PacifiCorp outlines coal cost increases at several plants

Coal costs at several PacifiCorp power plants have jumped lately, including costs at the Hunter power plant in Utah due to a renegotiated coal contract with Arch Coal (NYSE: ACI), said Gregory Duvall in Feb. 1 testimony filed at the Idaho Public Utilities Commission.

The testimony came in a case where PacifiCorp, d/b/a Rocky Mountain Power, is seeking to increase Idaho rates to recover deferred net power costs through the Energy Cost Adjustment Mechanism. Duvall is Director, Net Power Costs, for the company.

Duvall broke down the coal price increases by power plant, with the most critical pricing information redacted from the public version of this testimony. Net MW ratings for each plant have been pulled from PacifiCorp’s February 2011 annual Form 10-K report.

Naughton (Wyoming, 700 MW) – about a $4m increase. Subsequent to the filing of a 2010 Idaho general rate case, the company amended the Naughton coal supply agreement with Chevron Mining Co. The amended agreement included advancement of a January 2011 price reopener to July 2010, changes to the contract structure and a lump sum prepayment by Rocky Mountain Power. The prepayment which is being amortized to fuel expense over the primary term of the agreement resulted in a $1.4m increase in actual net power costs. Additionally, the contract incorporates a two-tiered pricing structure. The Base Net Power Costs (NPC) included 395,000 tons of Tier 2 coal, the lower priced tier; actual net power costs included only 337,000 tons of Tier 2 coal. Finally, a change in the contract price structure as well as escalation of the producer price indices contributed to the remainder of the increase.

Dave Johnston (Wyoming, 762 MW) – approximately $6m increase. Though 2011, the Dave Johnston plant was supplied by three Wyoming Powder River Basin mines under multi-year agreements: Peabody Energy‘s (NYSE:BTU) Rawhide mine, Western Fuels Association’s Dry Fork mine and Wyodak Resources‘ Wyodak mine. Part of the price increase at Dave Johnston is due to annual increases in fixed prices from the base year to 2011, with much of that attributable to the Dry Fork mine itself. Increased rail rates during 2011 relative to what was in Base NPC have also contributed to the total price increase at the plant.

Hunter (Utah, 1,336 MW) – about a $14m increase. The majority of the Hunter requirements are supplied under a long-term coal supply agreement with Arch Coal Sales for Utah coal. Arch supplied about 90% of the plant deliveries assumed in the Base NPC and about 75% during the 12 months ending Nov. 30, 2011. Part of the $14m increase is a result of the January 2011 price reopener under the Arch contract. As a result of the reopener, the contract price increased by a redacted amount between 2010 and 2011. The remainder of the increase at the Hunter plant is due to increased operating costs at PacifiCorp’s own Deer Creek longwall mine in Utah and a new long-term coal supply agreement with Utah coal producer West Ridge Resources that commenced in January 2011. The reduction in deliveries from Arch’s Sufco mine in Utah from the levels included in Base NPC was offset by an increase in deliveries from the West Ridge mine under the new agreement.

Huntington (Utah, 911 MW) – approximately $7m increase. The majority of Huntington’s coal needs are supplied by the Deer Creek mine. The increase is mostly the result of higher operating costs associated with movement of the longwall from the Blind Canyon seam to the lower Hiawatha seam in December 2010 and reduced longwall production due to adverse geological conditions associated with elevated levels of ash and sulfur encountered in the Hiawatha seam.

Bridger (Wyoming, 2,118 MW) – approximately $26m increase. The price increase at Bridger is the result of higher Bridger Coal production costs and increased Black Butte Coal costs. The escalation of producer price indices under the Black Butte contract account for some of the increase. Higher operating costs at the Bridger mine in 2011 are a result of reductions in the Bridger power plant burn and poor underground mining conditions at the Bridger deep mine. The Bridger surface and deep mines are captive operations next to the power plant owned by the co-owners of the power plant, while Black Butte Coal is an independently-owned company that ships coal from more distant mining operations.

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.