Indiana SNG

Through its subsidiary, Indiana Gasification, Leucadia National Corporation is developing plans for a facility that would convert 3 million tons per year of Indiana coal into substitute natural gas (SNG). Leucadia is a New York city-based holding company with subsidiaries in energy, telecommunications, healthcare services, manufacturing, banking and lending, real estate activities, winery operations, mining, and property and casualty reinsurance.

The project has two "development partners," E3 Gasification and Johnston & Associates.

The principals of E3 Gasification Principals authored Harvard's “3Party Covenant” study and testified to Congress on the benefits of federal loan guarantees for gasification project development. E3's President, William G. Rosenberg, also serves as a Senior Fellow at Harvard University's John F. Kennedy School of Government. Formerly, Rosenberg served as Assistant Administrator of EPA; Assistant Administrator of the Federal Energy Administration; and Chairman of the Michigan Public Service Commission.

Johnston & Associates is a lobbying firm headed by former Louisiana Senator Bennett Johnston. Johnston chaired the U.S. Senate Committee on Energy and Natural Resources from its creation. According to Leucadia presentation, he was "either directly or indirectly responsible for all energy legislation considered by the Congress between 1973 and 1996."

According to the letter of intent for 30-year supply contracts signed by the participating utilities in October 2006, about two-thirds of the SNG produced by the new plant would be purchased by Indiana's three largest gas utilities, Vectren Corporation, NIPSCO (Northern Indiana Public Service Company), and Citizens Gas to help meet residential and commercial gas demand. NIPSCO would purchase the remainder of the gas to fuel electric generation for its service territory to meet seasonal demands.

According to the Sierra Club, in August 2008 Indiana regulators agreed to a request by the project developers to postpone financing hearings for the plant from November 24, 2008 to March 9, 2009. The delay will give developers time to complete negotiations with companies that would buy their gas.

In November 2008, having failed to find customers for the output of the plant, the project developers requested the Utility Regulatory Commission to put its proceedings on the project on hold.

In November 2009, the U.S. Department of Energy announced that it was considering the project for a federal loan guarantee. The project eventually got loan coverage of $1.6 billion from the U.S. Department of Energy's Energy Policy Act of 2005.

In February 2010, legislation to grant eminent domain for a carbon dioxide pipeline starting at the proposed Rockport syngas plant and leading to oil fields in Texas cleared the state Senate, and was sent to the House Commerce, Energy, Technology and Utilities Committee. E3 Gasification LLC is working to develop the project, including a pipeline that would run underground from the Rockport plant down to Louisiana and Texas. Coal would be burned in Indiana to produce energy, while the carbon dioxide produced would be captured and then pumped through the pipeline, to be injected into oil fields and used to apply pressure to increase oil production in Texas and Lousiana.

On December 16, 2010, Indiana Governor Mitch Daniels made the announcement that the Indiana Finance Authority (IFA) Board had voted unanimously to approve the $2.65 billion project in Spencer County. According to the agreement, IFA will enter into a 30-year contract with Indiana Gasification, LLC, a subsidiary of Leucadia National Corporation, to purchase 38 million MMBtus (approximately 17 percent of the total used by non-industrial customers in the state) of substitute natural gas when SNG production begins in late 2015. Indiana coal will be used to produce the SNG, as well as other byproducts - sulfuric acid, argon, other rare gases, and vitreous slag for building roads. The IFA has completed its negotiations and will file a petition to the Indiana Utility Regulatory Commission (IURC) for approval of the agreements related to this project. Indiana Gasification is in the final stages of negotiating its loan guarantee with the U.S. Department of Energy. Depending on the completion of the IURC process and the environmental impact study, construction is set to commence in early 2012.

On February 8, 2011, Senators rejected a measure that would have cleared the way for a pipeline to move carbon dioxide away from the proposed Indiana SNG plant to buyers on the Gulf Coast. The vote was 28-21, with 16 of the chamber's 37 Republicans opposed. Without the legislation allowing eminent domain for pipelines, lead investor Leucadia doubts it could secure the federal guarantees on construction loans for the plant. A top Leucadia official in Indiana, Mark Lubbers, once a chief adviser to Gov. Daniels, is expected to confer with company and legislative leaders about bringing the eminent domain measure back to the General Assembly.

On November 22, 2011, state regulators approved construction of the coal gasification plant and a 30-year contract for a state agency - Indiana Finance Authority - to purchase its output, a move that could raise utility bills for NIPSCO and other utility customers across the state. The Indiana Finance Authority will buy most of the synthetic natural gas the plant produces and then sell it to the state's utility companies. Those utilities in turn will charge their customers for any difference in price between the synthetic natural gas produced by the plant and prices on the open market. There also are provisions to return some of the profits to utility customers if the synthetic natural gas costs less than gas on the open market.

