Indiana Coal Gasification Bill for Natural Gas Supplies

Associated Press - http://www.forbes.com/feeds/ap/2009/03/24/ap6207660.html
Indiana governor signs coal-gasification bill
By RICK CALLAHAN , 03.24.09, 05:50 PM EDT

Gov. Mitch Daniels signed a bill into law Tuesday that allows the state's finance authority to negotiate long-term contracts to buy and sell synthetic natural gas from a planned southern Indiana coal-gasification plant.

Daniels said the law will save Indiana's natural gas users billions of dollars by ensuring a steady supply of synthetic natural gas free of the price fluctuations of the natural gas market.

Under the bill, the quasi-governmental Indiana Finance Authority would act as an intermediary contracting partner between the state's gas utilities and the developer of a coal-gasification plant near the Ohio River town of Rockport.

The law allows the finance authority to negotiate 30-year supply contracts with the plant's developer for the gas, which the utilities would pipe to their customers.

The roundabout method was needed because utilities dropped out of negotiations for the synthetic gas contracts last fall amid concerns the long contracts would harm their credit.

"They had some accounting issues doing that directly, but this is a very innovative bill," Daniels said. "The state of Indiana will be the contracting authority and pass the gas onto the utilities, which will in turn transmit it to its customers."

In the two previous sessions, lawmakers passed tax credits for the eventual developer of the plant, which would turn coal into synthetic natural gas, stripping it of pollutants and carbon dioxide to create a gas similar to real natural gas.
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Daniels said the state will open bidding soon on a contract to build the coal-gasification plant, which is expected to attract $2 billion in private investment, create up to 1,000 temporary construction jobs and 200 permanent jobs.

Bidding will be open to all potential developers, but a group that approached the state a few years ago with the idea for the project has been considered the leading candidate.

The governor said the plant would be the nation's first modern coal-gasification plant of its kind and would put Indiana at the forefront of so-called "clean coal" technology.

"This will establish Indiana as the leader in the clean coal era, which many of us believe is essential to America's future to have a strong economy, affordable energy rates and a better environment to leave to our kids," Daniels said.

Aside from that plant, Duke Energy Corp. (nyse: DUK - news - people ) is building a $2.35 billion power plant near Edwardsport that will turn coal into gas and then burn it in turbines to produce electricity.

The bill signed Tuesday by Daniels is the first to pass both chambers of the General Assembly this session. It cleared the Senate 48-0 and the House 90-8.

Daniels said federal agencies forecast that over the long term it will be cheaper "perhaps by a very large margin" to produce synthetic natural gas from coal rather than by actual natural gas due to the gas markets' sometimes wild fluctuations.

But opponents of the bill contend that it could actually lead to higher bills for natural gas users.

Kerwin Olson, program director for the Citizens Action Coalition of Indiana, said that last year coal prices doubled even as natural gas prices were going down.

"Certainly the price of coal is going to affect the cost of this synthetic natural gas," he said. "As far as the ratepayer impact goes, it's unthinkable for us that the state would force ratepayers to enter into a 30-year contract with no review of the price whatsoever."

"The way we see it that's an erosion of consumer and ratepayer protection."

David Pippen, an aide to Daniels, said that under the law the state finance authority will be the contracting party "while the developer and the state will have to work out the logistics of delivery and recovery of costs with the utilities."

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