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IURC rejects Rockport hearing delay; Watchdog sought time to review emails to former IURC Chairman Hardy May 3, 2011

Posted by Laura Arnold in Indiana Utility Regulatory Commission (IURC), Uncategorized.
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Editor’s note: I find it fascinating that there are now two docket entries in this case in Cause No. 43976 on 4/18/2011 and 4/26/2011 entitled, “Tender of communications”. These docket entries contain emails addressed to IURC Chairman Jim Atterholt from members of the general public expressing their feelings about the Indiana Gasification project. Doesn’t that just “take the cake” in view of the article below? Laura Ann Arnold

Original article: http://www.mydesert.com/article/BG/20110503/BUSINESS/105030334/IURC-rejects-Rockport-hearing-delay?odyssey=nav%7Chead

12:00 AM, May. 3, 2011  |  

Written by Ted Evanoff
ted.evanoff@indystar.com

The Indiana Utility Regulatory Commission rejected a request Monday by a consumer group to delay a hearing on the $2.6 billion Rockport coal gasification plant after the group presented emails that it says raise questions about the IURC’s impartiality.

Citizens Action Coalition attorney Jerry Polk said emails were sent in 2009 and 2010 by Indiana Finance Authority head Jennifer Alvey to IURC Chairman David Lott Hardy. David Pippen, chief counsel for Gov. Mitch Daniels, was copied on some of the messages, Polk said.

Polk asked for a 30-day delay to explore more than a dozen messages, including one in which Alvey declared she wanted to “pick (Hardy’s) brain confidentially.”

State law generally prohibits substantive, private discussions on pending regulatory matters. However, some general discussion is allowed.

IURC Administrative Law Judge Angela Weber ruled the correspondence was permissible and noted that Hardy no longer is in a position to influence the commission. IURC commissioners backed Weber on a 3-0 vote.

Daniels fired Hardy in October after reports surfaced of ethical lapses. Hardy is accused of standing by while IURC official Scott Storms sought a job at Duke Energy and presided over major cases involving the utility while it sought approval for cost overruns at its $3 billion Edwardsport power plant.

In the Rockport matter, Alvey in 2009 and 2010 negotiated a purchase contract with investor Leucadia National. The IURC now must decide whether to approve the contract. It calls for the state to buy synthetic gas that Leucadia would make from coal at Rockport.

The state in turn would sell the gas on the national market and pass any profits or losses on to the 1.5 million homes, farms and businesses in Indiana that burn natural gas.

When the hearing on the contract opened Monday in Indianapolis, Polk requested a delay. He said he requested the emails under the Indiana open-records law, and they were handed over Saturday. He told the IURC the messages raise concerns about potential bias within the commission.

Weber responded that conferences like Alvey’s and Hardy’s have been routine and are meant to help educate officials. The three commissioners present Monday backed that conclusion on a unanimous vote. The three are James Atterholt, Larry Landis and David Ziegner.

Two of the five commissioners, Kari Evans Bennett and Carolene Mays, have recused themselves from the Rockport matter. Bennett came to the IURC in January from Barnes and Thornburg, a law firm representing Vectren in the Rockport case. Vectren, a utility based in Evansville, is on record opposing the Rockport project. Mays is related to a Vectren director.

The IURC is expected to rule on plans for the Rockport coal gasification plant this summer.

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

Watchdog Group Citizens Action Coalition Says State agency heads colluded on gas deal May 3, 2011

Posted by Laura Arnold in Indiana Utility Regulatory Commission (IURC).
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by Chris O’Malley, Indianapolis Business Journal (IBJ)

May 2, 2011
 
Former Indiana Utility Regulatory Commission chief David Hardy and the state’s then-finance director, Jennifer Alvey, improperly discussed the merits of a $6.9 billion contract the Indiana Finance Authority ultimately struck with operators of the Indiana Gasification plant proposed for Rockport, plant opponents alleged Monday.

Former Indiana Utility Regulatory Commission chief David Hardy and the state’s then-finance director, Jennifer Alvey, in 2009 and 2010 secretly and improperly discussed the merits of a $6.9 billion contract the Indiana Finance Authority ultimately struck with operators of a proposed gasification plant, plant opponents allege.

