Coal for the Perry K steam plant, which is targeted for conversion to natural gas, is contracted at this point at a level of 175,000 tons per year, said Robert Purdue, Director of Thermal Operations for Citizens Energy Group.
Aug. 15 testimony from Purdue was filed at the Indiana Utility Regulatory Commission in a fuel rate case. The Perry K steam 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.
Citizens has entered into a contract with an unnamed producer to provide coal over a three-year term, which ends on Dec. 31, 2013, Purdue noted. For calendar years 2010 through 2013, the quantity of coal to be delivered to Citizens will be 175,000 tons, plus or minus 10%. 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 Railroad (INRD) and CSX. 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 January 1, 2011. Effective July 1, 2012, the transportation price for CXST 36771 was $8.39 per ton. Effective Jan. 1, 2011, the coal supplier notified Citizens that the coal supply for 2011 would be supplied by the Bear Run mine, which is served by INRD. INRD transportation pricing, using the CSXT-C-46031 (1) Private Pricing effective July 1, 2012, was $9.58 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. Bear Run is a relatively new Peabody Energy (NYSE: BTU) strip mine in Indiana.
Citizens currently purchases about 175,000 tons of coal per year, which has decreased the past couple of years from 230,000 tons. That doesn’t give the company the bargaining power of big utilities, Purdue noted. The spot coal price for Illinois Basin coal as of June 11 was $50/ton for 2.5 lb sulfur coal and the lookout price for calendar year 2013 is estimated to be $51/ton, which reflects the changing market dynamics of compliance coal contracts expiring and the effect of low natural gas prices on coal generation by electric utilities,” he added. “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 20l3. On Jan. 1,2013, Citizens will experience an increase of 3% as part of the current coal contract.”
Plant approved for coal-to-gas conversion
In a separate case begun in January at the commission, Citizens Thermal proposed the conversion of coal-fired and oil-fired boilers at Perry K to natural gas. The commission approved that petition on Aug. 8.
Citizens Thermal said its recent base rate increases have been driven in large part by rising operating, maintenance and capital costs incurred to operate the Perry K plant’s coal-fired boilers. Those cost pressures, combined with declines in natural gas prices, have increased the competitiveness of large steam customers installing their own onsite boilers fueled with natural gas. There are also issues complying by March 2014, if the plant were to stay on coal, with an industrial boiler air rule from the U.S. Environmental Protection Agency.
“It is an undeniable fact that the Natural Gas Conversion Plan will reduce the fuel diversity of Petitioner’s supply portfolio,” said the commission approval order. “The testimony makes clear that retaining the present diversity could only be maintained at a cost substantially greater than that of the Conversion Plan. Accordingly, it is reasonably likely that the Conversion Plan will create long-term benefits for Petitioner, its customers and the community, by supporting the competitiveness of Petitioner’s steam business. Further, the Conversion Plan is designed, and reasonably likely, to enhance the safety and reliability of Petitioner’s operations and create substantial environmental benefits for the City of Indianapolis.”