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View Diary: Mitch Daniels hypocritically commits taxpayer money to private sector (19 comments)

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    •  A couple of interesting points from that article (3+ / 0-)
      Recommended by:
      Lujane, shopkeeper, plankbob

      1 "Indiana will buy gas at a permanent price of about $6 per unit, which is more expensive than natural gas is today but would represent a major savings over the course of the contract."  -- Why does the article assume that it would represent major savings? If it was guaranteed that natural gas prices are going to rise that much, Leucadia wouldn't have had trouble finding private financing.

      1. "Indiana Gasification, a subsidiary of Leucadia National Corp., will assume the entire risk for building and running the plant, and Indiana will not owe any money if the plant does not come to fruition." -- What about the federal loan guarantees that will pay for 80% of the construction costs if the plant "does not come to fruition?" Indiana residents pay federal taxes too.
      1. "Indiana will buy gas for the rate of about $6 per unit. If the market rate for natural gas exceeds that amount, Hoosier ratepayers will be credited for half the difference, and they’ll have to pay the other half of the difference, which will go to Indiana Gasification." -- So Indiana taxpayers get all the downside risk but only half the upside? WTF?
      •  Actually, I think they would . . . (0+ / 0-)

        If it was guaranteed that natural gas prices are going to rise that much, Leucadia wouldn't have had trouble finding private financing.

        Let's say somebody backed this venture and financed the plant and was tied in to selling all the product for $6 per unit forever.

        But then let's say the market price rose to $7, they'd be losing $1 on every unit sold.

        Or, let's say the market price rose to $17, they'd be losing $10 on every unit sold.  That would brutal, and a financially very very stupid deal.

        I suspect the real reason the private market isnt' financing these ventures is that if the price of Natural Gas goes up, there's a good chance that there would be a corresponding rise in coal prices.  Thus, to make money the key thing is the ongoing differential in prices between coal and NG (which I imagine is very difficult to project out into the future).

        Plus from a thermodynamics perspective, it is almost certainly better to burn the coal directly than do all this . . .

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