Gulf Power’s coal burn plunges as cheap gas takes its place

Like it has for the last year or more, cheap natural gas drove up gas-fired generation and drove down coal-fired generation at Gulf Power in the first half of this year.

Testimony from Herbert “H.R.” Ball, the Fuel Manager for Gulf Power, was filed by the utility on Aug. 1 at the Florida Public Service Commission as part of an annual fuel cost proceeding. His testimony sums up what actually happened with fuel costs in the first half of this year as opposed to projections made about those costs earlier in the year. He also updated previous projections for the last half of this year.

“Gulf‘s currently projected recoverable total fuel and net power transactions cost for the period is $442,568,718 which is $145,204,450 or 24.70% below the original projected amount of $587,773,168,” Ball said about 2012 figures. “The lower total fuel expense for the period is attributed to a combination of lower than projected total fuel cost of system net generation combined with a higher total fuel cost of purchased power resulting in a lower total cost of available power. The lower total cost of available power combined with higher fuel revenue from power sales results in a further reduction in total fuel and net power transactions cost. The resulting average per unit fuel cost is projected to be 3.6954 cents per kWh or 18.83% below the original projection of 4.5524 cents per kWh. The lower average per unit fuel cost (cents per kWh) is attributed to a lower fuel cost of generated power and purchased power for the period driven primarily by lower costs for natural gas and a change in the generation mix to include more natural gas fired generation and purchased power.”

Delivered coal prices are projected to be slightly above original projections for the period due to a higher percentage of contract coal in the coal supply mix, Ball noted. The quantity of contract coal in the mix is expected to be above original projections due to a cut in coal burn which has eliminated the need for spot purchases. Coal burn is lower due to reduced economic dispatch of coal fired units relative to other sources of generation. Projected prices for natural gas for the period are expected to be lower than original projections for the period due to changes in market fuel prices.

A higher projected supply of natural gas in the market has driven the projected price lower and prices are expected to remain lower for the remainder of the 2012 period. The quantity of natural gas burn is expected to be above original projections in response to the lower market prices for natural gas increasing economic dispatch of Gulf’s gas-fired generating units.

The total cost of coal burned (including boiler lighter) for the first six months of 2012 was $113,653,418, which is $93,781,381 or 45.21% lower than the projection of $207,434,799. On a fuel cost per kWh basis, the actual cost was 5.30 cents per kWh which is 7.07% higher than the projected cost of 4.95 cents per kWh. The lower than projected total cost of coal burned (including boiler lighter) is due to total MMBtu of coal burn being 45.39% below the estimated burn for the period. The higher per kWh cost of coal fired generation is due to actual coal prices (including boiler lighter) being 0.22% higher than projected on a $/MMBtu basis and the weighted average heat rate (Btu/kWh) of the coal fired units operating being 6.70% higher than projected.

Gulf has fixed price coal contracts in place for the period to limit price volatility and ensure reliability of supply. Actual average prices for coal purchased during the period are higher due to a change in the timing of contract shipments to Gulf’s coal-fired plants in response to lower coal burn for the period.

The total cost of natural gas burned for generation for the first six months of 2012 was $52,095,850, which is $10,314,461 or 16.53% lower than Gulf’s projection of $62,410,311. The total gas-fired generation was 2,218,960 MWH, which is 32.09% higher than the projection of 1,679,889 MWH. The total cost of natural gas burned for generation is lower than the forecast due to the market price of natural gas being lower than projected. Market prices for natural gas are lower due to increased supply of natural gas in the market.

Gulf Power’s directly-owned coal plants in Florida are Crist, Lansing Smith and Scholz (old and little-used), plus Gulf Power owns 50% of the Daniel coal plant in Mississippi along with fellow Southern Co. (NYSE: SO) subsidiary Mississippi Power.

To illustrate just how poorly coal is doing at Gulf Power, the filing shows actual capacity factors for the company’s generating units in the first half of this year, and projected capacity factors in each month of the last half of 2012.

  • In August, normally a blazingly hot month with heavy air conditioner load in Florida, Crist Units 4-7, all of them coal units, have projected capacity factors of 25.8% for Unit 4, 36% for Unit 5, 27.2% for Unit 6 and a relatively strong 50.8% for Unit 7.
  • Scholz Unit 1 is projected for 11.6% and Unit 2 at 7.6% as far as August capacity factors.
  • Lansing Smith Unit 1 is projected for an August capacity factor of 39.4% and Unit 2 at 33.1%.
  • Daniel Unit 1 is projected at 36.7% and Unit 2 at 39.3%.
  • On the other hand, the gas-fired Unit 3 at Smith is projected for a 90.5% capacity factor in August.
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.