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In Indiana, debate over how ‘trackers’ shape future energy system | Midwest Energy News January 21, 2013

Posted by Laura Arnold in 2013 Indiana General Assembly, Uncategorized.
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This article from Midwestern Energy News discusses SB 560  on utility transmission introduced by Sen. Brandt Hershman.  There is no official word yet about when this bill will be scheduled for a hearing before the Senate Utility Committee. Continue to watch this blog for details!

In Indiana, debate over how ‘trackers’ shape future energy system | Midwest Energy News.

Transmission lines near Walnut, Indiana. (Photo by Patrick Finnegan via Creative Commons)

Transmission lines near Walnut, Indiana. (Photo by Patrick Finnegan via Creative Commons)

Posted on 01/17/2013 by

New legislation in the Indiana Senate would ensure a healthy, guaranteed profit in perpetuity on utility investments in wires, telephone poles, substations, and other parts of the transmission and distribution infrastructure, and ratepayer advocates and environmentalists are crying foul.

If such a measure becomes law, they say, it will burden low-income ratepayers with unnecessarily high bills and further entrench centralized, coal- and gas-based electricity generation, placing distributed, renewable generation at a disadvantage.

At issue in the new legislation is an important but esoteric provision of utility law called a cost tracker. When states allow trackers, they bypass rate cases, a key step in which state utility regulators scrutinize the books of monopoly electric utilities on behalf of the customers who are forced to buy their electricity.

The state then allows a line item to be added to utility bills for a specified purpose—in this case, for costs incurred when utilities replace or maintain power poles, wires and the like. In Indiana, trackers typically guarantee utilities a profit of between 8.5 and 12 percent on costs of a particular type, and ratepayers supply the company with that guaranteed profit.

Tracking trackers

The electricity bills that Indiana residents pay are a sum of the utility’s rate and the various line items.

Over the years, the state’s five investor-owned utilities—Duke Energy, Indiana Power and Light, Vectren, Nipsco, and Indiana Michigan Power, have persuaded state legislators to let them recoup most of their costs through trackers, including the cost of coal, natural gas, uranium and other fuel, the cost of scrubbers and other pollution controls, the cost of energy-efficiency efforts, and now the cost of wires, poles, transformers and other parts of the transmission and distribution network.

Because the state’s utilities are allowed a variety of trackers, their rates are not an accurate reflection of what customers actually pay. So when an Indiana utility says that its rates are rising only 2-3 percent per year, that’s technically correct, said Kerwin Olson, executive director of Citizens Action Coalition, an Indianapolis-based ratepayer advocacy group. But it’s also misleading, Olson said, because “customers don’t pay rates, customers pay bills.”

What’s more, Olson said, “utilities don’t like rate cases” and try to avoid them because they’re expensive to litigate, and because they allow the public utility commission, and the interested public, to examine their books and question whether costs they’re trying to get reimbursed for are costs they actually incurred.

That’s nonsense, said Ed Simcox, president of Indiana Energy Association, a trade group that represents the state’s investor-owned utilities.

Trackers are routine in Indiana and other states, he said, and they’re legitimate ways to recoup costs. The tracker for transmission and distribution infrastructure, in particular, is a legitimate way for companies to recoup costs to repair and replace aging infrastructure, he added.

A benefit for whom?

The tracker for transmission and distribution is important for reliability, Simcox said.

There are some very basic needs that the system has, he said. “They include pipe in the ground for gas companies, half-century-old wooden poles to string power lines and aging transformers that need to be replaced,” Simcox said. A lot of this will be done in the foreseeable future—over the next 10 years.

Moreover, Simcox said, the expenses recouped by trackers “have to be approved by the commission. That’s something these advocates wouldn’t tell you. The commission has the ability to open the books of the company at any time.”

Having trackers even benefits ratepayers, Simcox maintained. By guaranteeing revenue, it “enhances the position of the company in the financial community.” That means that utilities can pay lower interest rates when they borrow money for capital improvements, which in turn saves money for ratepayers, who reimburse the companies for their costs, he said.

Olson maintains that utilities are simply feathering their nest at the expense of ratepayers.

“Utility rate increases are the most regressive taxes you can have on the general population. They hit the poor the hardest,” Olson added.

