Citizens Thermal Energy has entered into a contract with a producer to provide coal over a three-year term, which ends on Dec. 31, 2013, with the yearly quantity to be 175,000 tons, plus or minus 10%.
Robert Purdue, Director of Thermal Operations for Citizens Energy Group, provided some details on coal procurement for the Perry K plant in May 15 fuel adjustment clause testimony filed at the Indiana Utility Regulatory Commission. The Perry K plant is owned and operated by the Board of Directors for Utilities of the Department of Public Utilities of the city of Indianapolis, as Successor Trustee of a Public Charitable Trust, d/b/a Citizens Thermal.
Purdue noted that under coal contract, Citizens must give the coal producer its estimated annual nominations at least 90 days prior to the beginning of each contract year and include a monthly breakdown of the amount of coal requested. Coal is priced FOB railcar and the price per ton changes by year.
Transportation of coal to the Perry K plant is provided by Indiana Southern Railroad (ISSR) or Indiana Rail Road (INRD) and CSX Transportation. Pricing of transportation is set utilizing Private Price List and Contract CXST 36771, issued July 1, 2009, and Private Pricing Authority CSXT-C-46031(1) issued Jan. 1, 2011.
Effective Jan. 1, 2012, the transportation price for CXST 36771 was $8.09 per ton. Effective Jan. 1, 2011, the unnamed coal supplier notified Citizens that the coal supply for 2011 would be supplied by the Bear Run mine, which is served by INRD. Notable is that Bear Run is a Peabody Energy (NYSE: BTU) strip mine in Indiana.
INRD transportation pricing, using the CSXT-C-46031(1) Private Pricing effective April 1, 2012, was $9.23 per ton. However, the coal supplier reserves the right to supply coal from alternate sources that are served by ISSR. Both pricing structures are subject to quarterly price adjustments.
Citizens purchases about 175,000 tons of coal per year, which has decreased the past couple of years from 230,000 tons.
The spot coal price for Illinois Basin coal as of April 13 was $62/ton for 2.5 lb sulfur coal and the lookout price for calendar year 2012 is estimated to be $62/ton, which reflects the changes in the market of compliance coal contracts expiring and being renewed by other users, Purdue noted. “Therefore, our current contract price of $53.56 per ton of coal reaffirms the opinion set forth in my testimony that Citizens has negotiated a competitive coal contract for its customers through December 2013,” he added. “On January 1, 2013, Citizens will experience an increase of 3% as part of the current coal contract.”
The Indiana commission is also currently reviewing a Jan. 18 application by Citizens Thermal Energy for approval of a conversion of the coal-fired Perry K plant in Indianapolis to firing natural gas. Citizens is asking the commission to: approve the implementation of a rate adjustment tracking provision that will allow the utility to track the operating and maintenance cost savings and capital and financing costs that will result from the conversion of coal-fired and oil-fired boilers at Perry K to burn natural gas; make certain findings related to the conversion plan; and grant it any other necessary relief.
The steam utility’s customers are supplied with steam generated from two sources: a waste-to-energy plant owned and operated by Covanta Indianapolis Inc.; and the Perry K plant. Perry K generates about 50% of the steam sold by Citizens. About 76% of the steam generated by the Perry K plant is produced using boilers fueled with coal, about 23% using boilers fueled with natural gas and less than 1% using boilers fueled with No. 2 fuel oil.
“Increasingly stringent environmental regulations affecting the use of coal and fuel oil at the Perry K plant present significant challenges for the steam utility related to the capital costs that will be required to comply with such regulations and in turn the upward pressure such costs will have on the steam utility’s rates,” said the application. “Additionally, the use of coal to produce steam at the Perry K plant results in increased operating and maintenance costs when compared to use of natural gas to produce steam. Petitioner has determined that converting two of the boilers at the Perry K plant that use coal and the two boilers that use fuel oil to burn natural gas will result in significant cost savings for the steam utility and its customers, create substantial environmental benefits for the city of Indianapolis and is in the public interest.”
In the conversion case, on May 16 the Indiana Office of Utility Consumer Counselor filed an unopposed motion for extension of time, saying the parties are engaged in settlement negotiations and a one week extension of time to and including May 24 to file its case in chief is requested. The commission granted that extension on May 22. An evidentiary hearing in the case is set for June 15.