Duke Energy Ohio purchased 19.6% less coal in 2011 (6,196,415 tons) compared to 2010 (7,708,853 tons) and continued to experience electricity customer switching during 2011 that resulted in it accumulating more coal than required for the lower level of customer demand.
Consultant Schumaker & Co. was hired by the Public Utilities Commission of Ohio to conduct a management/performance and financial audit of the fuel/purchased power and system reliability tracker riders of Duke Energy Ohio, with that audit filed with the PUCO on May 10. The audit covered the time period of calendar 2011. The public version of the audit is heavily redacted, but some notable points survive. Duke Energy Ohio is a unit of Duke Energy (NYSE: DUK).
During 2011, Duke Energy Ohio continued to have 3,906 MW of generating capacity covered by the Fuel and Purchased Power (FPP) rider. Fifteen units (3,526 MW) are fueled with coal, four units (136 MW) are powered by natural gas, and eight (244 MW) use fuel oil. Duke Energy Ohio operates nine of the coal units (2,117 MW) and all 12 of the natural gas and fuel oil units. Dayton Power and Light operates five of the coal units (1,098 MW) and American Electric Power Co. (NYSE: AEP) operates one coal unit (312 MW).
Duke Energy Ohio used 11 long-term contracts for coal for 2011 purchases compared to 14 contracts for 2010. To address the higher coal stockpiles due to power customer switching, Duke Energy Ohio executed two transactions approved by Duke Energy Global Risk Management to swap coal purchased for native customers to non-native load. Total tons delivered in 2011 to the three individual plants were down 1,404,288 tons (15.4%) from the 2010 level. Deliveries to Beckjord, Miami Fort and Zimmer were down 10.5% (177,734 tons), 10.5% (373,541 tons) and 22% (853,013 tons) respectively,
Contributing factors to the decreased need for coal during 2011 included customer switching, and unplanned outages at Zimmer and Miami Fort. During 2011, 10.9%, 18.8% and 14.7% decreases in “spot” coal purchases occurred for Beckjord, Miami Fort and Zimmer respectively. The decreased energy requirements from customer switching and decreased availability of Zimmer and Miami Fort because of frozen coal and unplanned outages decreased Duke Energy Ohio’s flexibility in purchasing coal from the spot market because of its contractual requirement to take coal from its long-term contracts.
Coal prices were up in 2011 while coal buys were down
Schumaker requested and analyzed the prices Duke Energy Ohio paid for coal purchased from the spot and contract market for the period 2008-2011.
- Spot coal costs for Beckjord, Miami Fort and Zimmer in 2011 were 16.9% less than 2008, 10.9% less than 2009, and 1.7% higher than 2010. “Contract” coal costs in 2011 were 30.7% higher than 2008, 21.8% higher than 2009, and 23% higher than 2010. Total costs in 2011 were 18.8% higher than 2008, 9.8% higher than 2009 and 14.9% higher than 2010.
- Beckjord spot coal costs in 2011 were 28.4% lower than 2008, 4.5% lower than 2009, and 3.6% higher than 2010. Beckjord “contract” coal costs in 2011 were 11% higher than 2008, 3.2% lower than 2009, and 11.5% higher than 2011. Beckjord total costs in 2011 were 7.8% less than 2008, 3.1% less than 2009, and 8.8% higher than 2010.
- Miami Fort spot coal costs were 14.1% lower, 21.4% lower, and 4.6% lower than 2008, 2009, and 2010 respectively. 2011 “Contract” costs for Miami Fort were 34.6% higher than 2008, 25.9% higher than 2009, and 20.5% higher than 2010. “Total” Miami Fort coal costs in 2011 were 24.1%, higher than 2008, 7.7% higher than 2009, and 11% higher than 2010.
- Zimmer “total” coal costs in 2011 were 27.5% higher than 2008, 26.2% higher than 2009 and 22.3% higher than 2010. 2011 “spot” costs for Zimmer were 9.3% lower than 2008, 5.6% higher than 2009, and 7.1% higher than 2010. Zimmer 2011 “contract” costs were 35.8% more than 2008, 29.9% more than 2009, and 22.3% higher than 2010.
“Our review of the event summaries for each of the major generating stations (Zimmer, Beckjord, and Miami Fort) identified a number of unplanned outages related to wet coal,” said the audit. “Zimmer experienced frozen coal in bunkers and an extended unplanned outage related to air preheater failures and super heater tube leaks.
Beckjord Units 1 through 3 are currently in an extended shutdown which began in 2010. Units 2 and 3 had to be operated for a very short period in 2011 to retain their operating licenses. Units 4, 5 and 6 did not perform as well as Miami Fort, and data shows they are not “in the money” as frequently as Miami Fort, the audit said. Beckjord Units 5 and 6 underwent planned outages during 2011.
The Fuel Handling and Inventory Management organization at Duke Energy Ohio implemented comprehensive coal pile management processes during 2011. Generally, coal is offloaded from barges and transported via conveyor directly to the burn bunkers. Coal is added to inventory piles if units are down and barges cannot be diverted or inventory is built up in anticipation of river transportation problems (like high water and ice). The company implemented a three-week coal pile planning process during 2011. Duke Energy Ohio’s total book inventory of coal was increased 2.18% (18,216 tons) in December 2011 as a result of an aerial physical coal inventory of Beckjord, Miami Fort and Zimmer coal piles performed during 2011.
Beckjord units targeted for eventual retirement
The audit noted that Duke Energy Ohio continues to evaluate impacts on its coal units of various U.S. Environmental Protection Agency rules. “With the exception of Beckjord, all of Duke Energy Ohio generating stations have undergone upgrades to the latest environmental controls in the last 10 years. The Beckjord generating station contains some of the older, smaller generating units which have not been upgraded and in fact three of the units have been recently mothballed. At this time, the Beckjord units are currently scheduled to be retired instead of upgraded pending the final resolution of environmental regulations that are underway.”
During 2010, Duke Energy Ohio announced its intention to move from the Midwest ISO to the PJM Interconnection regional transmission organization. Duke Energy Ohio’s decision to switch regional transmission organizations was based, in part, on FirstEnergy‘s (NYSE: FE) change from MISO to PJM, in addition to other strategic reasons, the audit noted. The FirstEnergy switchover left Duke Energy Ohio as the only remaining investor-owned utility in Ohio that was a member of MISO.
The co-owners (DP&L and AEP) of Duke Energy Ohio’s portion of the Stuart, Killen and Conesville coal plants were already members of PJM. Duke Energy Ohio sold its portion of Killen and Conesville generation into PJM starting in September 2010. Duke Energy Ohio continued as a member of MISO during 2011 but completed the move to PJM on Jan. 1, 2012.
As a member of MISO or PJM during 2011, Duke Energy Ohio sold its generating output into the organization’s wholesale market and obtained its electricity to serve its load from the same organization’s market rates. Effective Jan. 1, 2012, Duke Energy Ohio began to be supplied with electricity secured through an annual open bidding process approved by the PUCO, the audit said.