Vectren South conducted its test burn on coal provided by Foresight Coal Sales out of Illinois and is waiting on the results of those tests and may conduct additional test burns, said Michael Eckert, employed by the Indiana Office of Utility Consumer Counselor (OUCC) as a Senior Utility Analyst in the Electric Division.
The OUCC on June 27 filed testimony from Eckert at the Indiana Utility Regulatory Commission as part of a fuel cost review case for Vectren South, also known as Southern Indiana Gas and Electric. Eckert’s testimony was pretty scant in terms of specific details about Vectren’s coal buying, with much of the coal bought from its own Vectren Fuels affiliate, which has two operating coal mines in Indiana.
Vectren South had previously reported that it had a term contract with Foresight Coal for coal out of Illinois, outside of Vectren South’s normal coal-buying area of Indiana, pending a successful test burn. Foresight Coal is the sales arm of coal operator Chris Cline’s Foresight Energy, which is developing several new longwall deep mines in Illinois.
Asked about Vectren South’s high coal inventory levels, caused by depressed coal burn, Eckert responded: “Applicant’s coal inventory is at a level that is much higher than historic levels. However, Vectren South’s inventory has begun to decrease due to weather, coal inventory mitigation strategies, and the fuel levelization process.”
Asked if Vectren South has implemented the fuel cost levelization proposal that was approved by the commission in a prior case, Eckert wrote: “The implementation of the fuel cost levelization has made Vectren South’s coal-fired generating units more price competitive. Thus, MISO is dispatching Vectren’s generating units more often.”
Even with this levelization program, at various times Vectren South still has some units that are on reserve shutdown because there is more competitively priced power in the MISO market., Eckert noted. “Thus, MISO is not dispatching the units and is utilizing purchased power to supply Vectren’s customers with their power needs.”
Asked if Vectren South has any coal contracts that have price re-openers in 2012, Eckert reported: “Petitioner has two contracts that have price re-openers in April 2012 and it has proposed to both suppliers that the re-opener period be deferred until the fall of 2012.”
The OUCC recommended that the commission, among other things:
- approve the proposed fuel cost factors in this case;
- continue to monitor Vectren South’s fuel cost, coal inventory build-up, and its mix of power supply sources; and
- require Vectren South to update the commission on the two coal contracts with price reopeners that were deferred and the results of the test burn on the Foresight Coal in its next fuel cost case.
Games describes test burn program
Foresight and Vectren South were due to conduct a coal test burn in May designed to assure that Vectren South’s coal-fired units can burn the coal and that the fly ash that is produced has a chemical makeup that allows it to be shipped to Holcim, the concrete manufacturer, for beneficial reuse. Assuming the test burn is successful, Foresight contract deliveries will begin this summer. The contract volume increases from 250,000 tons this year to 500,000 tons in 2013, said Wayne Games, Vice President-Power Supply at Vectren South.
Testimony by several Vectren South officials, including Games, was filed on May 21 at the commission as part of the company’s latest fuel adjustment clause case. The June 27 OUCC filing was a response to that testimony.
For 2013, Vectren South currently has coal priced under four separate contracts, Games said. As a result of negotiations related to a 2011 request for proposals for coal supply, Vectren Fuels’ Brown 1 contract was reduced from 1 million tons to 600,000 tons (with 15% volume flexibility). Vectren Fuels is another subsidiary of Vectren Corp. (NYSE: VVC) that supplies Vectren South with coal. The current 2013 portfolio, which covers 2.58 million tons, includes the following supply:
- Foresight, Brown plant, 500,000 tons, contract ends 2017;
- Vectren Fuels, Brown 1 contract, 600,000 tons, ends 2014;
- Vectren Fuels, Culley plant, 1,000,000 tons, ends 2015; and
- Vectren Fuels, Warrick plant, 480,000 tons, ends 2014.
Because the three contracts with Vectren Fuels provide 15% delivery flexibility, Vectren South can reduce the contract volumes (other than Foresight) by 312,000 tons, therefore leaving a firm commitment for 2013 of 2.268 million tons versus a projected burn of 2.7 million-2.9 million tons. This leaves opportunity to procure incremental coal for 2013, Games noted.