The Lawrence and Tecumseh power plants take coal under a mid-term length contract that provides 100% of the coal requirement through 2012, said Bryan Taggart, the Manager of Generation Dispatch at Westar Energy (NYSE:WR).
Westar Energy (known as Westar North) and Kansas Gas and Electric (Westar South) filed a joint application on March 20 at the Kansas State Corporation Commission for approval of their respective Annual Correction Adjustment (ACA) factors under their Retail Energy Cost Adjustment (RECA) clauses. The Taggart testimony was filed with that case.
The company’s Jeffrey plant receives coal under a long-term agreement, Taggart noted. This agreement has two components; the Tier I and the Tier II coal provisions. The price of both Tier I and II are adjusted quarterly based on several government indices. The price for Tier I was established in 1993 when the contract was renegotiated. The price for Tier II is adjusted every five years under the then current market price of coal and the terms and procedures established in the contract. The Tier II coal price was most recently adjusted for the period January 2008 through December 2012.
About 7 million tons annually is delivered under the Tier I component of the contract with the remainder of the Jeffrey plant’s approximately 10 million ton per year coal requirement provided by Tier II coal.
Lawrence and Tecumseh get coal under a contract that runs through 2012. This contract was entered into based on an request for proposals (RFP) process. Westar expects Lawrence and Tecumseh to remain primarily coal fueled in the future and will follow the same RFP process used in the past to purchase low cost fuel appropriate for these power plants, Taggart wrote.
All three Westar-operated coal facilities burn low-sulfur Powder River Basin coal produced in Wyoming.
La Cygne is operated by Kansas City Power & Light (KCPL) and all of the coal requirements are procured by KCPL’s fuel department. La Cygne I burns 85%-90% PRB low-sulfur coal and 10%-15% local coal. La Cygne II burns 100% PRB low-sulfur coal.
Coal comes from Apha, Arch Coal mines
Coal for the Jeffrey plant originates at the Eagle Butte mine in Wyoming, which is owned by Alpha Natural Resources (NYSE:ANR). From the mine, the coal is hauled by the BNSF Railway to Northport, Neb. There it is transferred to the Union Pacific (UP) for final delivery to Jeffrey. The pricing of this rail contract was established in 1993 and prices are adjusted quarterly based on the RCAF-U (Rail Cost Adjustment Factor- Unadjusted). This index is a composite of rail-related expenses including labor, fuel, depreciation, material and supplies.
Coal for Lawrence and Tecumseh originates at either the Black Thunder mine or the South Black Thunder mine in Wyoming on the BNSF and is delivered by the BNSF to the plants. Both Black Thunder operations are owned by Arch Coal (NYSE:ACI) The BNSF transportation contract for Lawrence and Tecumseh is adjusted monthly to reflect the actual cost of diesel fuel used to support delivery. The BNSF contract to supply these two plants will expire Dec. 31, 2013.
Jeffrey is served only by the UP so there is currently no other option for the rail delivery of coal into that plant, Taggart noted. Lawrence and Tecumseh are served only by the BNSF. “Retrofitting existing generating facilities to provide access to both railroads and thereby provide competitive access would likely be very expensive with uncertain results given today’s environment where the demand for rail service many times exceeds the railroads’ ability to provide service,” he added.
Cheap gas, power make up for 2011 coal delivery problems
“The cost of fuel for 2011 was in line with expectations when the conditions faced by Midwest utilities such as Westar are taken into consideration,” Taggart wrote. “The Midwest experienced a colder than average winter and hotter than average summer which contributed to an increase in electrical usage by our customers. Most of this increase was met by either dispatching our gas fired units or through economy purchases from the wholesale market. Also, starting this spring and extending through the summer, many Midwest utilities were dealing with unprecedented flooding on the Missouri River that negatively impacted coal deliveries. The coal deliveries to La Cygne, Lawrence, and Tecumseh energy centers were impacted by the flooding resulting in reduced energy production from these facilities. Westar mitigated the impacts to customers caused by these conditions through the use of its diverse fleet of generation units and by taking advantage of favorable market prices for energy and natural gas.”
During 2011, Westar had the ability to operate as many as 15 train sets to provide coal to its coal-fired facilities. As many as 10 train sets are available to serve Jeffrey, while Lawrence and Tecumseh are typically served by as many as five train sets. Jeffrey train length is 123 car trains, and 135 car train sets serve Lawrence and Tecumseh.
With a short-term reduction in demand for rail road transportation services and also rail car cycle times that remain favorable, Westar returned some spare rail cars when their lease expired and continues to sub-lease train sets to others on a short-term basis as train set availability and demand permits. Westar both owns and leases railcars.
The coal plants are:
- Jeffrey – Westar has an 84% ownership interest (1,818 MW) and is the operator of the 2,165 MW three-unit plant. Westar also controls an additional 8% (174 MW) of the plant under a lease. That capacity is committed to a sale to Mid-Kansas Electric Co. LLC through Jan. 3, 2019. The three Jeffrey units were placed into commercial operation in 1978, 1980, and 1983. Westar’s 92% share of Jeffrey’s 2011 output was 12,477,174 MWH.
- Lawrence – Westar owns and operates all three coal units located at this 531-MW facility. These coal units were placed in commercial operation in 1955, 1960 and 1971. These units have the ability to burn a variety of types and blends of western coal depending on fuel availability, fuel cost and transportation availability. Lawrence’s 2011 output was 3,514,119 MWH.
- Tecumseh – Westar owns and operates the two coal units and two combustion turbines located at the 242-MW Tecumseh facility. The coal units were placed in commercial operation in 1957 and 1962. The coal units have a generating capacity of about 72 MW and 130 MW, respectively. They have the ability to burn a variety of types and blends of western coal. The combined Tecumseh coal units produced 1,118,804 MWH in 2011.
- La Cygne – Westar owns or controls 50% of the 1,418-MW, two-unit plant. KCPL owns the other 50% of La Cygne and is the operator of the facility. Westar’s share of La Cygne’s 2011 output was 4,073,841 MWH.
Westar provided some information on coal for La Cygne in its Feb. 23 annual Form 10-K report. The operator of La Cygne, KCPL, arranges coal purchases and transportation services for the plant. About 100% of La Cygne I and II PRB coal requirements is under contract for 2012. About 95% of the 2013 requirements, 80% of the 2014 requirements and 20% of the 2015 requirements are also under contract. About 90% of those commitments are fixed price contracts. All of the La Cygne PRB coal is transported under KCPL’s rail transportation agreements with BNSF through 2013 and Kansas City Southern Railroad through 2020.
As the PRB coal contracts expire, Westar said in the Form 10-K that it anticipates that KCPL will negotiate new supply contracts or purchase coal on the spot market. During 2011, the average delivered cost of Westar’s share of coal consumed at La Cygne I was about $1.98/MMBtu, or $33.64/ton. The average delivered cost of its share of coal at La Cygne II was about $1.80/MMBtu, or $30.90/ton.