Citizens Action Coalition, the Sierra Club and other environmental groups on Monday presented copies of the e-mail to the commission, which is reviewing whether to approve the project agreement. The environmental groups are on record as opposing the plant.

Such direct, behind-the-scenes communication in such regulatory matters is generally prohibited under state law.

The e-mails show the agency heads discussing the plant as far back as 2009.

“The materials raise due-process concerns and provide evidence of communications that would, to a reasonable person, raise serious questions regarding whether the commission’s impartiality has been compromised in this matter by the advisory role to (the Indiana Finance Authority) in the negotiations,” according to the filing CAC attorney Jerome Polk made Monday with the IURC.

However, IURC administrative law judge Angela Webber denied a request to delay the hearing for 30 days, despite the e-mails.  She ruled that the e-mails were sent more than 30 days prior to the December 2010 filing of the gasification plant case, and they were “procedural and general in nature” rather than substantive.

“That’s nonsense from my perspective,” CAC Program Director Kerwin Olson after the hearing. “The commission is a biased body at this moment in time.”

CAC has until May 13 to offer rebuttal in the case, Olson said.

The IFA plans to purchase synthetic natural gas from the plant over 30 years, which proponents—including would-be plant operator Leucadia National Corp. of New York—have said will save Indiana gas customers more than $100 million by locking in low rates.

But the e-mails obtained by CAC raise serious questions about improprieties, as well as whether the contact had the blessings of Indiana Gov. Mitch Daniels’ staff. Daniels has been a supporter of the $2.7 billion gasification plant as part of his “homegrown energy” policy.

Under one of the e-mails obtained by CAC, Alvey appeared to confirm that Daniels adviser David Pippen provided then-IURC chair Hardy with “the run down” on negotiations the state was having with Leucadia.

“I’m preparing for maternity leave but wanted to give you a quick update. Pippen said he gave you the run down that we are holding unless we get some more movement on the guaranteed savings,” read a copy of an e-mail Alvey sent Hardy on Oct. 30, 2009, referring to the negotiations between IFA and Leucadia.

In an Aug. 14, 2009, message, Alvey tells Hardy she would “like to pick your brain confidentially” but adds: “I can’t provide you with much documentation without opening them up to public access.”

In another e-mail, Alvey tells Hardy about efforts to get favorable legislation for the deal involving IFA’s agreement with Leucadia.

Hardy responds: “If you need to meet with my troops, they can in my absence.”

CAC told the commission that “at a minimum, the e-mails provided to date give the appearance of impropriety.”

The group cited state law governing ex parte communications,  which says “administrative adjudications may not be made upon evidence secretly obtained by an administrative agency at a time and place other than that appointed for a hearing.”

Polk said such adjudications may not be made upon information received.

Olson told the commission Monday that he met with Alvey in late September 2010, and she indicated then that she had not talked to commission officials about the IFA’s proposed synthetic natural gas contracts with Leucadia’s Indiana Gasification.

But she said she “was anxious to go across the street and start the process,” Olson said.

“This was not a competitive and public process,” he said.

Alvey left her position early this year for a job in the private sector.

Gov. Mitch Daniels fired Hardy last year in a separate ethics matter after learning that the IURC’s chief attorney, Scott Storms, was presiding over Duke Energy cases even as he was talking to the utility about a job, which he later accepted. He and the head of Duke’s Indiana operations were later fired by Duke when the scandal came to light.

Incriminating e-mails showed that Hardy was aware of Storms’ job-seeking and that he made light of a state ethics commission review of whether Storms had a conflict of interest.

Clean-coal gas deal could charge up NIPSCO bills for NW Indiana customers, Hearings start today May 2, 2011

Posted by Laura Arnold in 2011 Indiana General Assembly, Indiana Utility Regulatory Commission (IURC), Uncategorized.
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Original article: http://www.nwitimes.com/news/local/lake/article_a53283bd-984a-5e4a-a820-6103c3ac8bd3.html

By Keith Benman keith.benman@nwi.com, (219) 933-3326 

nwitimes.com |Posted: Sunday, May 1, 2011 12:00 am | (31) Comments

The state’s plan to have more than 1.7 million Hoosier utility customers subsidize a proposed clean-coal gasification plant is splitting the state’s utilities and pushing some into alliances with consumer groups.

