Kentucky Utilities projects stable coal prices in 2012 ‘fuel year’

The Kentucky Utilities forecast of overall coal prices for a “fuel year” that begins in April is expected to hold in line with 2011 actual prices, primarily because KU’s E.W. Brown plant is now fully scrubbed for SO2 emissions.

That is according to Mike Dotson, the Manager of Fuels for LG&E and KU Services Co., which provides services to Louisville Gas and Electric and Kentucky Utilities (KU). KU does business in Virginia as Old Dominion Power Co., with KU on Feb. 17 filing projected fuel data for 2012 with the Virginia State Corporation Commission. KU and LG&E are units of PPL Corp. (NYSE:PPL).

The Virginia commission issued a March 5 order that put the new fuel rates into effect on a temporary basis as of April 1 and also set an April 24 hearing for a review of the fuel case filing.

The installation of flue gas desulfurization (FGD) technology or “scrubbers” at KU’s plants allow KU to purchase greater volumes of high-sulfur coal at prices typically lower than low- and medium-sulfur coals, Dotson noted. The 2012 forecast for the individual plants shows that coal prices are expected to decrease for E. W. Brown (because of the switching from low-sulfur to high-sulfur coal), and will increase for Green River, Ghent and Trimble County Unit 2 (which utilizes a blend of high-sulfur coal and low-sulfur Powder River Basin coal) from the 2011 actual coal prices.

The coal expense on a $/kWh basis for the fuel year April 2012-March 2013 (2012 Fuel Year) is forecasted to increase 3.7% over the comparable forecast period last year. However, when compared to the 2011 actual expense on a $/kWh, the forecast for the 2012 Fuel Year is expected to decrease by 0.27%. The forecasted coal expense reflects both the coal purchase forecast and the influence of other factors such as forecasted unit availability, dispatch order, coal burn volumes, and the average cost of coal inventory at the beginning of the forecast period. For example, coal inventory at the beginning of 2012 was $2.56/MMBtu, compared to $2.41/MMBtu at the beginning of 2011.

The moderation in purchase price reflects KU’s increasing reliance on lower priced high-sulfur coal as compared to the coal used in previous years. For example, in 2006, only 19.4% of total company coal purchases consisted of lower priced high-sulfur coal. For 2012, 95.3% of total company forecast coal purchases are estimated to consist of lower priced high-sulfur coal. This change is the result of KU’s construction of FGD systems at the E. W. Brown and Ghent plants.

The prices KU is paying for coal are comparable to other utilities in the region. KU paid slightly more on a cents/MMBtu basis for coal than the average electric utility on an overall price comparison which includes high-, medium- and low-sulfur coal. The time period under review includes purchases of NYMEX quality coal for the Tyrone station and low-sulfur coal for E.W. Brown. KU’s prices for high-sulfur coal are in the mid-range of other similarly situated utilities and represent an increasing portion of KU’s future purchases.

Dotson gave coal tonnages purchased for each plant in recent years and projected coal purchases in 2012. The 2012 projection, by the way, is predicated on the continued stay by a federal appeal court of the U.S. Environmental Protection Agency’s Cross-State Air Pollution Rule, which had been due to go into effect Jan. 1 and would have impacted coal burn patterns for a number of utilities.

The 2012 projected coal purchases total 8.9 million tons, up slightly from 8.85 million tons in 2011. The costs for the 2011 coal purchases were 241.57 cents/MMBtu, against a 2012 projection of 241.43 cents/MMBtu.

By plant, the coal purchase levels are:

  • E.W. Brown, 1.23 million tons in 2011 and 1.05 million tons in 2012.
  • Ghent high-sulfur coal, 5.79 million tons in 2011 and 5.7 million tons in 2012. Ghent compliance coal hasn’t been purchased since 2009.
  • Green River, 346,650 tons in 2011 and 422,421 tons in 2012.
  • Tyrone, 10,436 tons in 2011 and zero tons in 2012.
  • Trimble County, 1.48 million tons in 2011 and 1.72 million in 2012.

KU/LG&E ready new gas-fired capacity

In separate Feb. 17 testimony, a KU witness said the company has applied to the Kentucky Public Service Commission for regulatory authority to purchase three combustion turbines located in Oldham County, Ky. The current fuel and load forecast assumes that generation from these three units will be available beginning in January 2013.