Moreover, trackers are simply a different way for utilities to get guaranteed revenue to maintain a reliable electrical system. Whether the companies open their books in rate cases or use trackers to pay for it, utilities still need to do their job and provide reliable electricity.

“They’re going to do that stuff anyway because they have to,” Olson said.

Charging ratepayers for coal’s costs

Guaranteeing cost recovery for transmission lines could perpetuate an electrical system that produces far more climate-warming greenhouse gases than it might, said Jesse Kharbanda, executive director of the Hoosier Environmental Council.

“If you replace the transmission and distribution infrastructure on a 1:1 basis or build in anticipation of new central power plants, you’re reinforcing the current system,” he said.

That current system in Indiana is one of the most coal-reliant in the nation. In 2010, the most recent year for which data was available, the state generated 90 percent of its electricity by burning coal, far more than the U.S. average of 48 percent, according to data from the Energy Information Administration.

And according to a report [PDF] from the Environmental Integrity Project, Indiana was the fourth-largest greenhouse gas emitter overall in the United States in 2010, emitting more than three times the carbon dioxide of New York and California, which are far more populous.

Trackers are one of several ways Indiana’s utilities perpetuate the current system, Olson said. Utilities have had such dominion over the Indiana legislature, he maintained, that if the current bill passes they will have guaranteed that ratepayers pay fully for the costs of coal to burn; pollution controls that keep coal plants in compliance with federal environmental rules, and the costs of wires and infrastructure to move electricity from central plants to the populace.

“Essentially they have a tracker from coalmine to light switch,” Olson said.

IndyStar: Duke Energy Indiana customers owe $2.5 billion-plus for Edwardsport plant December 28, 2012

Posted by Laura Arnold in Duke Energy, Edwardsport IGCC Plant, Indiana Utility Regulatory Commission (IURC), Office of Utility Consumer Counselor (OUCC), Uncategorized.
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Dear IndianaDG Readers:

The story about the IURC order on Duke Energy Indiana’s Edwardsport IGCC  plant was the front page banner story in this morning’s Indianapolis Star print edition. At the end of the article is a summary of the timeline of events. This matter is not over since it is anticipated that parties such as Citizens Action Coalition of Indiana et al., that were intervenors that did not sign the proposed settlement agreement are expected to appeal the IURC decision.

For additional perspectives on this matter please also see:

Remember, you can read the IURC order in its entirety HERE> Order_in_Cause_No_43114_IGCC_4_S1(1)
Laura Ann Arnold
Duke Energy coal gasification power plant, Edwardsport, Ind.

Duke Energy coal gasification power plant, Edwardsport, Ind.

8:31 PM, Dec 27, 2012 Written by John Russell

Follow Indianapolis Star reporter John Russell on Twitter at @johnrussell99 or call him at (317) 444-6283.

Finally, after years of legal fighting, it’s official: Duke Energy Corp.and its 790,000 Indiana customers will split the $3.5 billion cost of the Edwardsport power plant — one of the largest, most expensive and most disputed construction projects in Indiana history.

But it’s not an even split, and how much each side will have to pay is likely to produce some grumbling.

The Indiana Utility Regulatory Commission ruled Thursday that Duke Energy must swallow about $900 million for the plant, which in 2010 became enveloped in an ethics cloud involving a revolving door between the regulatory commission’s staff and the utility’s ranks.

The commission ruled that Duke should have managed the project more prudently and that it failed to hold its contractors accountable in allowing costs to spiral from the original estimate of $1.985 billion.

“We do not find it reasonable for ratepayers to pay for the imprudent actions of Duke’s contractors,” the ruling said.

But the commission ruled that the 618-megawatt plant ias necessary to meet the future energy needs of Indiana. It said customers must pay the bulk of construction costs: $2.595 billion, plus millions of dollars in financing costs.

Duke said the ruling will result in customers’ bills climbing 14 percent to 16 percent. Of that, a 5 percent rise already has taken place. The remainder will occur in two steps: Customers will see a rate hike of 3 percent to 4 percent in January, and two other hikes totaling 6 percent to 7 percent by early 2014.

