Gas pains for Chicago-area homeowners?
By Mike Nolan firstname.lastname@example.org August 4, 2012 2:04AM
A former LTV Steel coke plant at 114th Street and Burley Avenue in Chicago was to have been the site of a $3 billion coal gasification plant. Gov. Quinn on Friday vetoed legislation that would have cleared the way for the plant's construction.
Updated: September 6, 2012 6:04AM
The big newspaper ads promise jobs, the cleanup of a heavily polluted property and stable prices for natural gas for decades to come.
“Who doesn’t want all of that?” the pitches from Chicago Clean Energy ask.
Well, for starters, homeowners and business owners because it will mean higher gas bills for them, according to opponents of a coal gasification plant on Chicago’s Southeast Side.
Who’s ultimately proven to be correct likely won’t be known for years. What is known is that by Friday, Gov. Pat Quinn will either veto or sign legislation that will put the Chicago area on an unexplored energy path.
Both sides have revved up the rhetoric with big rallies, and the Citizens Utility Board said nearly 2,000 of its supporters have emailed Quinn’s office, urging him to quash the $3 billion project.
Three Southland men own the property where Leucadia National Corp., owner of Chicago Clean Energy, plans to build the plant. Orland Park resident Alan Beemsterboer and his cousins — Simon Beemsterboer, of Mokena, and Steve Beemsterboer, of Frankfort — bought the 140-acre site in late 2002.
It was a coke plant once operated by LTV Steel, and Leucadia said it will spend about $25 million decontaminating the property at 114th Street and Burley Avenue, next to the Calumet River.
If all goes according to schedule, the plant could begin producing synthetic natural gas — Leucadia uses the term “substitute” natural gas — by March 2018.
Trying to predict gas price path
Natural gas produced by Leucadia’s plant would average $7 per million BTUs, according to the company, while current market prices for natural gas are under $3 per million BTUs. A million BTUs equals about 1,000 cubic feet of gas.
Projections from the U.S. Energy Information Administration have natural gas prices slowly rising in coming years but not breaking the $6 threshold until 2034.
“With the abundance of low-cost natural gas, the Leucadia plant is neither a necessary or a cost-effective way to supply gas to Illinois residential, commercial and industrial customers,” Annette Martinez, a spokeswoman for Nicor Gas, said in a statement.
Leucadia points to historic data showing cyclical pricing in natural gas — it spiked above $10 per million BTUs a few years ago.
“All indications are we have hit bottom (on pricing) and are back on the way up,” Hoyt Hudson, a project manager with Chicago Clean Energy, said.
He said demand for natural gas will continue to rise, not just for power plants but to fuel cars and trucks. Also, low prices are making it harder for companies tapping new gas sources to recoup their costs, Hudson said.
“The companies drilling and producing at today’s costs are losing their shirts,” he said.
Leucadia said it will employ a chemical process to extract natural gas from coal and petroleum coke, capturing contaminants and selling them to industrial customers. Carbon dioxide would be compressed into liquid form, which is then used in a technology to extract additional oil from wells that are nearly depleted, Hudson said.
Tighter air pollution rules by the U.S. Environmental Protection Agency are prompting utilities to retire older coal-burning power plants.
In April, for the first time, coal- and natural gas-fired power plants were neck and neck as far as power output — each producing about 32 percent of the nation’s total electricity generation, the Energy Information Administration reported last month.
An operator of six coal-fired plants in the Chicago area, Midwest Generation, intends to close its Fisk and Crawford plants in Chicago and faces significant costs to make upgrades at the remaining ones to meet new regulations on sulfur dioxide emissions.
The company last December, before announcing plans to close the two generating plants, said it would cost $1.2 billion to install pollution controls at all six plants, which it bought from ComEd in 1999.
Protections for consumers
Martinez said Nicor opposes the Leucadia bill because “it shifts a disproportionate amount of the costs of the project” to customers of Nicor and downstate utility Ameren.
Originally, two other Chicago utilities — Peoples Gas and North Shore Gas, both owned by Integrys Energy — were also supposed to buy the synthetic gas but balked at the high price. Their punishment will be undergoing more frequent and rigorous rate reviews by the Illinois Commerce Commission. Last week, Peoples Gas filed for a rate increase that would add $6.50 a month to the average Chicago homeowner’s bill.
But the two utilities refusal to buy Leucadia’s gas means the number of potential gas customers to shoulder the cost of the plant’s construction has shrunk — with Leucadia ultimately relying on Nicor and Ameren business and residential customers to pay for at least 90 percent of the total bill, according to Nicor.
Leucadia said the pending legislation would guarantee that gas customers would save at least $100 million over the 30-year life of the gas sales contract, and that other consumer protections will be in place.
Initially, Leucadia would put $150 million into what it calls a Consumer Protection Reserve Account, with the funds being tapped to offset the difference between the cost of the plant’s synthetic gas and market-rate gas.
The law on Quinn’s desk guarantees that consumers wouldn’t see more than a 2 percent annual increase in gas costs, which Hudson said would translate to an extra $1.25 per month for the average Nicor household.
Nicor disputes that figure, estimating that even with the cap in place, the typical suburban homeowner would pay an extra $45 annually.