Also, KU has applied to the Kentucky PSC for regulatory authority to construct a combined cycle gas turbine on the site of the LG&E-owned Cane Run coal plant. The Cane Run facility is scheduled to be retired in 2015 due to the cost of compliance with new environmental regulations. Both the proposed purchased combustion turbines and the proposed combined cycle gas turbine will be jointly owned with LG&E, said Robert Conroy, Director of Rates for LG&E and KU Services.

Natural gas prices take a tumble

Charles Schram, Director-Energy Planning, Analysis, and Forecasting for LG&E and KU Services, also provided Feb. 17 testimony that in part looked at falling natural gas prices lately against a prior KU gas price forecast. “The actual price of natural gas at the Henry Hub averaged $4.00/MMBtu in 2011, approximately $1.41/MMBtu below the forecasted annual price of $5.41/MMBtu,” Schram noted. “Monthly variances ranged from less than $0.66 to $2.80 per MMBtu. The Henry Hub is the delivery point location for the NYMEX natural gas futures contract and is commonly used as a benchmark price for natural gas in the United States. Delivered prices to KU are typically $0.14-$0.54/MMBtu higher than the Henry Hub price, depending on the season.”

Natural gas prices in 2011 were lower year-over-year as supply of natural gas remains strong with the continued production of shale gas, Schram explained.

Schram also looked at power plant performance lately and said that some units in 2012 will have lowered equivalent availability factor (EAF) levels. “Three steam units are expected to have an EAF less than the 5 year average EAF (84.1%) for the twelve months ending March 2013. These units are E.W. Brown 3, Ghent 2, and Green River 3. These units have expected EAFs of 78.0%, 78.8%, and 82.5%, respectively…. E.W. Brown 3 is scheduled for an eight week annual outage in fall of 2012 for [selective catalytic reduction] installation, FGD maintenance, a turbine overhaul, and a generator rewind. Ghent 2 is scheduled for a nine week outage in the spring of 2012 for a turbine overhaul, boiler chemical clean, economizer replacement, and chimney maintenance. Green River 3 is scheduled for a three week biennial outage in the fall of 2012. The projected EAF for all KU steam plants for the twelve months ending March 2013 is 86.0%, which is greater than the 5 year average EAF.”

Schram noted that the 71-MW Tyrone 3 is currently in inactive reserve. Tyrone 3 was initially placed on inactive reserve beginning April 2009 during a period of decreasing system load levels. Tyrone 3 was returned to active status in June 2010 as a result of a delay in the commissioning of the new, coal-fired Trimble County 2. Once Trimble County 2 was in commercial operation, Tyrone 3 went back into inactive reserve in April 2011. Tyrone 3’s capacity is not currently forecasted to be available during the summer 2012 season.

KU/LG&E procure coal for their power plants

KU didn’t name any coal suppliers in the Virginia testimony, but did provide details on its coal contracts in Feb. 16 testimony, also written in part by Dotson, filed at the Kentucky PSC in a bi-annual fuel case. In the May-October 2011 fuel review period, KU bought 4 million tons of coal, with the largest three contracts entailing these deliveries: Trinity Coal Marketing LLC, 598,209 tons; Armstrong Coal, 467,117 tons; and American Coal, 400,854 tons. Note that Armstrong had three contracts with KU during that period, with the one named here being the largest. The Trinity contract was due to expire at the end of 2011.

Dotson said KU and LG&E did a March 2011 formal coal solicitation for spot or contract coal for a period up to 10 years. The bidding covered all LG&E coal units and KU’s Ghent plant beginning in 2012. The utilities got 42 offers from 21 companies. For PRB coal, Peabody COALTRADE LLC was the winning bidder. For high-sulfur rail coal, the winners were Triad Mining, Solar Sources and Peabody COALSALES.

In September 2011, the companies issued another formal solicitation, this time for contract or spot coal for up to 10 years. It again covered coal needs for all LG&E coal units and KU’s Ghent plant beginning in 2012. A total of 25 companies made 43 offers. Dotson said the unnamed winners had not signed final deals as of the Feb. 16 PSC filing.

The largest of the KU contracts listed in the filing, in terms of tons to be delivered in 2012, is with Alliance Coal and covers 2 million tons per year of deliveries in the 2011-2015 period. This is high-sulfur coal out of the River View deep mine in western Kentucky. In 2011 through the end of October, the actual deliveries under this contract were 1.1 million tons to LG&E and 532,783 tons to KU. The current contract price is $48.92/ton. The contract began in November 2008.

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.