The company said construction of the huge plant, near Vincennes, is nearly complete. It expects to put the plant into commercial operation by the middle of next year. Already, it has produced its first electricity from gasified coal during start-up and testing. The plant uses a coal-gasification technology to turn coal into electricity.

The ruling “allows us to focus on bringing into service a plant that will help us meet increasingly strict federal environmental regulations while still using an abundant local resource, Indiana coal,” Duke Energy said in a statement.

The IURC said that if Duke recovers any additional funds through litigation, the surplus must be returned to customers. Duke has strongly hinted it would take its contractors to court for engineering and construction problems.

The commission also directed Duke to credit customers for certain incentive payments that were found to be unwarranted “given the delays that arose from the project cost overruns.”

And in a major victory for the utility, the commission found that Duke did not commit fraud, concealment or gross mismanagement with the project. Those charges were leveled by several customer and citizens groups and resulted in months of public hearings.

In large part, Thursday’s ruling reflects a new settlement that Duke reached with its largest customers and the Indiana Office of Utility Consumer Counselor in April. The agreement and ruling apparently end more than two years of uncertainty and bitter fighting among those organizations over who should pay for a string of huge cost overruns.

The deal replaces an earlier agreement, reached in 2010, that had called for customers to pay about $2.9 billion of the plant’s costs. That settlement fell apart after The Indianapolis Star revealed secret meetings and conversations between state regulators and Duke executives stretching back several years.

David Stippler, the state’s consumer counselor, said Thursday the ruling means that more than $835 million in construction cost overruns will be borne by Duke, not its customers.

“At the same time, all Hoosiers will benefit from the reliability and stability this project will add to the grid,” Stippler said in a statement.

The agreement did not satisfy everyone. Citizens Action Coalition of Indiana, which has long fought the plant as unnecessary, said customers could have to pay tens of millions of dollars in additional funds for ongoing financing of the plant, which could push their share of the cost to $2.65 billion.

“Customers should not have to pay for any cost overruns which are attributable to imprudence or mismanagement of the project,” said Kerwin Olson, the group’s executive director. His group said it would appeal the ruling to the Indiana Court of Appeals.

The plant came under severe criticism from the outset. Some critics said the technology was unproven and the additional generating capacity wasn’t needed.

Others weighed in after The Star exposed numerous emails and internal documents that showed utility executives had a chummy relationship with some state regulators.

Those revelations cost four high-ranking people their jobs, including David Lott Hardy, former chairman of the regulatory commission, who was fired by Gov. Mitch Daniels in late 2010. Others who lost their jobs were Duke’s No. 2 executive, the company’s former Indiana president and a Duke lawyer named Scott Storms.

The ethics scandal began, in large part, when Storms joined Duke in 2010 from the IURC, where he had been working as a chief administrative law judge. In that role, he oversaw the IURC’s regulation of the Edwardsport project while negotiating for a job with utility.

Duke said Thursday it looked forward to getting the controversy behind it and getting the plant in operation.

“Edwardsport will serve the electric energy needs of our Indiana customers for decades to come,” the company said.

TIMELINE OF EVENTS

2010
>> Aug. 31: Duke Energy offered a job to Scott Storms, general counsel for the Indiana Utility Regulatory Commission.
>> Sept. 9: The Indiana Ethics Commission ruled that Storms could take the job without a one-year cooling-off period typically required for utility regulators.
>> Sept. 22: Consumer groups, including the Citizens Action Coalition, raised serious concerns about Storms’ hiring and the relationship between utilities and state regulators.
>> Sept. 24: Duke Energy said it would impose stricter limits on Storms’ work for Duke, saying it wouldn’t let him do any work for Duke with the IURC for a year or work internally for Duke on any regulatory cases involving Duke pending with the state.
>> Sept. 27: Storms began working for Duke.
>> Oct. 5: Gov. Mitch Daniels terminated and replaced David Lott Hardy as chairman of the IURC, citing the violation of an ethics policy. As a result, Duke announced it had put its Indiana president, Michael W. Reed, on paid leave as he played a role in hiring Storms away from the IURC. Reed formerly was an IURC executive director.
>> Dec. 9: Under pressure from large industrial customers, Duke agreed to renegotiate an agreement that had customers paying for much of the latest cost overruns at Duke’s coal-gasification plant in Edwardsport.