Downstate natural gas utility Vectren is vigorously opposing the plan “on behalf of its customers,” claiming it could cost Hoosier utility customers more than $1 billion.

NIPSCO is not taking a position for or against the state’s plan. However, Frank Shambo, a NIPSCO vice president, has submitted testimony supporting the state’s claim the project could help protect utility customers from volatile natural gas prices.

The split among utilities is being driven by a proposed 30-year sales contract between the Indiana Finance Authority and Indiana Gasification LLC, the plant’s developer. The two are asking state regulators to approve the contract.

That contract has the Indiana Finance Authority, a state agency, buying almost all synthetic natural gas produced by the $2.65 billion clean-coal plant to be built in downstate Rockport by Indiana Gasification LLC, a subsidiary of publicly traded New York investment group Leucadia National Corp.

The IFA has submitted testimony diametrically opposed to Vectren’s and that of six other natural gas utilities, stating the sales deal will save the state’s utility customers $500 million over the 30-year term of the contract.

Gov. Mitch Daniels continues to be an enthusiastic supporter of the plan, maintaining the arrangement between Indiana Gasification and the IFA will help “hedge” or buffer volatile natural gas prices for utility customers across the state.

“There is all kind of evidence to believe this will be a huge winner for ratepayers,” Daniels said in an interview with The Times two weeks ago. “But we’ve always been cautious to say let’s just view it as a good hedge. And that’s a smart thing to do.”

The Indiana Utility Regulatory Commission has held three public hearings on the contract between the IFA and Indiana Gasification in the past two weeks. Evidentiary hearings before the IURC start Monday in Indianapolis.

A number of utilities, consumer advocates and environmental groups have been just as passionate as Daniels about the deal, only they are denouncing it.

“This is nothing other than a group of crony capitalists getting together and using the legislative process to make themselves rich,” said Kerwin Olson, project director for the Citizens Action Coalition. “Ratepayers are receiving nothing in this deal other than a charge tacked onto their bills to benefit Leucadia investors.”

Olson also points out the state’s utility customers never actually get to use the synthetic natural gas, because it is sold to a third-party energy shipper.

The arrangement

No one denies the arrangement is complex. Basically, IFA will buy almost all of the synthetic natural gas produced at the Indiana Gasification plant based on a formula in which the price of coal is the largest variable. The IFA then will sell that gas to an energy shipper at the market price for natural gas – which changes daily in response to supply and demand.

If the price of natural gas is above the price the IFA paid for the synthetic gas, the IFA realizes a profit. If natural gas is cheaper than the synthetic natural gas, the IFA racks up a loss.

Half of any profit would be passed to the state’s more than 1.7 million utility customers through credits on their bills. Indiana Gasification gets the other half. Customers also could share in profits from the sale of byproducts such as exotic gases produced by the plant.

Any loss IFA suffers would be passed to utility customers in the form of a bill surcharge, effectively reimbursing IFA for its loss. How much in surcharges versus how much in credits utility customers will rack up over 30 years is the chief point of contention.

Vectren has submitted testimony contending the IFA’s deal with Indiana Gasification could increase individual residential utility customers’ bills $34.56 per year on average. Commercial customers could see a bill increase of $144 per year on average and industrial customers could see an increase of up to $16,819 per year, according to Vectren’s testimony.

The largest users of natural gas, such as large steel mills, are exempt from the plan under legislation passed by the General Assembly.

Chief IFA witness Jennifer Alvey, a former finance director at the agency, stated the average customer would save $8.48 per year on their gas bill over the life of the contract in testimony filed in the case.

The price of natural gas on wholesale markets is currently hovering around $4.20 per million British thermal units. Estimates of the price of the synthetic natural gas Indiana Gasification will produce vary between $6 and $7 per million Btus.

The Indiana Gasification plant will convert coal into substitute natural gas by applying heat and pressure to the coal while limiting its actual combustion. The gas produced can be used just like natural gas to power electric turbines or make synthetic fuels.

Points of contention

Much of the testimony in the case revolves around different forecasts of natural gas prices. An expert witness for Indiana Gasification describes official U.S. Energy Information Agency forecasts of stable natural gas prices for years to come as “essentially worthless.”

“All of this is based on the fact we believe that the history of (natural) gas prices will continue to be one of the most volatile commodity prices that there is,” said Mark Lubbers, Indiana Gasification project manager for Leucadia. 

