Court overturns Rockport gas deal; state says problem can be fixed 

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By Lesley Weidenbener

The Indiana Court of Appeals dealt a setback Tuesday to a Southern Indiana energy project backed by Gov. Mitch Daniels' administration and opposed by one of the state's largest utilities.

But those involved with the Indiana Gasification plant at Rockport - and the deal the state made to buy most of the fuel it produces - say simple changes will bring the project in line with the court's decision.

Mark Lubbers, project director for the $2.65 billion plant, said the decision was actually a good one for the project because the court essentially threw out other key arguments that opponents had made in an effort to try to stop the plant's construction.

"We are very pleased with 95 percent of the court opinion," Lubbers said. "And we see a clear path to resolving the technical issue that the court identified."

Kerwin Olson, executive director of the Citizens Action Coalition, which opposes the plant, said the group is disappointed in key parts of the court's ruling. But he said the decision is "a victory in the sense we live to fight another day."

"With today's reversal, the General Assembly now has the opportunity to re-visit the statute and clarify their intent," Olson said. "We believe strongly that the legislators who voted for this deal believed the statute guaranteed that ratepayers would realize actual and verifiable savings as a result of this contract."

The controversial plant is a sort of public-private partnership that was approved by the General Assembly and heralded by Daniels as a way to use Indiana coal, save utility customers money and create jobs. The plant will use coal to create a synthetic product that mimics natural gas.

The Indiana Finance Authority has signed a 30-year deal with the plant to buy most of its synthetic gas and resell it in the market. Customers of the state's natural gas utilities will then share in half of the profits the state earns or pay more to make up for most of the losses.

The contract requires the company to set up a $150 million consumer protection reserve account that is intended to soften the blow of any losses. Also, Indiana Gasification has guaranteed $100 million in savings to Indiana's retail gas customers.

The Indiana Utility Regulatory Commission approved the final contract and then Evansville-based Vectren Energy and several smaller companies appealed.

In its decision Tuesday, the appeals court ruled against most of Vectren's arguments. It said the regulatory commission had the authority to approve the contract and that the deal would benefit customers.

Vectren officials said Tuesday that the court seemed satisfied that Indiana Gasification's pledge to provide savings is the same as the guarantee required in the law.

"We continue to believe that more than a mere promise of savings is required by the law," said Mike Roeder, the company's vice president of government affairs and communications.

But the court also said that the contract included a definition of "retail end user" that did not mesh with state law.

The retail end users are essentially Indiana's residential and business gas customers, said Andy Kienle, legal counsel at the Indiana Finance Authority.

But the court said the contract used a definition of retail end users that would include industrial transportation customers, which are companies that buy natural gas in a different way. The court said that wouldn't be permitted under the state law.

Kienle said the state never intended to include those industrial transportation customers and so adjusting the definition to exclude them will not change anything.

The appeals court "gave the parties instructions to amend the retail end use customer definition in the contract and we plan to do so accordingly," Kienle said. "The IFA believes an amended definition of retail end use customer - if the IURC approves - will satisfy the court's concerns."

Kienle said state officials will begin working on the change immediately. But he said it's uncertain how long it will take the Indiana Utility Regulatory Commission to approve it.

Meanwhile, the Citizens Action Coalition and Vectren officials have asked lawmakers to reconsider their support of the law. Last year, several influential House members said they had concerns that lower natural gas prices - in part due to new technology that makes it easier to extract the fuel from shale - mean the contract won't be a great deal for customers.

"As we have previously indicated, in the first eight years alone, we expect that the loss from the project that will ultimately be passed on to Hoosier residential customers and small businesses will exceed $1 billion," Roeder said. "Regardless of the court's ruling, we continue to believe that this project at this time is not in the best interest of Hoosiers."

But lawmakers did not act to stop the project.

The Statehouse File is a news service powered by Franklin College Pulliam School of Journalism students and faculty.

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