2011
>> May 12: An ethics panel ruled that Storms violated state law when he participated in cases involving Duke while talking to the utility about a job.
>> June 30: The state’s utility consumer agency withdrew support for a deal with Duke in which ratepayers would shoulder $530 million in extra construction costs for the Edwardsport plant.
>> July 14: The utility consumer agency and Duke’s industrial users called for regulators to force the utility to pay for $1 billion in cost overruns on the Edwardsport plant and not pass those costs on to consumers. The Citizens Action Coalition argued that consumers should pay nothing toward the cost of the plant.
>> Oct. 27: The IURC kicked off weeks of testimony about Duke’s handling of the Edwardsport project.
>> Dec. 9: A Marion County grand jury indicted Hardy on three counts of official misconduct.

2012
>> July 2: Duke Energy agrees to merge with Progress Energy. Hours after gaining regulators’ approval, Duke Energy’s board ousted Progress Energy CEO Bill Johnson, who was supposed to take over the combined company, in favor of Duke Energy CEO Jim Rogers. The deal created the nation’s largest electric company.
>> Nov. 29: Rogers agrees to retire at the end of 2013 as part of a settlement with North Carolina utilities regulators over the July 2 action.
>> Dec. 27: The Indiana Utility Regulatory Commission approves an agreement that would shift $900 million in cost overruns on the Edwardsport plant to Duke.

— Source: Star archives

Resolution of Rockport issue should allow HB 1072 Conference Committee with solar pv property tax exemption to move forward; “Knock on wood” March 9, 2012

Posted by Laura Arnold in 2012 Indiana General Assembly, Indiana Utility Regulatory Commission (IURC), Uncategorized, Vectren.
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Dear Blog Readers:

There has been no action on the HB 1072 Conference Committee since its initial meeting on 3/6/2012 while state legislators and the Daniels Administration discussed the tax credit for the Indiana Gasification, LLC SNG plant at Rockport, Indiana. Now with the alternative course of action outlined in the newspaper article below, state lawmakers are expected to take action on a Conference Committee Report for HB 1072.

HB 1072 as it passed the Senate contained the extention of the property tax exemption for solar pv. I am hopeful that this language will remain in the Conference Committee Report (CCR) which needs to be signed today. After the four conferees sign the CCR then it returns to both the House and the Senate for final roll call votes. Please note that another Conference Committee meeting is not required for the conferees to merely sign the CCR. Before the CCR on HB 1072 can be voted on the floor though it must go both to the House Rules Committee and the Senate Rules Committee. Hopefully, the time clock will not run out but this issue may not be resolved until the final hours or hour of the 2012 session. “Knock on wood.”

Laura Ann Arnold

Lawmakers dropping Rockport issue as session nears its end

  • By Eric Bradner
  • Evansville Courier & Press
  • Posted March 8, 2012 at 2:23 p.m., updated March 8, 2012 at 3:45 p.m.

INDIANAPOLIS —Developers of the Rockport, Ind. coal-to-gas plant do not need state lawmakers’ help to get a 20-year, $120 million tax credit, after all.

Instead, the Indiana Department of Revenue – an agency under the watch of Gov. Mitch Daniels, a champion of the $2.6 billion plant – will rule on whether the tax credit applies. The agency’s likely answer: Yes.

It’s a work-around to avoid asking reticent legislators to once again change the law to help push forward a plant that Daniels calls a great deal, but Vectren Corp. and other Indiana utilities say will drive ratepayers’ bills upward.

Key Republican fiscal leaders said the Daniels administration had opted to try for that “administrative fix” to forestall potential lawsuits over the tax credit, instead of pressing lawmakers on the issue as the 2012 legislative session reaches its end.

Senate Appropriations Committee Chairman Luke Kenley, R-Noblesville, said legislation related to the tax credit won’t make its way into a bill.

“Everybody likes to let the legislature solve all their problems for them rather than figure out if they’ve got another way to do it sometimes, and I think maybe that’s what happened in this case,” Kenley said.

The Rockport plant’s proponents said working through the Indiana Department of Revenue is fine with them.

