratepayers wouldn't pay for it, and the developer is on the hook, Rosenberg said.
Sweetening the deal, he said the gasification plant will track daily the difference between the agreed-upon synthetic-gas price and the fluctuating price for natural gas, and guarantee a savings over time.
"We are going to calculate on a daily basis whether the customers were getting gas at a higher-than-market price or a lower-than-market price. And that cumulative total ... we are guaranteeing that at the end of 30 years, either the customers will have saved $400 million, or we will turn over the plant without mortgage - and turn over our $400 million worth of equity - to the state, which can then run it without debt service," Rosenberg said. "Or we will pay that $400 million."
Such a deal would have to be worked out between the developer and the Indiana Utility Regulatory Commission if Senate Bill 423 passes.
Some lawmakers questioned whether gas ratepayers would be overcharged if the state locked in a 30-year contract for purchasing synthetic gas, then the natural gas price fell to unexpectedly levels. Rosenberg and others said they thought that was possible but not likely.
Dissenting voices came from two environmental groups, Citizens Action Coalition of Indiana and the Sierra Club.
Kerwin Olson of Citizens Action contended that locking in a price for 30 years would protect the developer and the utility companies, but not ratepaying consumers.
"The fact that they need this legislation underscores their inability to finance this thing in the free market. Captive ratepayers should not be forced to pay for a plant that the private sector will not finance," Olson testified.
Olson scoffed at Indiana Gasification's offer to let the state, in effect, foreclose upon the plant, which by then would be 30 years old, if it doesn't achieve $400 million in savings. "'At the end of it, if we overcharged you and this stuff is too expensive and it was financially a bad decision, here's your plant: You can have this financial boondoggle, we'll see you later.' What kind of assurance is that for Indiana ratepayers?" Olson fumed. "For 30 years, Indiana ratepayers are held hostage to whatever cost is put in that contract, regardless of what the free market is doing."
Testifying in favor of the bill were the Indiana Wildlife Federation and two organized-labor groups, the Public Construction Trades Council and the Indiana-Kentucky Regional Council of Carpenters. Spencer County needs the 1,000 construction jobs and 200 operations jobs, testified Thomas Utter of the Lincolnland Economic Development Corp. "Many of us down there consider Senate Bill 423 to be a private-sector stimulus bill," Utter said. "Imagine the impact of those jobs on families."
On Thursday, the House Commerce, Energy, Technology and Utilities Committee voted 10-1 to approve Senate Bill 423 and send it to the full House. Rep. Ryan Dvorak, D-South Bend, was the only "no" vote.
Having already passed in the Senate, the bill appears to be on a fast track. Stilwell, D-Boonville, said the developer is under a March 21 deadline to apply for federal loan guarantees to largely finance the $2 billion project.
The House committee vote came the same day as Lt. Gov. Becky Skillman gave a speech to the Center for Coal Technology Research in Indianapolis and underscored the Daniels' administration's commitment to developing coal-gasification technology in southern Indiana.
Rosenberg also told the House committee that the coal-gasification process would allow the plant to capture 90 percent of the carbon dioxide and store it, rather than sending the greenhouse gas up a smokestack - and there might be a market for the byproducts. The developer is pursuing talks with companies building pipelines to pump the liquefied carbon dioxide to Oklahoma or Mississippi, where it could be injected deep underground to pressurize oil wells and bring oil to the surface, he said.