Alliance, Armstrong dominate coal supply at LG&E

Louisville Gas and Electric (LG&E) bought 4.2 million tons of coal in a May-October 2011 review period, with all of that contract coal and none of it bought off the spot market, said this PPL Corp. (NYSE:PPL) subsidiary in a Feb. 16 filing at the Kentucky Public Service Commission.

The filing came in the commission’s semi-annual review of the fuel buying of LG&E and other Kentucky utilities under the fuel adjustment clause.

The two largest contracts during the May-October 2011 period were held by Alliance Coal, with purchases of 2 million tons during the period under one contract, and 725,415 tons under the other. Armstrong Coal was the next biggest supplier, also under two contracts, with one deal involving the purchase of 484,928 tons, and the other covering purchases of 288,351 tons. Peabody COALSALES also had a sizable deal under which 334,252 tons of coal was bought during the six-month period.

During the review period, these plants and units had these coal burns: Cane Run, 785,611 tons; Mill Creek, 2.2 million tons; Trimble County Unit 1, 744,305 tons; and Trimble County Unit 2, 1.1 million tons.

As of October 31, 2011, the plants had coal on the ground, measured against the targets for those facilities: Cane Run, 212,695 tons in stock, which is 37 days of burn, against a target of 23-43 days; Mill Creek, 681,254 tons on the ground, which is 46 days of burn, against a target of 25-46 days; and both Trimble County units, 281,132 tons in stock, which is 51 days of burn, against a target of 25-46 days. Trimble County coal inventory includes high sulfur coal, which is used in Units 1 and 2, and Powder River Basin coal, which is used only in Unit 2.

Two coal suppliers have requested upward price adjustments in contract prices due to governmental impositions, mainly new mine safety rules. Smoky Mountain Coal requested a price increase for the periods of July 2007-May 2008 and June 2008-September 2008. LG&E is currently in litigation on this contract and consultant Weir International is reviewing the claims for this period. Alliance Coal made claims for price adjustments for the coal sold under an agreement during 2009. The parties agreed to a settlement that is effective March 9, 2011.

In a section of the report about pending litigation, LG&E said that Resource Sales, Allied Resources, Cochise Coal and Smoky Mountain Coal are in a dispute with the utility over a 2002 purchase order. LG&E and sister utility Kentucky Utilities are jointly seeking to recover damages sustained arising from the non-delivery of 1,019,829 tons of coal, the filing said. Plaintiffs seek to have the court interpret the force majeure provision in the agreement and to recover the amount of payments withheld by LG&E and KU to offset their claim for damages. Plaintiffs claim the force majeure provision should be interpreted in such a way that LG&E is not entitled to any more deliveries of coal under the agreement. LG&E disagrees and withheld certain payments, as permitted under the agreement, and demands that the plaintiffs resume deliveries. The case is in the discovery phase in the Circuit Court of Webster County, Ky.

The filing mentioned the results of two coal solicitations in August 2010 and March 2011, outside of the review period. There was one joint solicitation by LG&E and KU in September 2011, within the period. This was for contract or spot coal for periods up to 10 years for all LG&E coal units and KU’s Ghent plant. A total of 25 companies responded with 43 offers. Final picks for winners have been made, but final negotiations are still ongoing, the filing said.

Alliance, Armstrong dominate the contract picture

Here are some of the details of the long-term contracts of one year or more that LG&E had in hand during the review period. Tons under these contracts are routinely split between LG&E and KU.

  • Alliance Coal – source of River View deep mine in western Kentucky. Contract term is November 2008-December 2015. Tonnage is 2 million tons per year in the 2011-2015 period. The base price started at $41/ton FOB barge and has escalated to the current $48.92/ton FOB barge.
  • Alliance Coal – source was various mines in western Kentucky. Term was January 2006-December 2011. The tonnage was 4 million tons per year in the 2008-2011 period. The base price was dependent on four delivery options, with Option 1 coal in 2011 at $38.57/ton for both base and current prices, since there was no escalation off the base prices in this contract.
  • Armstrong Coal – origins at mines in Muhlenberg and Ohio counties in western Kentucky. Term is January 2008-December 2016. Tonnage for the 2011-2015 period is 2.1 million tons per year, falling to only 900,000 tons in 2016. The base price in 2012 for coal FOB barge is $28.35/ton for Quality 1 coal and $29.77/ton FOB barge for Quality 2. The current price, after escalation, for Quality 1 is $29.51/ton.
  • Armstrong Coal – also for origins in Muhlenberg and Ohio counties. Term is January 2011-December 2016. Tonnage is 1.25 million tons per year in 2011-2013, and 750,000 tons per year in 2014-2016. Base price in 2012 is $43.50/ton FOB barge, with a current price of $45.50/ton.
  • Peabody COALSALES – origins in Henderson County, Ky., and the Somerville mine in Indiana. Term was April 2006-December 2011. The 2011 contracted tonnage was 1 million tons, with a then-current price of $42.35/ton FOB barge.
  • CONSOL Energy – origin at the Shoemaker longwall mine in northern West Virginia. Term is June 2010-December 2014. This deal has a contracted volume of 1.2 million tons in 2011, but no tons in 2012, then it covers 500,000 tons in 2013 and 1 million tons in 2014. The 2012-2014 prices are subject to reopener. The current price is $54.50/ton FOB barge.
  • Oxford Mining Co.-Kentucky – origin mines in Muhlenberg County. Term was January 2007-December 2011, but an April 2011 amendment extended it to the end of 2012. Contract tonnage was 673,197 tons in 2011, falling to 250,000 tons in 2012. The base price in 2011, $36.10/ton FOB barge, is the same as the current price. No base price is given for the 2012 extension period.
  • Patriot Coal Sales – mines in Henderson County. Term was January 2008-December 2011. The filing indicates that 2010 and 2011 only involved fairly small deliveries of carry-over tons from prior years. The current price was $31/ton FOB barge.
  • Patriot Coal Sales – mines in Henderson and Union counties. Term was January 2010-December 2011. The 2011 tonnage was 200,000 tons, with a current price of $47.55/ton FOB barge.
  • Patriot Coal Sales – mines in Henderson and Union counties. Term was January 2010-December 2011. The 2011 tonnage was 240,000 tons, with a current price of $44.29/ton FOB barge.
  • Rhino Energy – Sands Hill mines in Ohio. Term of July 2008-December 2012. The tonnage is 360,000 tons per year in both 2011 and 2012. The current price is $52.01/ton FOB barge.
  • American Coal – source is Galatia complex in Illinois. Term is January 2010-December 2014, but no tonnages are given for either 2013 or 2014. The 2011 tonnage was 750,000 tons, with a current price of $46.68/ton FOB barge.
  • Western Kentucky Minerals – mines in Daviess County, Ky., and Pike County, Ind. Term is April 2010-December 2012. Tonnage is 403,300 tons per year in both 2011 and 2012. The base price in all three years of the contract is $48.35/ton FOB barge, but with a whopping $23.18/ton escalation, for a total current price of $71.53/ton.
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.