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Gasification plant green light could hike NIPSCO rates

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State regulators Tuesday approved construction of a coal gasification plant and a 30-year contract for a state agency to buy its output, a move that could raise utility bills for NIPSCO and other utility customers across the state.

The Indiana Utility Regulatory Commission issued an order approving plans by Leucadia Corp., a New York-based investment firm, to build the $2.65 billion plant in Rockport, Ind., which is about 30 miles east of Evansville. Under the order, the Indiana Finance Authority will provide the plant with a 30-year revenue stream by buying basically all of the plant's output, with the state's utility customers making up any losses.

Consumer advocates charged the IURC simply was rubber-stamping Leucadia's plans.

"The bottom line is the Indiana Utility Regulatory Commission and Gov. Daniels will be forcing the natural gas ratepayers of Indiana to subsidize this project and pay ridiculous prices for the synthetic gas it puts out," said Kerwin Olson, executive director at the Citizens Action Coalition.

Supporters of the plant see it differently, maintaining the sales of synthetic natural gas produced by the plant actually will reduce volatility in customers' bills because of provisions to return some of the potential profits to utility customers.

"This decision will make possible hundreds of new jobs while ensuring a long-term supply of reasonably priced natural gas, which we will buy from Hoosiers, not foreign governments or someone elsewhere," said Gov. Mitch Daniels. "Best of all, it's an important boost to an economically struggling part of the state, which deserves this good news as much as any area of Indiana."

IURC Chairman Jim Atterholt, along with commissioners David Ziegner and Larry Landis, approved the order. The plant will be built and operated by Leucadia subsidiary Indiana Gasification.

NIPSCO did not take a position on whether the plant and its financing arrangement with the state should be approved, but a witness for the utility testified the plant may help reduce volatility in gas prices. NISPCO customers only will start paying for the plant once it goes into operation in 2015 and only if it is essentially operating at a loss.

Some other utilities, including Vectren, one of the state's largest like NIPSCO, testified against the project. A Vectren witness said the project could increase Hoosier utility bills by more than $1 billion.

In Illinois, Nicor Gas last week sued Leucadia Corp. and the Illinois Power Agency, alleging a plan to force them to buy synthetic natural gas from a plant Leucadia will build on Chicago's South Side violates state law.

Under the Indiana order for the Rockport gasification plant, the state's 1.7 million utility customers will get surcharges on their bills to make up 100 percent of the difference anytime the price of the synthetic natural gas produced at the plant is above the price of natural gas on the open market. If the price of synthetic gas drops below that of natural gas, utility customers will get a bill credit for 50 percent of the difference.

The wholesale price of natural gas has hovered around $3.40 per million British thermal units this week, according to data from the New York Mercantile Exchange. Indiana Gasification will charge between $6 per million Btu and $7 per million Btu, according to its own forecasts.

The Indiana commission noted there remain outstanding issues between utilities and Indiana Gasification over how to collect surcharges or bestow credits on customers. It urged the utilities and Indiana Gasification to work out those issues among themselves.

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