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Indy Star: Gas plant backed by Governor Daniels hits snag February 14, 2011

Posted by Laura Arnold in 2011 Indiana General Assembly.
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Editor’s Note: For more information about this bill visit: SB 72.

To see how your State Senator voted on SB 72: Roll Call 0089.PDF_SB 72 defeated 21-28

Original story: http://www.indystar.com/article/20110214/BUSINESS/102140332/Senate-vote-crimps-pipeline-plan-gas-plant-backed-by-governor?odyssey=tab|topnews|text|IndyStar.com

7:10 AM, Feb. 14, 2011  

Without pipeline’s OK, $2.6B Rockport project could be doomed

Written by Ted Evanoff

Indiana’s Senate has handed Gov. Mitch Daniels a setback on the big coal gasification plant he wants to see built at Rockport.

Senators rejected a measure that would have cleared the way for a special pipeline sought by investors to move carbon dioxide away from the southwestern Indiana plant to buyers on the Gulf Coast.

The vote last week marked an unusual defeat for the Republican governor, whose party dominates the Senate.

The bill’s Republican sponsor, Sen. Beverly Gard of Greenfield, said some lawmakers who voted against the bill didn’t understand its significance.

Without legislation allowing eminent domain for such pipelines, lead investor Leucadia National Corp. doubts it could secure the federal guarantees on construction loans for the $2.6 billion gasification plant it has proposed at Rockport.

This week, the top Leucadia official in Indiana, Mark Lubbers, once a chief adviser to Daniels, is expected to confer with company and legislative leaders about bringing the eminent domain measure back to the General Assembly.

Backers were stunned when the bill failed Tuesday on a vote of 28-21, with 16 of the chamber’s 37 Republicans opposed.

The defeat is considered a setback for investors and a coal industry counting on a grand energy strategy backed by some of the wealthiest names in American finance, including Goldman Sachs and General Electric Financial.

Plans call for rendering millions of tons of sulfurous Midwestern coal into natural gas, using GE gasifiers in some of the proposed plants in Indiana, Illinois and Kentucky.

Linking those gasification plants would be a seamless pipeline. The resulting carbon dioxide waste would flow across half a dozen states to the Mississippi storage caverns of Denbury Resources.

The Texas-based company sells tons of C02, as the waste is called, to gas drillers probing under the Gulf of Mexico.

Indiana would be a key part of the circuit. Carbon dioxide from Tenaska Corp.’s proposed plant in Taylorville, Ill., would run to Rockport and then to Erora Group’s proposed Cash Creek plant in western Kentucky, reports the trade journal Midwest Energy News.

The Illinois and Kentucky pipelines have not been built. The Rockport project is further along. But the absence of a pipeline could scuttle it.

“If the governor’s office wants this, it’s going to have to figure out what to do next,” said Gard, sponsor of defeated Senate Bill 72.

“I had no warning 72 was going to go down,” Gard said. “This whole deal was brokered by the governor. The Democrats have a problem with that. And the ultra-conservatives don’t like anything that says eminent domain.”

The term refers to an entity such as the state taking away private land, for a price, for use in what it deems to be a larger good, such as roadways.

“Eminent domain, that’s the part that bothered me,” said Sen. Allen Paul, R-Richmond. “I don’t think it’s right you go on someone’s property and take it.”

Democrats contend the measure was poorly explained, particularly by Denbury representatives.

“I felt like we were being sold a bill of goods without an explanation of why they wanted it,” said Sen. Karen Tallian, D-Portage.

A member of the Energy and Environmental Affairs Committee, where Senate Bill 72 originated, Tallian said Denbury, a pipeline operator, wanted eminent domain asserted almost anywhere in the state it chose to run a pipeline.

But the company never gave her a satisfactory reason for why it had no specific route or needed statewide rights, she said.

Nor was there a reason the bill would have handed Indiana’s Department of Natural Resources responsibility for eminent domain involving carbon dioxide pipelines, Tallian said. Present laws rest that responsibility with the Indiana Utility Regulatory Commission.