“There was never any doubt in our minds that we qualified under the existing law,” said Mark Lubbers, an Indiana consultant for Leucadia National Corp., the Rockport plant’s developer, and a former top Daniels aide.

“Given the fact that Vectren is spending every dime of ratepayer money they can to slow us down, we wanted to clarify the language in a way to mitigate their next nuisance lawsuit.”

Opponents took another view.

“I thought we overthrew the monarchy back in 1776,” said Kerwin Olson, the head of the Citizens Action Coalition, an environmental advocacy group that has opposed the Rockport project.

After negotiations with utilities such as Vectren broke down, Daniels had the Indiana Finance Authority negotiate a 30-year contract to purchase 38 million dekatherms of synthetic natural gas annually from the Rockport plant, and then resell that to Hoosier ratepayers.

The contract, approved by the Indiana Utility Regulatory Commission in November, was a huge boost for Rockport’s developers because it guaranteed their product would have a buyer.

However, during this year’s session, Vectren has used the question of whether the tax credit, which would give the Rockport plant an approximately $6 million per year incentive to purchase Indiana coal, is applicable as a chance to lobby lawmakers to reconsider the whole project.

Their argument: A recent shale-gas boom has driven natural gas prices on the open market down to $2.50 per dekatherm – much lower than the $6.64 per dekatherm average rate over the life of the contract that the Indiana Finance Authority expects to pay the Rockport plant.

Indiana utilities wouldn’t have a financial stake, but 17 percent of all Hoosier ratepayers’ bills would be tied to the Rockport plant’s prices, and utilities would be required to act as an intermediary and bill for that 17 percent.

Thus, Vectren officials have complained, they expect to be blamed by ratepayers if the cost of Rockport’s synthetic natural gas proves higher than the other natural gas the utility is delivering.

Still, Daniels said he expects natural gas prices to fluctuate over time, as they have in recent years. He said Hoosiers are guaranteed savings over the life of the contract, and that it would also help create jobs in Southwestern Indiana.

By dodging the step of having the Indiana General Assembly approve language related to the tax credit before Friday’s adjournment, the Daniels administration keeps lawmakers from stepping into a court battle, as Vectren and others are challenging the IURC’s approval of the Rockport plant.

“I’m pleased that there seems to be a recognition among many legislators that there are questions about this project,” said Mike Roeder, Vectren’s vice president of government affairs and corporate communications.

He said the utility will have to regroup before determining how next to try to prevent the Rockport plant’s construction.

“We’ve been laser-focused on this legislative language because frankly, that’s what the other side believed they needed. They’ve changed strategy, and so we’ll have to evaluate that,” Roeder said.

“This has been as much about the project as it is about the credit. It’s just caused us to say to legislators for several weeks, ‘We don’t think you should give them the tax credit, and by the way, you might just want to take a whole new look at the project.’”

Lubbers said the tax credit is important to another step toward the project’s completion: Securing a federal loan guarantee from the U.S. Department of Energy.

“We have to go through the process, but our case is extremely strong and we feel very comfortable. This kind of ruling has the force of law and will keep the next nuisance lawsuit from Vectren from slowing us down,” Lubbers said in an email.

“Additionally, our financing team feels that this ruling will provide all the assurance we need for the Department of Energy loan guarantee commitment. So, all good.”

IBJ: Ethics scandal costs Duke Energy in two Indiana Utility Commission rulings October 20, 2011

Posted by Laura Arnold in Duke Energy, Indiana Utility Regulatory Commission (IURC), Office of Utility Consumer Counselor (OUCC), Uncategorized.
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Original Article: http://www.ibj.com/ethics-scandal-costs-duke-energy-in-two-rulings/PARAMS/article/30251

by Chris O’Malley, Indianapolis Business Journal (IBJ)

October 19, 2011
 

A 2010 ethics scandal involving the chief legal counsel for the state’s utility regulatory agency, who presided over cases favorable to Duke Energy Corp. in the months prior to taking a job at the utility, has come back to bite the state’s biggest electric utility.

The Indiana Utility Regulatory Commission on Wednesday reversed a ruling made by former chief counsel and administrative law judge Scott Storms. It would have allowed Duke at its next rate case to seek to recover from ratepayers $12 million in costs the utility incurred during a 2009 ice storm.

