Deal reached on coal-to-gas conversion of Perry K steam plant in Indiana

Now that Citizens Thermal Energy has worked out a deal to let it proceed with a coal-to-gas conversion at its Perry K steam plant in downtown Indianapolis, the Indiana Utility Regulatory Commission needs to be updated as the conversion goes along on how the company procures this natural gas, wrote Duane Jasheway, a utility analyst for the Indiana Office of Utility Consumer Counselor (OUCC).

In June 14 testimony filed with the commission in a Citizens Thermal Energy fuel case, Jasheway noted that the OUCC, Citizen’s Thermal Industrial Group, and Citizens Thermal Energy reached a settlement in a separate case covering the coal-to-gas conversion and filed the settlement agreement with the commission on June 7. Citizens Thermal has said that in the face of new air emissions regulations, it is cheaper to switch the coal boilers to natural gas instead of fitting them with emissions controls.

After the conversion of those Perry K boilers from coal to natural gas, the plant’s annual natural gas requirements will increase from about 1.0 BCF to 4.0 BCF, Jasheway wrote. Jasheway said the OUCC has no problems with the interim coal procurement covered by the current fuel case and recommended that the commission require from Citizens Thermal Energy periodic updates on the conversion process.

Citizens Thermal Energy official Korlon Kilpatrick II described the settlement in June 7 testimony filed in the conversion case. The settling parties agreed that Citizens Thermal’s plan to convert Boilers 12, 16, 17 and 18 at the Perry K steam plant is reasonable and in the public interest, based on Citizens Thermal’s evidence and its estimate that the total construction cost of implementing the Natural Gas Conversion Plan does not exceed $9m, exclusive of Allowance for Funds Used During Construction (AFUDC). The agreement makes clear that nothing in it or a commission order approving it will be construed as agreement of the OUCC or Industrial Group that Citizens’ incurrence of construction costs exceeding that cap is reasonable or in the public interest. In order to capture the benefits of the Natural Gas Conversion Plan in base rates at the earliest reasonable opportunity, Citizens Thermal agreed to file a base rate case with a test year ending 12 to 16 months following the completion of the conversion.

The Natural Gas Conversion Plan does not contemplate immediate conversion of the Perry K plant’s Boiler 15, which is a coal boiler, Kilpatrick said. Consequently, if Citizens Thermal completely eliminates the use of coal at the Perry K plant upon completion of the Natural Gas Conversion Plan, it will cease utilizing Boiler 15 until such time as that boiler is converted to burn natural gas or another fuel.

Citizens Thermal will address fuel diversity issues

On June 13, Citizens Thermal responded to a commission question about how the conversion fits with a 2010 long-term planning report from Citizens Thermal that said fuel diversity was a key need. Citizens Thermal witness Christopher Braun responded that Citizens Thermal has commenced discussions with Covanta Indianapolis regarding an amendment to the existing steam purchase agreement.

Braun added: “Citizens Thermal believes the parties are in agreement that, upon completion of the Natural Gas Conversion Plan, indices based exclusively or primarily on coal should no longer be included in any formula used to adjust the price of steam Citizens Thermal purchases from Covanta. As the negotiations progress, Citizens Thermal will remain focused on considerations that result in an amendment to the Covanta agreement supportive of fuel portfolio diversification and optimization, including revisions to the pricing construct and other provisions designed to achieve an optimal balance of the amount of municipal solid waste, natural gas and other fuels used to produce steam supplied to Citizens Thermal’s customers. Additionally, Citizens Thermal will ensure a new pricing construct does not limit Citizens Thermal’s ability to diversify its fuel portfolio with alternative fuels at the Perry K plant or Covanta’s ability to use alternative fuel sources such as biomass, in addition to solid municipal waste.”

The steam utility’s customers are supplied with steam generated from two sources: a waste-to-energy plant owned and operated by Covanta Indianapolis; and Perry K. Perry K generates about 50% of the steam sold by Citizens. About 76% of the steam generated by Perry K 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.

The commission had not decided the conversion case as of June 18. The Board of Directors for Utilities of the Department of Public Utilities of the city of Indianapolis does business as Citizens Thermal Energy.

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%, said Robert Purdue, Director of Thermal Operations for Citizens Energy Group, in May 15 testimony. Effective January 2011, the unnamed coal supplier notified Citizens that the coal supply for 2011 would be supplied by the Bear Run mine. Notable is that Bear Run is a Peabody Energy (NYSE: BTU) strip mine in Indiana. Citizens purchases about 175,000 tons of coal per year, which has decreased the past couple of years from 230,000 tons per year, Purdue noted.

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.