Indiana Supreme Court takes up case between state, utility

Attorneys for developers and opponents of a coal-gasification plant in southwestern Indiana that would sell synthetic natural gas to the state at a fixed rate for resale on the open market argued Thursday over whether the Indiana Supreme Court should let the 30-year contract stand or void the entire agreement.

Though much of the 40-minute argument in the Supreme Court chambers dealt with finesses of contract law, the key issue seemed to be whether the deal would stick ratepayers with price increases despite a guarantee in the agreement. The contract requires the Indiana Finance Authority to buy synthetic gas from the plant at a fixed price and resell it to consumers through utilities.

Legislators in April ordered the Indiana Utility Regulatory Commission to consider new ratepayer protections that were not initially in place when regulators first approved the deal if the Indiana Supreme Court voids the contract. Plant developers were appealing a Court of Appeals decision that found that part of the contract violated state law.

"This is not a run of the mill private contract," said Tom Funk, who represented the plant's critics, including natural gas utility Vectren and consumer and environmental groups.

"Everyone knows that at some point in 30 years the price of synthetic gas will exceed (the price of) natural gas," Funk said. "That cost has to be paid by somebody. And who it's paid for is by the end users of the contract."

Opponents have said the contract would cost Indiana utility customers as much as $1.1 billion in higher rates and tie 17 percent of Hoosier gas users' bills to the Rockport plant's rate.

All five justices took part in the hearing, including Justice Mark Massa, who rejected calls for him to step aside due to his friendship with a top Indiana Gasification official.

Attorney Karl Mulvaney, who argued for Indiana Gasification and the Indiana Finance Authority, questioned the authority of the court and the General Assembly to intervene in a deal involving the state's executive branch, saying that violated the constitutional separation of powers.

"I have never seen a case where a contract was impaired by legislation after the contract was initiated," Mulvaney said. He added that the company had set up a $100 million fund to offset possible price increases.

After the hearing, representatives of consumer groups standing outside the courtroom in the marble hallways of the Statehouse said the entire point of the case was to protect ratepayers, which the original contract failed to do.

Kerwin Olson, executive director of Citizens Action Coalition, said legislators he had spoken with made it clear that the final deal didn't reflect their intent.

"The only guarantee in this contract is that Leucadia and Indiana Gasification are going to make a profit," he said.

The plant about 30 miles east of Evansville, also run by New York-based Leucadia National Corp, would turn coal into synthetic natural gas. Supporters have said the plant would be a boon for Indiana's coal mining industry.

Developers suspended work on the plant days after the bill's passage and said that the project was effectively dead.