By Lesley Weidenbener
Officials from Evansville-based Vectren Energy are lobbying lawmakers to rethink a deal authorizing construction of a $2.6 billion plant that will turn coal into synthetic natural gas and pass along the savings – or the losses – to Hoosier utility customers.
But a key official for the proposed Indiana Gasification plant said Monday that Vectren's arguments are unfounded. "This is a very smart deal for Indiana," said Mark Lubbers, a former advisor to Gov. Mitch Daniels who is overseeing the project for Leucadia National Corp.
Vectren officials plan to publicly raise questions about Indiana Gasification on Tuesday at a House Ways and Means meeting, where lawmakers will consider a bill (Senate Bill 344) that includes a tax break for the Rockport plant and exempt large industrial customers from the deal to share in the risk and the rewards from its operations.
But they have been privately distributing information at the Statehouse for nearly a week, telling lawmakers that the deal might have made sense when the General Assembly wrote it into law five years ago. But now, Vectren officials say, the increasing development of shale gas — which is more widely available across the country — has driven prices so low that the coal-to-synthetic gas process can't compete.
Vectren's vice president for regulatory affairs and fuels, Jerrold Ulrey, estimates the plant and its 30-year deal to sell its synthetic gas to the state will cost Indiana consumers as much as $1.6 billion in additional costs.
Although he plans to focus much of his testimony Tuesday on objections to the specific provisions in SB344, Ulrey said the company's opposition is much broader.
"We think this warrants a fresh look," Ulrey said.
Already, Vectren is among several companies that have appealed the Indiana Utility Regulatory Commission's approval of the 30-year agreement between Indiana Gasification and the Indiana Finance Authority. That contract calls for the state to purchase most of the synthetic gas — called SNG — that the plant produces annually.
The state will pay a price determined by a formula that takes into account a fixed rate plus fluctuations for the cost of coal and other factors. The state will sell the gas in the market. Customers of the state's natural gas companies — including Vectren but also Citizens Gas, Nisource and other utilities — will then share in half of the profits the state earns or pay more to make up for most of the losses.
Lubbers said Indiana Gasification officials are confident that over the 30-year term of the contract, the prices for SNG will be better than the prices for natural gas, therefore creating profits to be shared with customers. Plus, the contract guarantees that customers will save at least $100 million over the 30-year term.
But Vectren officials say that the recent emergence of shale gas — which is exhumed from the ground through a process called hydraulic fracturing — has driven prices lower.
Mike Roeder, Vectren's vice president for government affairs, produced a map meant to show that the United States has enough shale gas to supply the nation for 100 years. That has stabilized what had previously been a volatile natural gas market, kept prices lower and led to projections that those prices will stay low into future years, Roeder said.
Currently, prices for a dekatherm of natural gas (the average family uses about 80 dekatherms per year) is less than $3. Just four years ago, the price had spiked to more than $13 and two years before that nearly $14. It's rarely been less than $3 since 2003.
SNG produced at the Rockport plant will cost about $6.60 per dekatherm.
Vectren officials say they expect the price of natural to increase but not dramatically and certainly not to levels that will make SNG a good deal. Using those numbers, Vectren officials calculated that Hoosiers will spend $1.6 billion more than they would have without the Indiana Gasification deal.
But the Indiana Utility Regulatory Commission's order said that the average marginal cost to find and produce shale gas is $7 per dekatherm. Lubbers said that the marketplace will eventually push the cost of shale to that point and SNG will compete.
Vectren officials "are out there speaking with legislators, I'm told, on the basis they believe this might be a bad deal for consumers," Lubbers said. "It boggles the mind."
Lesley Weidenbener is managing editor of TheStatehouseFile.com, a news service powered by Franklin College journalism students and faculty.