Coal gasification plant would be costly to ratepayers

Smith

The proposed Tondu project is a microcosm for what's wrong with Indiana's energy policy at this time. Policymakers, whether they be at the local or state level, are gravitating to highly risky, large capital projects that involve base-load coal plants, power plants that are designed to run at least 80 percent of the time.

At the state level, the main purpose of supporting these high-cost options is not to meet electric energy demand at the least cost possible -- there are better options for ratepayers and job creation -- but to bolster Indiana's coal industry. At the local level it's mainly a jobs and tax base issue.

In terms of the numbers being tossed around, the new generation of coal gasification plants will not be cheap. A 600 megawatt plant will cost an estimated $ 1 billion. I say estimated because there is not really much experience with these plants. The technology is not commercialized, which is why Wall Street investors require massive taxpayer and/or ratepayer subsidies before they ante up.

And that's one of the main issues with respect to the Tondu plant, shifting financial risk (the bulk of the costs) to the public. In light of the public hearing Aug. 18, and other maneuvers conducted by Tondu, the risk-shifting strategy is readily ascertainable:

1) Despite his purported support for labor, Joe Tondu, owner of the corporation, conducted a successful frontal assault on prevailing wage to reduce financial risk in terms of labor costs.

2) It's obvious that the project is threatened unless Tondu can capture most of the capital costs of the plant from the $5 billion of taxpayer money provided in the federal energy bill for the first three or four approved coal gasification plants nationwide. When one of the county commissioners asked if they could postpone the decision for a month to deliberate more thoroughly about issues related to the plant, Tondu conceded that he had to be among the first in line for taxpayer dollars in order to make the project viable.

3) Perhaps Tondu's most glaringly false statement during the hearing was his assertion that ratepayers would not be picking up costs of the plant because he was selling directly to utilities. This is known as a purchase power agreement and those costs are passed directly on to ratepayers.

4) There could also be additional local tax subsidies picked up by property taxpayers. However, this is unclear at the moment. It would be something to press local officials about.

So there you have it, taxpayers and ratepayers will be paying for the plant. The most egregious affront to the public would be if Tondu doles out a fraction of the dollars needed to build the plant due to taxpayer largesse and then sells it to a consortium of utility companies whereby ratepayers would pick up the purchase costs for the utilities and Tondu would walk away with windfall profits. Even if it becomes a purchase power agreement with utilities, Tondu could make out by incorporating capital expenditures into the price that the public already paid for once.

The other issue is that Tondu is simply a developer. They are going to need an engineering firm to build the plant and an engineering firm to operate it, or one or more utility companies. Tondu did mention Indiana Michigan Power Co. and perhaps other interested utilities "down state." But the main idea is to ensure that profits are privatized and financial risk is socialized. Meanwhile, utility rates for ratepayers somewhere, very likely in Indiana, will increase substantially.

Politically, the county council is all alone. The town council in New Carlisle will have a tough time supporting the plant. Despite this and the vote Thursday night by a St. Joseph County Council committee to send the issue to the county council without recommendation, it is likely that those county council memebers declaring themselves undecided at the hearing, have decided. They are most likely in favor of the plant because they asked the exact same questions of Tondu that were on the Tondu Web site.

Grant Smith is executive director of Citizens Action Coalition of Indiana. He lives in Indianapolis