In June 2012 the Indiana Department of Environmental Management released a proposed water permit for the plant. Developers were still negotiating with the U.S. Department of Energy for approximately $2.5 billion in loan guarantees. Indiana Gasification said it hopes to have a commitment by the end of 2012. Construction could begin in 2013.

In 2012 the Indiana Court of Appeals struck down utility regulators’ approval of the 30-year contract because a 37-word clause included in the deal runs afoul of state law. In response, the Indiana Finance Authority and the Rockport developers agreed to drop that section from the contract.

In 2013 Indiana lawmakers approved a new law designed to impose ratepayer protection standards on the Rockport plant. Dropping the 37-word clause would trigger the new standards, which developers say would scuttle the project.

In June 2013 the Supreme Court said it would hear a case about the plant, focusing on the 30-year contract that the Indiana Finance Authority signed and the ratepayer protection standards. Developers have stopped moving forward with the plant until the high court issues its ruling.

Three Party Covenant Financing
According to a press release issued by NiSource, the parent company of NIPSCO, "Rosenberg and his colleagues at the Kennedy School's Belfer Center for Science and International Affairs completed pioneering work in devising a new regulatory construct – the Three Party Covenant – that would permit the financing of large coal gasification plants. Johnston is the former chairman of the Senate Energy and Natural Resources Committee."

Under the 3Party Covenant arrangement, the project owner would contribute 20 percent of the project costs and the remainder would be financed with debt backed by a federal loan guarantee.

Citizen Activism
The plan was opposed by the Indianapolis-based Citizens Action Coalition and also Valley Watch (see video), who says that U.S. EPA 2009 Toxic Release Inventory data show that Rockport (population 2068) already has more toxic emissions than Atlanta, NYC, Pittsburgh, Philadelphia, Chicago, Indianapolis, Seattle, Los Angeles, and San Diego combined. And that, despite this, the U.S. Department of Energy is proposing giving a $2.2 billion loan guarantee to build the plant, as part of developing carbon capture and storage technology.

On March 9, 2011, about 130 south Chicago residents and environmental activists rallied outside the Thompson Center to protest the plant, circling around the state government building before delivering petitions to aides for Gov. Pat Quinn. They said the plant would pollute the southeastern corner of Chicago more than it already is. The plant would be built only if Quinn approves a new law requiring utilities that purchase power from Leucadia to maintain 30-year-contracts. Residents of Hegewisch, South Deering and South Chicago want Quinn to veto that bill, approved by the Illinois Senate in January 2011. Rich Martinez, who lost a bid for 10th Ward alderman in the 2011 municipal election - in part, he said, because labor unions did not like his stance against the Leucadia plant - does not think the promise of new jobs is sufficient to justify the project: "I can understand that (the unions) want to put their people to work for three years" while the plant is built, Martinez said. "But then, they go home and we're stuck with this for the rest of our lives."

Developers of the proposed coal-gasification plant in Rockport, Ind., asked state environmental authorities Thursday for the permits they need in order to build the plant.

On April 21, 2011, Indiana Gasification asked state environmental authorities for the permits needed for the plant, saying in a report the company would not pump out any foul air or water once the plant is up and running, and would rely on 10,000 gallons of Ohio River water per minute, instead of using area aquifers. For the plant to go through, the company is needs the Indiana Department of Environmental Management to approve their applications, the Indiana Utility Regulatory Commission to OK a deal they signed with the Indiana Finance Authority to have the state buy and resell most of their synthetic natural gas, and the federal government to approve construction loan guarantees for the $2.6 billion plant, in case the plant fails.

Project Details
Sponsor: Leucadia National Corporation Location: southwest Indiana Size: 40 BCF substitute natural gas (SNG) and 134 MW (net) electricity Type: substitute natural gas (SNG) Projected in service: Status: was placed on hold (2008), under consideration for loan guarantee (2009)

Citizen Groups

 * Citizen Action Coalition of Indiana, Kerwin Olson, kolson@citact.org.
 * Indiana Sierra Club
 * Valley Watch, John Blair, contact@valleywatch.net.
 * Polk & Associates, Jerome Polk, info@polk-law.com (legal counsel representing the above organizations)

Related SourceWatch Articles

 * Carbon Capture and Storage
 * Carbon Capture and Storage demonstration projects worldwide
 * Carbon Capture and Storage in the United States
 * Existing U.S. Coal Plants
 * US proposed coal plants (both active and cancelled)
 * Coal plants cancelled in 2007
 * Coal plants cancelled in 2008
 * Indiana and coal
 * Profiles of other states (or click on the map)

External Resources

 * Outline of project by sponsors
 * William Rosenberg, "Gasification Project Development… Progress and Challenges," Sep. 2010.
 * William G. Rosenberg, Dwight C. Alpern, and Michael R. Walker, "Financing IGCC – 3 Party Covenant" Energy Technology Innovation Project: a joint project of the Science, Technology and Public Policy Program and the Environment and Natural Resources Program Belfer Center for Science and International Affairs, Feb. 2004.