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Friday, November 25, 2011

Ind. Gov't. - More on "Gasification plant gets green light, NIPSCO rates could go up"

Updating this ILB entry from Nov. 22nd, here is John Russell's Nov. 23rd story in the Indianapolis Star, headlined "Gas plant some call risky gets a key OK: IURC approves deal for state to buy synthetic product made from coal." Some quotes:

Under the plan, the Rockport gasification plant would take in 3.2 million tons of coal each year, produce 47 million BTUs of natural gas and sell 38 million of those BTUs at a firm price to the Indiana Finance Authority every year for 30 years. The state agency would resell the gas daily on the national market.

The risk for Indiana consumers is in the firm price. In sales on the open market, gas prices routinely rise or fall every day with supply and demand.

But the Rockport investors always would receive from the state a firm payment: about $7.57 per 1 million BTUs, or about $7 billion over 30 years. This would cover plant operations, coal costs, shipping the natural gas and loan repayments, plus a small profit of about 5 percent on the $500 million the investors plan to spend on the plant.

On Tuesday, natural gas futures were trading for $3.39 per 1 million BTUs, or less than half the price built into the state's model.

The story also reports:
[T]he Indiana Finance Authority has projected that the project could cut the monthly bill for the average home by 71 cents. That would add up to savings for the typical home of $255.60 over 30 years, which means the gas-burning residents of the state altogether would save about $8.5 million per year.
If I read that right, the best case scenario will mean a household savings of only "$255.60 over 30 years." The worst case?
Jerrold Ulrey, vice president of regulatory affairs and fuels at Vectren Holdings, testified before the IURC that gas taken from the vast North American shale fields could wind up cheaper than Indiana's gas from coal. If this proves true, and gas from coal becomes costlier, he testified, the deal would saddle Indiana gas customers with higher monthly gas bills for years.

"By the end of the first 10 years, the (Indiana) gas customers would have an accumulated loss of nearly $500 million," he told the IURC.

[Governor] Daniels has dismissed the utility executives' views and said natural gas prices will rise in the years ahead, and Hoosiers will benefit from the Rockport gas.

Here is the 106-page order of the IURC, approved Nov. 22, 2011. The vote: "ATTERHOLT, LANDIS AND ZIEGNER CONCUR; MAYS AND BENNETT NOT PARTICIPATING."

The "Guarantee of Savings" discussion begins at p. 83 of the order. The subdivision on "d. Consumer savings" begins on p. 91 and concludes on p. 92:

Having considered the evidence presented regarding modeling analyses and other estimates of consumer savings under the SNG Contract, we cannot conclude that the SNG Contract will provide a specific amount of consumer savings under the SNG Contract because savings will be highly dependent on future commodity prices, particularly natural gas prices, and to a lesser degree coal and petroleum coke prices. The evidence demonstrates strong disagreements about the most appropriate modeling techniques to evaluate these consumer savings and what errors or flaws may exist in various modeling approaches presented. While estimates of potential consumer monetary savings scenarios are important and provide important information for the Commission to consider, the evidence indicates that future commodity price uncertainty, particularly over the long term, renders modeling and other calculations of consumer savings imprecise at best and potentially misleading at worst.

However, sufficient evidence exists for us to find that the model and inputs used by Joint Petitioners to calculate consumer savings under the SNG Contract to be reasonable. While the actual amount of savings cannot be predicted with certainty, the Commission notes alternative provisions are present in the SNG Contract to provide the guarantee of savings. Specifically, at the end of the thirty-year term, IG may pay in cash any shortfall that may exist, the SNG Facility may be sold and the proceeds used to pay any savings deficit, or the Contract term may be extended at a lower SNG price until savings are achieved.

Posted by Marcia Oddi on November 25, 2011 02:51 PM
Posted to Indiana Government