But Vectren, six smaller utilities, and consumer and environmental groups argue new means of extracting natural gas from shale deposits have led to the most plentiful supplies and lowest prices in decades.

Those against the project also point out the IFA contract could leave utility customers on the hook for increases in taxes as well as the cost of future government regulations placed on the plant.

On its side of the deal, Indiana Gasification is required to build a reserve fund of $150 million to reduce the size of any surcharges utility customers may find on their bills.

The contract also contains what IFA terms a guarantee of savings. If utility customers do not realize $100 million in net savings over the 30 years, IFA can extend the Indiana Gasification contract and buy the gas at a discounted price. Any profit IFA makes it could pass on to utility customers until they realize $100 million in savings. Or IFA can take possession of the plant and sell it, passing on proceeds to customers.

The contract’s opponents all say Alvey’s claims of a guaranteed return to customers is smoke and mirrors. They say a “guarantee” that doesn’t require any savings for a period of 30 years, and perhaps longer, guarantees nothing.

The states largest gas utilities

Here are the largest natural gas utilities that would be subject to the state’s plan for providing subsidies for Indiana Gasification’s clean coal plant:

NIPSCO: 721,000 customers

Vectren: 675,000 customers

Citizens: 261,000 customers

Source: Indiana Utility Regulatory Commission

Indiana Governor Daniels pushed and pushed for clean coal plant May 2, 2011

Posted by Laura Arnold in 2011 Indiana General Assembly, Uncategorized.
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Editor’s Note: You need to read the next two articles from the Sunday, May 1st NWI Times to get the complete gist of what is going on here with the Indiana Gasification project in Rockport Indiana. Hearings are going on today and later this week on this project before the Indiana Utility Regulatory Commission (IURC) in Cause No. 43976. Is it no surprise that Governor Daniels can’t seem to find time to support true renewable energy and distributed generation policies here in Indiana?  Laura Ann Arnold

Original article: http://www.nwitimes.com/business/local/article_49cc116c-d8e9-5b59-8049-621b4848316b.html

By Keith Benman keith.benman@nwi.com, (219) 933-3326 

nwitimes.com | Posted: Sunday, May 1, 2011 12:00 am |

The Daniels administration effort to support the financing for a clean-coal energy plant in southern Indiana has taken more turns than a country road winding into the heart of coal mining country.

Much of the time it has been two steps forward and one step back, as legislation needed to establish the plant was passed, tweaked and sometimes defeated in the General Assembly. There also were years of negotiations with Leucadia National Corp., the New York investment firm behind the project.

“We spent four years working on this deal and we walked away several times trying to make certain we had a really solid deal from the standpoint of the ratepayer as well as the state,” said Gov. Mitch Daniels, in a Times interview two weeks ago. “But to tell you the truth, I feel better about it today than I did before.”

But where Daniels and his allies see their plan as a valiant effort to provide a market for coal and clean up the environment, opponents see nothing but an attempt to pad the pockets of investors and a key ally of the governor.

“Ratepayers are receiving nothing in this deal other than a charge tacked on their bills that will benefit Leucadia investors,” said Kerwin Olson, a utility campaign organizer with the Citizens Action Coalition. “They are using a captive rate base to implement their business plan.”

Critics such as Olson are quick to point out the involvement of Mark Lubbers, Daniels’ former Statehouse political director, who is working for Leucadia as its Indiana Gasification project manager.

In an interview with The Times, Lubbers said he already had left his Daniels administration post when he was first contacted about the Indiana Gasification project in early 2006. He said his wife, then a state senator, recused herself from voting on Indiana Gasification legislation in 2007 and after.

He responded with outrage to critics’ charges he has leveraged his 35-year friendship with Daniels to benefit himself, allies or Leucadia.

 “The people who push this innuendo are sneaky and evil,” Lubbers wrote in a follow-up e-mail after the interview. “They lurk around at the edges of good and honest work attempting to damage it by collateral character assassination.”

Plan hinges on high natural gas prices

Politics aside, Daniels and other supporters acknowledge the deal is a complex one.

In essence, it has the state’s more than 1.7 million utility customers, including those at NIPSCO, paying for losses the Indiana Gasification plant would incur when natural gas prices are low. Conversely, utility customers would get a split of the profits produced when natural gas prices are high.

