Synfuels Plant Facing Foreclosure by DOE

BISMARCK, N.D. —  The U.S. Department of Energy is foreclosing on the nation’s first commercial-scale synthetic fuels plant and suing to enforce natural gas contracts that federal officials say are critical to the facility’s future.

The government took control of the Great Plains Gasification Project on Aug. 1 from a consortium of five energy companies that defaulted on a $1.5-billion loan when Energy Secretary John S. Herrington rejected additional federal aid.

The $2-billion plant, 75 miles northwest of Bismarck near Beulah, N.D., turns lignite coal into natural gas.

The government’s action, filed Thursday in U.S. District Court in Fargo, seeks to foreclose on the loan and force subsidiaries of the partners to honor their gas contracts. Foreclosure could cost the plant $300 million in tax credits, officials say.

Twice the Spot-Market Rate

The gas contracts are held by subsidiaries of four of the five consortium members and are considered key to the government’s chances of finding a buyer for the plant. Under the contracts, the partners are paying about twice the spot-market rate for natural gas.

Natural Gas Pipeline, a subsidiary of Chicago-based Midcon Corp., filed suit in Illinois state court and Washington federal court last week to abrogate its contract, worth $4 million a month.

The Energy Department lawsuit seeks a judgment requiring Natural Gas Pipeline “to take or pay for its share of the synthetic natural gas and to continue to honor its gas purchase agreements,” DOE spokesman Robert Porter said.

Natural Gas Pipeline claimed in its lawsuits that its gas contract cannot be enforced because it was made with the partnership. The lawsuits also claim that the DOE could not fulfill the obligation to buy the gas for 25 years, since it has agreed to operate the plant only through mid-1986.

Pacific Lighting Owns 10%

Midcon owns a 15% share of the plant. The other partners are Tenneco of Houston, which owns 30% of the plant; American Natural Resources of Detroit, which has a 25% share; Transco Energy of Houston, 20%, and Pacific Lighting of Los Angeles, 10%.

Porter declined to comment on the foreclosure action.

Herrington has told state officials that he is interested in talking with the partners about turning the plant back over to them, which could allow them to keep their tax credits. The partners were not served with the suit Thursday and do not know how the action would affect their tax credits, Tenneco spokesman Gary Cheatham said.

Herrington had agreed to keep the plant operating through at least next spring if the state made certain concessions, such as reducing its coal conversion tax, which costs the plant about $500,000 a month.