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Indiana: Coal Gasification Could Be Price Hedge

Indiana utilities buying gas on behalf of customers could have a new option in homemade substitute natural gas procured from the state. Last Tuesday Gov. Mitch Daniels signed legislation allowing Indiana to buy and resell gas from a planned coal gasification plant in the southern part of the state.

The plant was proposed in 2006 to be constructed in Rockport, IN, and would produce pipeline-quality gas. Additionally, Duke Energy Corp. is building a $2.35 billion power plant near Edwardsport, IN, that will use coal gasification technology.

"Edwardsport establishes our unique leadership in producing electricity from clean coal. Rockport will be first in gas from clean coal. In concert, these two facilities will make Indiana the world's clean coal leader," Daniels said.

One substitute gas plant could produce enough gas to meet 15-20% of current residential and commercial gas consumption in Indiana, the governor's office said. The Rockport plant could save consumers about $3 billion in energy costs based on estimates of future coal and gas prices while releasing 99% less pollution than a traditional coal plant. It would be designed to capture 90% of its carbon dioxide (CO2) emissions should a national coal policy mandate a CO2 reduction.

"Natural gas markets have proven very unstable and are subject to frequent fluctuation," the governor's office said. "Since Indiana coal prices have proved to be relatively affordable and more stable than natural gas, this technology will provide Hoosier ratepayers a more reliable and consistent costing gas source in the future."

In 2007 Indiana lawmakers passed investment tax credit legislation to support the production of substitute natural gas. However, Indiana utilities were prevented from entering into binding supply contracts with substitute gas producers for fear this would damage their credit ratings. The legislation signed last Tuesday allows the state to act as an intermediary between utilities and substitute gas producers. It authorizes the Indiana Finance Authority, on behalf of the state, to enter into negotiations for 30-year contracts for the purchase and sale of substitute gas.

At the beginning of the year state regulators approved a revised cost estimate for Duke's 630 MW Edwardsport plant, putting the price at $2.35 billion. The Indiana Utility Regulatory Commission also approved the company's $17 million request to study capturing a portion of the plant's CO2 emissions. Duke said it would like to explore capturing and storing CO2 permanently in underground geologic formations.

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