Dakota Gasification Co. (DGC), Bismarck, N.D., vows to challenge a federal administrative law judges decision it says could shut down its Great Plains synfuels plant near Beulah, N.D.
DGC Vice Pres. Kent Janssen said the judges Dec. 29 decision undermines the good faith basis by which the coal gasification plant was built in the 1980s and is operating today. If unchanged, the decisions resulting closure of the plant could cause a major economic impact for North Dakota, he said.
All parties have 30 days from the date of the decision to file exceptions with FERC. DGC plans to file within that period.
FERC has committed to taking final action on this case by at least Dec. 31, 1996.
DGC is a unit of Basin Electric Power Cooperative, also of Bismarck.
Judges decision
In his decision, Michel Levant, an administrative law judge for the Federal Energy Regulatory Commission, held that three of the four pipelines obligated to purchase gas from the synfuels plant failed to prove they acted prudently in reaching a price settlement with DGC in April 1993. FERC approved the fourth settlement in January 1995.
The decision came in a consolidated proceeding involving the settlements.
Levants decision also involved a complaint filed by ratepayers claiming that the price of synthetic gas purchased by the pipelines from DGC violates FERCs 1981 Opinion 119. That opinion authorized the purchase and price passthrough of Great Plains gas and paved the way for the plant to be built. It went on stream in 1984.
Levant granted all the relief sought by the ratepayers group.
In his ruling, Levant held that deregulation of wellhead prices and restructuring of the U.S. gas industry under FERC Orders 436 and 636 warrant abandoning the price formula in gas purchase contracts between DGC and pipelines. Instead, he ordered a price equal to the Gulf Coast index plus 5%.
DGCs current sale price is $3.70/Mcf, pending FERC approval. A company spokesman said the ordered price would be substantially lower than the present cost of production, $2.60/Mcf.
Levants decision also would limit the pipelines purchase obligation to the original plant design capacity of 137 MMcfd. That is well below the average 157 MMcfd produced since DGC purchased the plant in autumn 1988.
If adopted by FERC, Levants decision will require the pipelines to refund their customers all amounts above the price and volume specified in the order since May 1, 1993.
DGCs stance
Janssen charged that Levants decision is a breach of the original agreement among the pipelines, ratepayers, Department of Energy, and former project owners in establishing the project.
Pricing language in the gas purchase agreements was drafted by the ratepayers themselves, Janssen said. Judge Levants decision would allow them to break that deal. That simply isnt right.
FERCs Opinion 119 and the gas purchase agreements are the foundation upon which the synfuels plant was built and is operated today, he said.
It represents the basis for DOE investing $1.5 billion in this unique facility, Basin Electrics $85 million investment in 1988, and DGCs $170 million capital construction program currently under way.
All of these commitments were made on the basis of Opinion 119 and the reasonable assumption that FERC would stand behind it.
Janssen said Levants decision cant be allowed to stand.
The price Judge Levant suggests comes nowhere near covering costs. For the judge to suggest DGC can survive with that price is ludicrous.
Economic fallout
Janssen warned of an economic blow to South Dakotas economy if the synfuels plant is forced to close for lack of profits.
He called the plants contribution to the states economy substantial.
It consumes about 20% of lignite mined in the state. DGC paid $8.4 million in energy conversion and coal severance taxes in 1994. The total benefit to states economy is estimated at $270 million/year.
The plant has 640 employees.
In addition, about 400 construction workers are installing a scrubber and anhydrous ammonia unit at the site. Current plans are to continue work on those projects.
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