UPDATE: Detroit utility might buy Citizens coke plant

DTE Energy, the Detroit-based parent of Detroit Edison, is a key contender to buy Citizens Gas & Coke Utility’s east-side coke plant, according to a source familiar with the talks.

DTE also owns MichCon, is a natural gas utility that serves 1.3 million customers in Michigan and has a diverse portfolio of energy operations.

The source, who asked not be identified, said Citizens has had serious discussions with DTE and that a deal could be wrapped up by April.

Citizens spokesman Dan Considine confirmed that a sale could be finalized by then, but would only say the utility has been in discussions with “several prospective buyers.”

Citizens, which serves about 266,000 customers in Indianapolis and Westfield, said early today that it has informed 300 workers they could lose their jobs within 60 days if the operation is sold.

Discussions with prospective buyers have indicated that not all 300 workers are likely to be retained, Considine said: “There would be some downsizing.”

Workers at the century-old Indianapolis plant are represented by the International Brotherhood of Electrical Workers.  Union officials declined to comment.

Acquiring another coke plant isn’t out of the question for DTE Energy, said Raymond Moore, an analyst with Shields & Co. in New York. “They are in that type of business. It wouldn’t surprise me.”

In 2005, the company opened a petroleum coke plant in Vicksburg, Miss. Paper mills burn the gas as an alternative to natural gas and fuel oil.

The Indianapolis plant bakes coal to produce coke—resembling volcanic rock—used by foundries. The process produces synthetic gas as a byproduct. That gas is used by the Citizens Thermal division near Victory Field to heat and cool buildings downtown.

Citizens and DTE are no strangers. DTE operated a synthetic fuel operation, DTE IndyCoke, at the 2950 E. Prospect St. plant until 2003, according to records from the Indiana Department of Environmental Management.

Last October Citizens said it was shopping Indianapolis Coke because it no longer deemed it part of its business strategy. The plant’s income has been wildly cyclical—losing $17.6 million in 2006 versus a $6.9 million profit in 2005.

Indianapolis Coke said 2006 results were dashed by the loss of a key blast-furnace customer.

But the bituminous-belching plant, in an industry with wildly cyclical profitability, also has become a financial drain on Citizens because of mounting environmental compliance costs.

Last fall Citizens reached a deal with the state to spend $2 million on pollution reduction projects. It also agreed to pay IDEM a civil penalty of $280,000 stemming from enforcement violations since 2001.

For years it has fueled concerns over benzene and other chemical emissions linked to cancer. Citizens said it has invested $110 million in environmental upgrades since the early 1970s.

The plant also needs millions of dollars in repairs to its brick-lined coke ovens, some operating continuously for 50 years.