Indiana Economic Digest | Indiana
Advanced Search

• Most Recent

home : most recent November 13, 2018

2/14/2012 11:56:00 AM
Vectren: Shale-gas boom makes Rockport coal-to-gas deal risky

Eric Bradner, Evansville Courier & Press Indianapolis bureau

— Lower prices from a shale-gas boom make the 30-year deal Gov. Mitch Daniels' administration negotiated with the developers of the Rockport, Ind. coal-to-gas plant look increasingly risky, Vectren Corp. officials say.

They intend to make that case to state lawmakers Tuesday, as a key Indiana House panel considers a measure to extend a tax credit to the Rockport plant's developers. Vectren officals also plan to make clear that price changes from the deal apply to just residential and commercial ratepayers, and not large industrial consumers.

Under the 30-year contract, the price has some room to increase over time, but would start at about $6 per million BTU. Right now, that much natural gas sells for $3. Estimates are wide-ranging, but Vectren officials say they believe the price will stay low.

As a result, Vectren officials say customers could pay more for the synthetic natural gas produced in Rockport than for gas bought on the open market. The gas from Rockport will make up about 17 percent of their bills.

"All we're saying is, the world's changed because of shale," said Mike Roeder, Vectren's vice president of government affairs and corporate communications.

It hasn't changed that much, Rockport developer William Rosenberg said. He said the facts Vectren is laying out now were all in front of the Indiana Utility Regulatory Commission when it unanimously approved the Rockport plant in November.

And, the Rockport plant – owned by New York-based owner Leucadia National Corp. – would have a strong incentive to beat the market rate. The contract guarantees that over the 30-year life of the deal, it will save consumers $100 million.

"The one thing that's certain is that gas prices are uncertain. Gas prices over the last five, 10 years have ranged from $3 to $13," Rosenberg said. "It's in the interest of the ratepayer to have a diversification of supply."

The contract Vectren is criticizing established the state of Indiana as the primary buyer of synthetic natural gas produced at Leucadia's not-yet-built Rockport. Gas would be bought for a fixed price, no matter if that price is cheaper or more expensive than the market rate.

Then, the Indiana Finance Authority would resell that gas to consumers, guaranteeing the developers a customer. That step, both developers and Daniels said, was essential to move forward with a project that Daniels said would help the jobs-starved region of Southwestern Indiana. Plus, Daniels said, the deal locked in a reasonable price for natural gas.

When the deal was signed 14 months ago, utilities turned up their noses at what they saw as state government's intrusion in the marketplace – and a contract they'd walked away from after extended negotiations. Now that state energy regulators have approved it, Vectren is openly lobbying against it.

A measure advancing during this year's legislative session – Senate Bill 344 – would exempt large industrial consumers from having their rates affected by the Rockport deal – something developers already thought was the case.

That measure is scheduled for a hearing before the House Ways and Means Committee as soon as Tuesday, and Ulrey said he plans to argue that lawmakers should not exempt anyone. Roeder said such an exemption would "pick customer classes that win and lose."

Republican Rep. Suzanne Crouch of Evansville, the House Ways and Means vice chairwoman, said she intends to offer an amendment to the bill that would have industrial customers pay for the Rockport plant's gas just like residential customers would.

She said her outlook has changed since the Indiana General Assembly first green-lighted the plant in 2007.

"I did support that bill, but a lot has changed with the price of natural gas. Certainly, at the very least, we ought to take another look and make sure that it makes good economic sense for not only my constituents, but for ratepayers all over the state," she said.

Rosenberg, the Rockport developer, said it's important to consider a broader energy picture than just natural gas futures.

"It's really, essentially, what's likely to cost less money: gas or coal? And with the demand for coal being ratcheted down, the chances are that coal demand is going to go down and gas demand is going to go up, and that's going to set the price," he said.

Mark Lubbers, a former aide and close friend of Daniels who is now an Indiana consultant for Leucadia, said when considering Vectren's arguments, one must "look no further than their self-dealing in coal to see how much they care about the consumer."

Vectren owns three coal mines, and buys coal from those mines. In 2010, the utility paid itself a higher rate – $68 per ton of coal – than the $39 average it charged other Indiana utilities for the same coal, according to Indiana Utility Regulatory Commission records.

"If the legislature finds them a credible source on consumer protection," Lubbers said, "I would be very surprised."

Related Stories:
• Jobs vs. environment debate dominates hearing on Spencer County coal gasification plant
• Rockport coal gasification plant tax credit shaping up to be legislative fight
• Legislators still considering $120 million tax credit for Rockport plant

Copyright 2018 Journal Media Group. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Editor, John C. DePrez Jr.; Executive Editor, Carol Rogers; Publishers: IBRC and IAR

Software © 1998-2018 1up! Software, All Rights Reserved