Daniels Touts, Skeptics Rip Planned $2.6B Natural Gas Plant

Governor Says Plant Would Lower Indiana Consumers' Cost

A proposed multibillion-dollar plant to produce natural gas in southern Indiana is stirring controversy at the Statehouse.

The plan calls for Indiana homeowners and small businesses that use natural gas to take on part of the risk for the plant, which would be built on the Ohio River in Rockport, 6News' Norman Cox reported.

The proposed site for the $2.6 billion plant is currently an empty field, but Gov. Mitch Daniels wants the facility to transform Indiana coal into natural gas, utilizing a technology that has never been used on this scale. Aside from that, some have questioned the financial arrangements.

"Never before in the history of the United States has a proposition like this ever been advanced," said Michael Mullet, an environmental lawyer.

The state has a deal with the plant's builder, Indiana Gasification, to buy all its gas for the next 30 years. Indiana will then resell that gas on the open market.

As part of the deal, the state has agreed to pay the company a guaranteed minimum price of about $6 per British thermal unit (BTU).

If the state resells the gas for more money, it will split the excess money with Indiana Gasification. The state's profit will be used to lower customers' bills.

If the state resells the gas for less money, Indiana Gasification will get less money and the state's loss will be passed along to natural gas customers in the form of higher bills.

Daniels said he's confident the state and ratepayers will win.

"We have guaranteed savings, and all the reasonable projections say that the savings we get are going to be much higher than the guarantee," Daniels said.

Many industry experts question Daniels' conclusion.

"There's so many unknown variables, things like there could be another Hurricane Katrina that could destroy production," said Dan Considine, communications manager at Citizens Gas.

Opponents referenced a recent report from the federal Energy Information Administration that predicts natural gas prices for the next 25 years. Since last year, EIA has reduced its projection by almost $2, leaving it just above the state's guarantee.

"The dangers are essentially that you have no idea what the future is going to bring, particularly in a volatile commodity market," Mullet said.

Mark Lubbers, project director for Indiana Gasification, said federal projections can't be trusted and that future market prices will be much higher, making the deal work for ratepayers.

"You'll see that the EIA is all over the map, and their capacity for projecting gas prices has been abysmal," Lubbers said. "They've missed 90 percent of the time."

Indiana Gasification contends that no matter how prices go, customers will win. The plant will produce about 17 percent of the natural gas used in Indiana. If market prices go down, ratepayers would be hurt on that portion of their bills, but they would more than make up for it on the remaining percentage.

"It sounds bad, because they would be paying too much for 17 percent of the supply, but for 83 percent of the supply, they'd be paying much less than expected," Lubbers said.

If prices go down, the company will tap into a $150 million fund to help absorb rate increases for customers, although industry experts said the buffer won't last long in a period when market prices are below the state-guaranteed $6.

Another issue could scuttle the deal. Indiana lawmakers have balked at plans for a pipeline to transport away and sell the carbon dioxide the plant would produce.

"You are finding that facilities are not being permitted by the U.S. EPA fi they don't have a means of controlling or capturing the carbon dioxide," said Sen. Beverly Gard, R-Greenfield.

Lubbers said the plant probably won't be built if CO2 has to be vented into the air.

Daniels sees the plan as visionary, claiming the state's consumers will reap huge savings on energy in the future.

Insiders told Cox that he's pushing the plan more strongly than anything since the Indiana Toll Road lease.