Natural gas prices were very high when Daniels first announced plans for the plant in October 2006. Natural gas futures were trading around $7.15 per million British thermal units, according to U.S. Energy Information Agency data. Earlier that year, the price had gone as high as $10.63.

Since then, natural gas prices have plummeted. This year, natural gas futures never even approached $5 per million Btus. They currently are trading around $4.20.

Those plummeting prices have significantly changed the profit picture for Indiana Gasification and the state’s utility customers. If prices remain that low, the state’s utility customers could see regular surcharges on their bills.

The plan’s winding road

It is now estimated the plant to be located in Rockport, east of Evansville near the Ohio River, will start production in 2015 if it receives regulatory approval.

When Gov. Daniels first announced plans for the plant in 2006, the state’s major natural gas utilities signaled they were ready to buy synthetic natural gas from the plant through 30-year contracts.

Daniels said jobs created by the project would amount to about 1,000 construction jobs, 125 plant-operator jobs and 300 coal mining jobs. The plant is projected to use 3.5 million tons of coal per year.

But in late 2008, the state’s major utilities withdrew from the deal, scratching the plan for the plant.

Since then three pieces of legislation have been passed to re-enable the project. Two set up the current plan for having the state’s utility customers, including those at NIPSCO, subsidize potential losses. A steady revenue stream must be assured for the plant so Indiana Gasification can obtain a nearly $1.9 billion construction-loan guarantee from the U.S. Department of Energy.

The plan also ran into an obstacle in the Indiana General Assembly earlier this year, when the Senate rejected legislation allowing for construction of a pipeline to carry carbon dioxide produced at the plant to Gulf of Mexico oil drilling operations.

Despite such setbacks, the governor and proponents say they will prevail and the plant will get built.

“I don’t think of this as a little regional thing,” Daniels said. “We have always thought of this in the context of an overall energy and jobs policy that is about everybody.”

Indiana Gasification timeline

The state’s support for the Indiana Gasification synthetic natural gas project has traveled a long and twisting road.

Oct. 27, 2006: Gov. Mitch Daniels announces plans for a $1.5 billion coal gasification plant to be operating by 2011. NIPSCO and other utilities sign letters of intent to buy synthetic natural gas from the plant for 30 years. Petition for approval filed with Indiana Utility Regulatory Commission.

Feb. 24, 2007: House Bill 1722 passes in the General Assembly, allowing state’s utilities to purchase synthetic natural gas from Indiana Gasification and to fully recover the cost from customers.

March 12, 2008: Gov. Daniels signs Senate Bill 223, expanding definition of synthetic natural gas and enabling utilities to charge customers in “Choice” programs for the gas.

Nov. 25, 2008: Indiana Gasification withdraws its petition for approval with IURC after NIPSCO and other utilities withdraw from negotiations to buy synthetic natural gas.

March 24, 2009: Gov. Daniels signs SB 423, allowing the Indiana Finance Authority to buy synthetic natural gas from Indiana Gasification and recover its costs through the state’s utility customers.

July 2009: Indiana Gasification project selected by the U.S. Department of Energy for due diligence on a $1.875 billion loan guarantee.

Early 2010: Legislative amendment allows for a third-party marketer to purchase Indiana Gasification synthetic gas from IFA.

Dec. 16, 2010: IFA votes unanimously to enter into a 30-year contract for purchasing synthetic natural gas from Indiana Gasification. IFA and Indiana Gasification submit petition to IURC for approval.

Feb. 11, 2011: SB 72 allowing for eminent domain for a carbon dioxide pipeline is defeated on Senate floor. Indiana Gasification parent company Leucadia National Corp. says project can’t go forward without pipeline.

March 13, 2011: Illinois Gov. Pat Quinn vetoes legislation that would have established a Leucadia coal gasification plant on Southeast Side of Chicago.

April 18 to 25, 2011: IURC holds public hearings on Indiana Gasification proposal in three locations around state.

Yet to come:

May 2, 2011: Evidentiary hearing starts before IURC in Indianapolis.

Sources: NIPSCO testimony in Indiana Gasification case before IURC; NiSource news release Oct. 27, 2007; Governor’s office news release Dec. 16, 2010; Indiana Utility Regulatory Commission.

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