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House Moves on South Side Natural Gas Plant

By Kevin Robinson in News on Dec 1, 2010 2:30PM

Photo by samuelalove.
Amid the flurry of legislation debated and voted on, plans to build a synthetic natural gas plant on the city's South side cleared the state House of Representatives. The $3 billion plant, which will be built at 11600 S. Burley Ave. at an abandoned steel site on the Calumet River is expected to produce as much as eight percent of the state's natural gas, create 1,200 construction jobs and 200 permanent jobs at the facility. People's Gas, as well as consumer advocates, however, say that the project will end up being a bad deal for rate payers in Illinois, raising future rates in Chicago and especially in the northern suburbs.

The plant, which will be owned and operated by New York-based Leucadia National Corp. will produce synthetic gas, made from a combination of refinery waste and Illinois coal. The legislation will require Illinois utilities to enter into 30-year contracts to purchase equal amounts of the gas. While Illinois utilities won't be required to sign an actual contract with Leucadia to purchase gas, they will be forced to file with the ICC for a rate review, running the risk that delivery rates could be lowered. Utilities don't profit from the direct sale of natural gas to consumers, passing the cost directly onto consumers. Instead, they make money through delivery rates that they charge.

Lowered delivery rates could mean lower profits for utilities. Since the legislation envisions each of the four state utilities buying equal amounts of natural gas from Leucadia, smaller utilities would see a larger portion of their gas supply coming from the South side plant. According to People's Gas, which could see as much as half its gas coming from the plant, consumers could wind up paying almost $600 million in additional charges over the next 20 years.

Legislators that support the bill say there is room to address those concerns in the legislation. Chicago Democrat Marlow Colvin, whose district will be home to the plant, told Crain's "There is wiggle room in the legislation” to address the company’s concerns, before emphasizing the job creation aspect of the facility. “We have a chance to use our own natural resources to employ people in the South Side of Chicago and in southern Illinois,” he said. Leucadia has also committed to contributing $150 million to offset costs over the 30 years as well.