“There is an authority in the state who oversees pipelines. That’s IURC. This bill went around that and gave it to DNR,” Tallian said. “Why we needed all these strange, out-of-the-normal patterns, I don’t know.”

With the measure killed in the Senate, Leucadia consultant William Rosenberg said Lubbers and officials from Denbury and Leucadia will have to find a way to bring the matter up again.

Lubbers could not immediately be reached for comment.

Rosenberg, of E3 Gasification in Cary, N.C., called the measure essential. Loan guarantees from federal officials are unlikely if no plan is in place for keeping the carbon dioxide — a greenhouse gas — out of the air.

“I think this is the cleanest and most environmentally sound project ever proposed” using coal, said Rosenberg, a former energy adviser to President George H.W. Bush. “But the project cannot be built without this pipeline. We’re going to have to go back to the legislature and discuss this with the people.”

Although Daniels is widely considered a key supporter of the Rockport project, an aide to the governor declined to weigh in on the bill’s defeat.

“We don’t have a position on this bill,” said Jane Jankowski, Daniels’ spokeswoman.

In defeating the measure, the Senate handed Leucadia its second setback since the Rockport plant was proposed in 2006.

Back then, Indiana gas utilities and industrial users of gas refused to buy any of the Rockport gas, saying ample supplies were available on the open market.

When the project was collapsing, Daniels shored it up in 2008. His initiative would put the state in the natural gas business. That controversial plan is now being considered by the Indiana Utility Regulatory Commission.

Under the plan, the Indiana Finance Authority, a state agency, would buy almost all the Rockport gas at a wholesale price of about $6 per million BTU and resell it on the open market.

If the market price is below $6, the loss would be passed to Indiana’s 1 million gas-burning households in the form of higher natural gas bills. If the gas sells for more than $6, the finance authority would split the profits with Leucadia’s subsidiary, Indiana Gasification LLC.

The state’s share of the profits would be used to lower the residential gas bills across Indiana. Estimates place the household savings at about $100 per year in the event gas prices, now about $800 per year for the typical home, rise to $2,000.

Daniels favors the plan, saying gas prices are destined to rise nationwide, and the 3.2 million tons of coal consumed by Rockport each year would support about 200 mining jobs, which in turn could help revitalize southwest Indiana.

Federal incentives have encouraged plants that gasify coal into liquid fuel. Across the nation, investors and utilities proposed 31 such projects in the past few years. Of those, 12 are under discussion by regulators in various states, eight are producing or under construction, and 11 have been canceled, chiefly because of costs, according to a Sierra Club review of federal reports.

Leucadia, run by two of America’s wealthiest men, Ian Cumming and Joseph Steinberg, brought in Rosenberg as a consultant to look at the gasification proposal for Indiana. He had worked with Lubbers in the late 1980s in Indiana as a consultant for another company.

At that time, Lubbers advised then-Gov. Robert Orr on scrapping the Marble Hill nuclear plant. This time around, Rosenberg figured Indiana was ready to proceed on Rockport and the eminent domain measure.

“It was assumed the votes were there,” Rosenberg said. “It was a surprise to us when it wasn’t.”

Call Star reporter Ted Evanoff at (317) 444-6019

Leucadia National Corp.

What: New York-based diversified holding company engaged in various businesses, including manufacturing, telecommunications and land-based contract oil and gas drilling.

2009 revenues: $1.1.billion.

President: Joseph S. Steinberg.

Employees: More than 3,000.

Indiana Gasification

What: Formed by Leucadia to run the Indiana coal-gasification plant at Rockport.

Developers: E3 Gasification and Johnston Development Co.

Leadership: William Rosenberg is president of Cary, N.C.-based E3 Gasification and a former U.S. Environmental Protection Agency and Federal Energy Administration administrator, as well as former chairman of the Michigan Public Service Commission. Bennett Johnston of Louisiana is chairman of Johnston Development. He is a former U.S. senator and former chairman of the Senate Committee on Energy and Natural Resources.

Sources: Company report, Evansville Courier & Press

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