Vectren: Coal-gas plant to cost Indiana customers $1B

INDIANAPOLIS (AP) - A utility opposing a planned southern Indiana coal-gasification plant estimates a deal obligating Indiana customers to pay for the plant's gas would add $1.1 billion to utility bills over eight years.

Vectren Corp. estimates all residential gas customers would see their gas bills increase an average of about $3.90 per month during the period for a total cost of $375 per consumer, The Indianapolis Star reported Sunday.

A spokesman for developer Leucadia National Corp. called the estimates "absurd," and Gov. Mitch Daniels said through a spokeswoman that he continues to support the project in Rockport, about 30 miles east of Evansville.

Neither of the two major-party candidates running to succeed Daniels as governor, Republican Mike Pence and Democrat John Gregg, has expressed the same level of enthusiasm for the project as Daniels has. Pence said he's committed to working with opponents and supporters of the $2.8 billion project while honoring the state's commitments.

Opponent Kerwin Olson, executive director of the consumer advocacy group Citizens Action Coalition, said developers "face some risk not having their strongest ally in office."

Vectren, which has about 680.000 Indiana natural gas customers, fears customers will blame the utility if their bills increase because of the plant.

"When this project was first announced it made a lot of sense because there wasn't this same amount of gas in the marketplace as there is today," Vectren CEO Carl Chapman said. "Times have changed. Shale gas has driven the cost of natural gas lower. The plant is not right at this time."

Another major natural gas utility, Northern Indiana Public Service Co., questions the timing of the project that would use heat, pressure and oxygen to turn coal into natural gas

"Our concern continues to be that this project not be a long-term burden to our Indiana customers," spokesman Larry Graham said.

Vectren estimates the deal will increase the monthly gas bill for its average residential customer by 6.3 percent to $65.57.

Under the deal, the Indiana Finance Authority signed a 30-year contract with Leucadia subsidiary Indiana Gasification LLC to purchase gas from the plant and then sell it on the open market. Indiana customers would receive discounts or increases on their monthly bills depending on whether the state sells the gas at a profit or at a loss. Profits will be split with Leucadia.

The state would purchase the gas for an average of $6.60 per million British thermal units in 2008 dollars over the life of the 30-year contract. Six years ago, when the plant was first proposed, natural gas traded at more than $10 per million BTU, but a U.S. shale gas boom has driven prices to about $3 per million BTU.

"The Energy Information Administration projects prices to remain below $5 until 2023," said Teri Viswanath of investment banker BNP Paribas in New York.

Market analyst Phil Flynn of Price Futures Group in Chicago said the deal could look better later as demand catches up with supply.

"For the first decade or so, it's going to look like a bad deal," he said.

The abundant supply of shale gas led Illinois Gov. Pat Quinn last month to veto legislation that would have forced many Illinois gas ratepayers to help finance another synthetic gas plant proposed by Leucadia.

Indiana Finance Authority attorney Andy Keinle dismissed Vectren's estimates.

"There was an extensive yearlong IURC review where interested parties including Vectren were able to give testimony about the project. Ultimately the IURC issued a lengthy order approving the project," he said.

Supporters of the plant say it will create up to 1,500 jobs, support Indiana's coal industry, and diversify the state's energy portfolio.

Mark Lubbers, Indiana project director for Indiana Gasification and a former aide to Daniels, told the Star in an email that Vectren's estimates were "absurd" and concerns about the low cost of shale gas are overblown.

"You can find price forecasters across the board," he said. "That's why the IURC said the only thing certain is the uncertainty of the price. But virtually all of the recent evidence weighs heavily on the side of gas prices above $7 when the ... plant comes on line in 2017."

Lubbers said Indiana Gasification will cover up to $150 million of any losses and guarantees $100 million in savings by the end of the 30 years.