Cheap gas backs down coal in 2011 at Gulf Power

The generation mix at Gulf Power in 2011 was more heavily weighted to natural gas-fired generation than projected due to efforts to utilize available gas-fired generation that was lower in cost than other capacity, said Gulf Power Fuel Manager H.R. Ball in March 1 testimony filed at the Florida Public Service Commission.

The commission holds annual fuel cost proceedings for utilities that it oversees. The March 1 filing by Gulf Power is part of an effort to “true-up” what the company had projected it would burn, and at what cost, in 2011 as opposed to what it actually burned and spent.

The percentage of energy generation from gas-fired resources in 2011 was 37.3%, which was 24.75% higher than the projected percentage of 29.9%. The weighted average fuel cost for natural gas was $3.55 cents per KWH, which is 10.13% below the projected cost of $3.90 cents per KWH. The weighted average fuel cost for coal, plus lighter fuel, was $5.43 cents per KWH, which is 5.23% higher than the projected cost of $5.16 cents per KWH.

The total actual cost of coal purchased in 2011 was $360,555,779 compared to the projected cost of $441,272,537, or 18.29% below the projected amount. The lower total coal cost was due to the quantity (tons) of coal purchased for the period being 18.05% lower than projected. The actual weighted average price of coal purchased was $107.60/ton which is only 0.3% below the projected price of $107.92/ton. Ball noted that Gulf deferred some planned contract coal shipments to future periods and purchased no spot coal during 2011.

Ball listed 11 contract coal suppliers in 2011, with the top three, their tonnages and the plants they shipped to being: Interocean Coal Sales LDC, 505,583 tons, Crist and Smith plants; Rio Tinto (Cloud Peak Energy), 494,024 tons, Daniel plant; and American Coal Co., 413,120 tons, Crist. Daniel is a plant in Mississippi that Gulf Power co-owns with Mississippi Power, another Southern Co. (NYSE:SO) subsidiary, and the tonnage figures in the March 1 filing for that plant represent Gulf Power’s 50% ownership of that plant.

Gulf Power took a little over 3.3 million tons of contract coal in 2011. Four of the 11 contract suppliers in 2011 shipped only to Daniel. Two of the suppliers, Interocean and Oxbow Carbon & Minerals, are listed twice, so technically there were nine coal supplying companies in 2011. Interocean’s second entry only involved 55 tons of coal shipped to Daniel. Scholz, a small, little-used plant of Gulf Power, is shown as taking 65,724 tons in 2011.

Ball also updated the status of a June 2006 lawsuit that Gulf Power filed against Peabody COALSALES II in a Florida federal court over a Peabody declaration of force majeure under a now-expired contract for Illinois coal. In September 2009, the court issued its order granting Gulf’s motion for partial summary judgment and denied Peabody’s motion for summary judgment on the breach of contract issue.

The issue of Gulf’s damages was heard by the court without a jury in February 2010. In September 2010, the  court issued an order initially ruling in favor of Peabody on the question of damages. That order was later rescinded in response to Gulf’s motion to alter or amend judgment. In July 2011, the court granted Gulf’s motion after finding that the cover coal purchases by Gulf in 2007 were reasonable. In September 2011, the court found that Gulf was due $20.5m, which is the extra money Gulf said it paid in 2007 for cover coal.

On Jan. 19, the court amended the September 2011 order and added $6.9m in prejudgment interest to the $20.5m, making for a total judgment of $27.4m. The case is currently on appeal at the U.S. Eleventh Circuit Court of Appeals, and any money Gulf eventually gets from this case will be flowed back to ratepayers through the fuel cost clause, Ball noted.

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.