Dayton Power & Light, despite some overall high costs for coal, was able to use in 2011 a lot of relatively cheap high-sulfur coal at its scrubbed Killen and Stuart power plants, said an audit of DP&L’s fuel procurement.
The audit, written by consultant Energy Ventures Analysis, was filed April 27 at the Public Utilities Commission of Ohio, which had commissioned the audit as part of an annual fuel cost review proceeding. DP&L is a unit of AES Corp. (NYSE: AES).
In 2011, DP&L purchased 7.5 million tons of coal at an average delivered price of $60.51 per ton or $2.61 per MMBtu. Out of that coal, 9.6% was purchased on a spot basis. All of the coal purchased for the O H Hutchings plant was classified as spot. The remaining spot coal was mostly non-Central Appalachia NYMEX coal purchased for Stuart. The average delivered price for coal purchased for Killen was below the average delivered price for coal purchased for Stuart and Hutchings due to the ability to use a “full diet” of high-sulfur coal, the audit noted.
The Stuart station consists of four units with a total capacity of 2,308 MW. The retrofits of flue gas desulfurization on all four units were completed in 2008. All coal to this station is delivered by barge. Generation in 2011 recovered only slightly from the low levels experienced in 2010. This is DP&L’s largest station, consistently burning more than 6 million tons per year.
Prior to the retrofitting of the scrubbers, Stuart burned low-sulfur coal in order to meet its 3.16 lbs/MMBtu of SO2 limit under the Ohio State Implementation Plan. The coal originated primarily in Central Appalachia. The retrofit of the scrubbers has allowed higher sulfur coal. The scrubbers are designed for coals with an SO2 content up to 7.22 lbs/MMBtu. However, given the design of the boilers, DP&L did not assume a complete switch to higher sulfur coals because of concerns over slagging and fouling with that new coal, EVA noted.
The Killen station consists of one 600-MW, coal-fired unit. The unit was subject to the original New Source Performance Standards of 1.2 lbs/MMBtu of SO2, which the utility chose to comply with through the use of low sulfur compliance coal. A scrubber was retrofitted on Killen in 2007. All of the coal consumed by Killen is delivered by barge. In three of the last five years, this plant operated at plus 75% capacity factors. Coal burn is typically about 1.8 million tons per year. Because of its ability to burn 100% high-sulfur coal, Killen has had lower fuel costs than Stuart and has been operating at higher capacity factors despite a higher heat rate, EVA noted.
DP&L’s smallest station is Hutchings, a 365-MW plant which consists of six small units. This plant receives coal by truck or rail. The plant has not been retrofitted with scrubbers and there are no plans for them. The plant operates at very low levels due to its high cost. Hutchings has burned less than 100,000 tons per year in the last three years. All of the coal burned by Hutchings is low-sulfur Central Appalachia coal delivered by rail. DP&L is considering several options for Hutchings, including retirement and the conversion of two or more of the units to natural gas, with an existing gas pipeline having the capacity to supply gas to two units, the audit noted.
DP&L’s coal costs reported to EIA different than actual costs
DP&L’s fuel costs as reported to the U.S. Energy Information Administration are different than its actual purchase costs because of sizable contract buy-out payments from one unnamed supplier and optimization-related adjustments. Optimization is the DP&L practice of frequently swapping around its coal positions if it can find an advantage in doing so. DP&L indicated that the contract buyout amount in 2011 totaled a redacted amount and reduced the average delivered price for fuel.
DP&L had the highest reported delivered costs of the five regional utilities looked at by EVA. Some of the differences are explained by location, legacy contracts, the average quality of the purchases and the contract/spot mix. The reported DP&L purchases do not reflect the buy-down amounts or accounting adjustments. Other utilities may also have adjustments which are not included, EVA noted.
Another relevant metric for DP&L is how the delivered prices to Stuart and Killen compare to the delivered prices to other plants located nearby on the Ohio River which are equipped with scrubbers and/or burn high-sulfur coal. Of the 10 plants looked at, Stuart is the highest cost and Killen ranks eighth. While the correlation is not perfect due to things like coal quality differences, it is clear that the plants purchasing the highest sulfur coal are lower in cost than those purchasing the lowest sulfur coal, EVA noted.
Central Appalachia coals seen as too expensive
“The retrofitting of scrubbers on Killen and Stuart continues to dramatically change the type of coal purchased by the utility,” EVA reported. “In 2007, DP&L purchased almost exclusively Central Appalachia coal. Central Appalachia has declined since then. In 2011, only 28 percent of coal purchases were from Central Appalachia. As noted above, DP&L is working to reduce that amount further.”
The audit continued: “The primary reason for DP&L to reduce its purchases of Central Appalachia coal is that the market price for Central Appalachia coal is much higher than the market price for higher sulfur coals. The reason for the price differential is not simply quality. A major reason is that mine coal production costs in both Northern Appalachia and the Illinois Basin are substantially below coal production costs in Central Appalachia, primarily as a result of mining conditions. As a result, Central Appalachian coal producers must charge more for their coal in order to recover their costs. The remaining domestic utility demand for Central Appalachia coal comes primarily from utilities that either need the quality Central Appalachia has to offer or have a transportation advantage from Central Appalachia.”
In recognition of the price differential, DP&L has worked hard to limit its consumption of Central Appalachia coals at Killen and Stuart. The initial plan when the decision to retrofit scrubbers on Killen and Stuart was made was to burn a blend consisting of 50% Illinois Basin coal at Killen and a blend consisting of 25% Illinois Basin coal at Stuart. By September 2008, DP&L was representing that its target blend was 75%/25% Illinois Basin/Central Appalachia for Killen and 50%/50% for Stuart. How that plan has evolved was redacted from the audit.
The current coal specifications, which DP&L sometimes refers to as its boxed specifications, were not revised in 2011 although DP&L indicated it no longer limits bids to these limits, EVA noted. DP&L is in a testing mode at Killen to explore expanded coal specs, the audit added.
There were various coal suppliers to DP&L last year, including Peabody COALSALES, Arch Coal Sales, Foresight Coal Sales, Alliance Coal, Armstrong Coal, JP Morgan, Mercuria and Cargill.