This will be a short diary but I wanted to shine a light on something incredibly hypocritical that is happening in Indiana under the much-hyped and potential 2012 candidate Mitch Daniels. I haven't seen this story anywhere except this Indianapolis Star article and think it is something to which the political community should be paying more attention.

Leucadia National Corp, based in New York, wanted to build a gasification plant in Indiana to turn coal into natural gas. (Note: I'm sure somebody in the comments can explain the environmental impacts of such a plant. The focus of this diary is on how "fiscal conservative" Daniels wants to spend taxpayer money). The plant would produce natural gas at a cost of around $7 per million British thermal units. The current market price is only $4 but Leucadia was willing to bet that the market price would rise above $7 and they could sell their product at a profit. There was only one problem. They couldn't convince the private sector that their gamble was worthwhile and couldn't obtain financing. In a free market, that would usually mean game over.

But in steps GOP darling and Indiana governor Mitch Daniels. He thinks the free market is wrong and decides the Indiana taxpayer should bankroll the operation. He comes up with a plan where the Indiana taxpayer will commit to buying natural gas from Leucadia Group at $7 for the next 30 years and then turn around and sell it to wholesalers at the prevailing market rate. Now if the market rate is above $7, the state may make a profit. But if the rate is below $7, and a lot of experts think it will be, the Indiana taxpayers will absorb the losses. And if things really don't go well and it turns out production costs exceed $7, Leucadia Group can just walk away and the federal taxpayer will pick up 80% of the construction loan.  In other words, the risk has shifted from Leucadia Group to the Indiana and federal taxpayers. Heads Leucadia wins, tails taxpayers lose.

Update: After reading the Evansville Courier Press article provided by shopkeeper in the comments, I realized I may not have correctly understand the inner-workings of the deal, although it doesn't fundamentally change the impact on taxpayers. If anything, it makes it even worse. I now believe that Indiana taxpayers are committed to buying the natural gas not at $7 but instead at Leucadia's costs, whatever that price might be. If the costs are below the prevailing market price, Indiana taxpayers must split their profits 50-50 with Leucadia. If the gamble doesn't pay off and the production costs are above market rates, Indiana taxpayers absorb 100% of the losses.

Anybody else see a problem with this?

Originally posted to bradams on Sun Jan 02, 2011 at 08:30 PM PST.

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