Also on Wednesday, the commission dismissed a case handled by Storms in which Duke sought permission to tap ratepayers to install “smart” electric meters in central Indiana to help better regulate loads. That project was estimated to cost $22 million.

The case in which Duke sought to collect storm damage costs is most notable. It was the only Scott Storms case the commission decided to reopen for further review after the ethics scandal came to light last year.

It was the also the only proceeding involving Storms in which one of the parties—the Indiana Office of Utility Consumer Counselor—had appealed to the state Court of Appeals.

The OUCC argued that Duke’s attempts to recover the ice storm damages during a future rate case amounted to retroactive ratemaking, which is only permitted in the case of extraordinary financial events. Charlotte-based Duke reported 2010 operating earnings of $14.2 billion.

“We are pleased with the outcome. … We think that it’s commendable that the commission reconsidered,” Anthony Swinger, spokesman for the OUCC, said of Wednesday’s IURC ruling on the storm cost case.

“It’s been our position all along that we did not believe the facts supported Duke’s request.”

Swinger said Duke is already authorized to collect $2.6 million a year from ratepayers for storm damage costs.

Two IURC commissioners, Kari Bennett and David Ziegner, dissented from the decision to reverse the storm damage case handled by Storms.

They wrote that, “upon reopening this cause, no evidence was offered concerning allegations of [Storms having] undue influence associated with the original proceeding.”

Bennett and Ziegner said the majority views the decision to reopen the case to mean that it is authorized “to reconsider and reweigh” all the evidence and reach a different outcome despite the fact that none of the resubmitted evidence is materially different than the original.

“We do not agree that such an expansive reconsideration is appropriate.”

Duke officials said late Wednesday they continue to believe that its storm damage costs were “prudently incurred” and will address the issue in its next rate case.
Although it now cannot seek to recover the $12 million in 2009 storm damage in a lump sump, per se, it is possible Duke could instead seek to increase the current $2.6 million a year it’s permitted to collect for general storm costs.

As for the other ruling Wednesday — the dismissal of Duke’s request to invest in smart grid features such as advanced metering — the spectre of the Scott Storms scandal loomed large.

The commission said Storms presided over the 2010 evidentiary hearing in the case after he accepted a job offer from Duke as an attorney for its Indiana operations.

The Indiana Ethics Commission in May said the move was in violation of state ethics laws, although Storms has appealed the ethics board’s final report in Marion County Circuit Court.

“The ethics case  … which relates directly to this cause, has resulted in and continues to cause, substantial delay in the commission’s ability to review and decide the merits of this case,” the IURC said Wednesday.

The delay means that cost estimates presented in Duke’s smart grid case may havebecome outdated.

“In addition, the commission has concerns about rendering an opinion on the current record in light of the Indiana Ethics Commission’s factual finding in its final report,” the  IURC said, adding that it is thus “not in the public interest” to decide the merits of Duke’s smart grid deployment.

Duke Energy spokesman Lew Middleton said the utility respects the commission’s decision given the passage of time. He noted that the IURC did not dismiss the case based on the merits in the smart grid proposal.

 “We will evaluate our next steps,” he said.

Kerwin Olson, interim executive director of utility watchdog group Citizens Action Coalition, said he was still trying to make sense of the IURC rulings late Wednesday.

Olson noted that the commission in these two cases made decisions that centered on orders involving Storms. Yet the commission isn’t taking into consideration Storms’ rulings involving Duke’s controversial Edwardsport coal-gasification plant, which has $530 million in cost overruns.

“I fail to understand the difference,” Olson said.

The Storms scandal proved an embarrassment for both Duke and the IURC.

Duke later fired Storms, along with Michael Reed, the head of Duke’s Plainfield-based Indiana operations.

Another casualty was IURC chief David Hardy, who Gov. Daniels fired last fall. E-mails revealed Hardy knew Storms was handling Duke cases even after immersed in job discussions with the utility. They also showed Hardy making light of a routine state ethics panel hearing triggered after Storms announced his intention to seek work at Duke.

E-mails also show that Hardy was chummy with Duke Energy executives to the point it may have tainted commission decisions involving Duke, including those of the controversial Edwardsport project.

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.