Consultant: APCo should get hit for using costly coal at Mountaineer

Appalachian Power should get a fuel cost disallowance for the difference between the cheaper high-sulfur coal it could have been burning in the Mountaineer power plant, and the more expensive lower-sulfur coal it has been burning there lately, said consultant Emily Medine of Energy Ventures Analysis.

Testimony from Medine, written on behalf of intervenor SWVA Inc., was filed June 8 at the West Virginia Public Service Commission in an annual fuel cost proceeding for APCo, a unit of American Electric Power (NYSE: AEP). SWVA owns a steel production facility, which includes an electricity-intensive electric arc furnace, located in Huntington, W.Va.

Medine also did a recent audit of Ohio Power’s fuel buying on behalf of the Public Utilities Commission of Ohio, so she is very familiar with AEP fuel buying practices.

APCo retrofitted a scrubber on the single, 1,300-MW Mountaineer unit last decade in order to comply with the Clean Air Interstate Rule in a least cost manner, wrote Medine in testimony that was heavily redacted. The Mountaineer scrubber was justified in part because it was designed to burn a coal with an SO2 content of up to 7.5 lbs/MMBtu, Medine noted. American Electric Power Service Corp. has been burning coals with a lower average SO2 content which has resulted in significantly higher fuel costs, she added.

According to APCo’s EIA 923 filings, AEPSC has been purchasing coal for Mountaineer with an average SO2 content of 5.39 lbs/MMBtu in the first quarter of this year and 5.2 lbs/MMBtu in calendar year 2011, Medine noted.

Assuming a breakpoint between higher and lower coal at a 2% sulfur midpoint, during the first quarter of 2012 the average price of higher sulfur coal was $0.78/MMBtu lower than that of lower sulfur coal, Medine wrote. The same is true of calendar year 2011, but there on average the cost of the higher sulfur coal was $1.38/MMBtu lower than that of the lower sulfur coal. Applying these differences to the MMBtu associated with the low sulfur coal purchases results in excess fuel costs of $5.5m during the first quarter of 2012 and $27.3m during calendar year 2011. Medine recommended that the fuel cost recovery for Mountaineer be limited to the prudently incurred cost of just high-sulfur coal.

Medine also testified on coal inventory issues, but that section was so heavily redacted that it’s pretty unusable.

EIA 923 data shows Mountaineer taking coal in March from a mix of Northern Appalachia and Central Appalachia suppliers, with high-sulfur coal coming from the Shoemaker mine of CONSOL Energy (NYSE: CNX) and the Powhatan No. 6 mine of coal operator Robert Murray.

APCo says it is taking higher-sulfur coal for Mountaineer

Flue gas desulfurization (scrubber) equipment installed in recent years on the Mountaineer and Amos power plants has allowed APCo to burn cheaper high-sulfur coals at those facilities, letting it keep control of fuel costs. Jeffery LaFleur, Vice President-Generating Assets for APCo, was one of several utility officials that wrote testimony filed April 24 at the Virginia State Corporation Commission in a fuel cost case.

He noted that Mountaineer is a single-unit, pulverized coal-fired power plant with a nominal capacity of 1,300 MW located in New Haven, W.Va., along the Ohio River. The unit was placed in service in 1980. The FGD system at the plant has been operational since 2007, and a selective catalytic reduction (SCR) system for NOx control has been in-service since 2002.

Amos is a three-unit, pulverized coal-fired power plant with a net capacity of 2,900 MW located in Winfield, W.Va., along the Kanawha River. Units 1 and 2 have a nominal capacity of 800 MW each, and Unit 3 has a nominal capacity of 1,300 MW. Units 1, 2, and 3 were placed in service in 1971, 1972, and 1973, respectively. The FGD systems at Amos Units 1, 2, and 3 have been operational since 2011, 2010, and 2009, respectively. The SCR systems for Units 1, 2, and 3 have been in-service since 2005, 2004, and 2002, respectively.

Mountaineer is permitted by the state Department of Environmental Protection to emit SO2 up to a limit of 1.2 lbs/mmBtu. The Amos plant is permitted to emit SO2 up to a limit of 1.6 lbs/mmBtu. Prior to the installation of FGDs at Mountaineer and Amos, the coal used by APCo at these plants was a low-sulfur Central Appalachia (CAPP) coal of less than 1.6 lbs SO2/mmBtu.

“The FGDs that were designed for, and installed at, Mountaineer and Amos allow the plants to meet emission limits, while burning coals with a sulfur content that is higher than the low sulfur CAPP coal that historically has been burned at the plants since the effective dates of the environmental permits I discussed previously,” LaFleur wrote. “Company witness [Jason] Rusk has advised me that low sulfur CAPP coal is generally higher-priced than coals with higher sulfur contents.”

He added: “During the design phase of Mountaineer’s FGD, it was determined that primarily due to the size of its boiler, but giving due regard to other boiler and plant considerations, the plant could economically and efficiently bum high sulfur Northern Appalachian (NAPP) coal, which I understand from Company witness Rusk has a sulfur content of approximately 7.4 lb SO2/MMBTU. Consequently, the Mountaineer FGD was designed to remove greater than 95% of the SO2 from the unit’s flue-gas stream while it burned high sulfur NAPP coal with up to maximum sulfur content of approximately 7.4 lb SO2/MMBTU.”

He added: “[T]he Amos plant has two 800 MW units (Amos 1 and 2), and a 1,300 MW unit (Amos 3) that predates the 1,300 MW unit at Mountaineer by about seven years. The size of the boilers on Amos 1 and 2, which are smaller than the boilers on Amos 3 and Mountaineer, was a critical factor that was considered during the design phase of the three FGDs at Amos. As is the case with Mountaineer’s FGD, each FGD at Amos treats 100% of the flue gas emitted by the unit; however, each FGD at Amos is designed to remove greater than 95% of the SO2 from a flue gas stream while the units burn a blend of higher sulfur NAPP coal (approximately 7.4 lb SO2/MMBTU) and lower sulfur CAPP coal (approximately 1.6 lb SO2/MMBTU) with up to a maximum sulfur content of 4.5 lb SO2/MMBTU.”

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.