As of April 30, beset with poor burn, Kentucky Power had 438,590 tons of coal in inventory at its Big Sandy power plant, which is 42 days of burn and 12 days over target, the utility reported in a Sept. 12 filing at the Kentucky Public Service Commission.
“Like many other utilities, Kentucky Power as been impacted by the continued economic downturn,” said the filing about the coal inventory is so high. “This downturn has led to a decrease in demand for electric power, which, in turn, has led to a decrease in the burn at Big Sandy. This decrease has resulted in surplus inventory, as Kentucky Power has honored its existing contractual obligations with its coal suppliers.”
In reply to a question about whether coal mine closures lately due to poor markets could lead to coal supply problems down the road, this American Electric Power (NYSE: AEP) subsidiary said there is no current evidence that the closures will lead to reliability problems. It said major reasons for mine closures lately include coal-to-gas switching by power generators to take advantage of cheap natural gas prices, unscrubbed coal plants that may not be able to afford to burn expensive low-sulfur coal, and a decrease in power generation demand.
Kentucky Power has only one power plant, which is Big Sandy in eastern Kentucky. In the November 2011-April 2012 review period covered under the current fuel cost case at the PSC, the utility said it bought 1 million tons of coal and burned only 785,038 tons, with Big Sandy having a capacity factor of only 40% during that period. The top coal supplier during the period at 205,650 tons purchased was Rhino Energy LLC.
The term contracts in effect during the review period were:
- Argus Energy LLC, eastern Kentucky and southern West Virginia mine sources, contract effective in January 2007 and due to expire at the end of 2012, with 480,000 tons contracted in 2012, and a current contract price of $82.65/ton FOB the power plant.
- Beech Fork Processing, eastern Kentucky mine sources, contract effective in June 2008 and runs to end of 2013, with 46,867 tons contracted in 2012 and 190,000 tons in 2013, current price of $72.29/ton FOB plant.
- Arch Coal Sales, former International Coal Group contract, source operations in Knott County, Ky., effective in January 2007 and runs to the end of 2012, with 240,000 tons contracted in 2012, and a current price of $77.50/ton FOB railcar.
- Cliffs Logan County Coal LLC, southern West Virginia mine sources, effective February 2008 and runs to end of 2012, with 360,000 tons per year contracted in 2010 and 2011, but no actual tons shown for 2012.
- Kentucky Fuels, Pike County, Ky., mine sources, effective November 2010 and ran to the end of 2011, with 420,000 tons contracted in 2011.
- Rhino Energy LLC, operations in Floyd County, Ky., effective in August 2010 and runs to end of 2013, with 480,000 tons per year contracted in 2012 and 2013, and a current price of $75.50/ton FOB plant.
- S.M.& J. Inc., mine sources in Magoffin County, Ky., effective November 2010 and runs to end of 2013, calls for 20,000 tons per month in 2012 and 2013, current price of $78.15/ton FOB plant.
- Trinity Coal Marketing LLC, mines in southern West Virginia and eastern Kentucky, effective November 2007 and runs to end of 2012, calls for 20,000 tons per month in September-December period this year, and 1.08 million tons total over life of contract, with current prices of $54.50/ton FOB railcar, $60.50/ton FOB plant (via truck) and $56.50/ton FOB barge.
AEP mulls future of Big Sandy plant
Notable is that Kentucky Power on May 30 filed a request with the PSC to let it shelve its application to build a dry flue gas desulfurization (DFGD) scrubber on the 800-MW Unit 2 of Big Sandy. “The basis for the request is that the Company wishes to re-evaluate alternatives to meet the Company’s obligations under the Consent Decree, the Cross-State Air Pollution Rule, the Mercury and Air Toxic Standards, and other environmental standards,” the utility said. “The Company will file a new application, as required by Kentucky law, when the reanalysis is complete and a decision on the alternative is made.” The company had made no additional filings in this docket as of Sept. 19.
Besides the Sierra Club and other environmental groups, an opponent of the project had been the Kentucky Attorney General, who said the project would mean too big a rate increase with too little benefit to the eastern Kentucky economy.
A company witness during the DFGD review case highlighted the fact that the Big Sandy plant consumed a significant amount of Kentucky coal, but acknowledged that only 30% of the plant’s coal was mined in Kentucky. The witness said that with DFGD in place, Kentucky Power would likely expand the types of coal that it uses at the plant, thus using less low-sulfur eastern Kentucky coal, and replacing it with more higher-sulfur varieties such as Illinois Basin coal.
Big Sandy Unit 1 is a 278-MW facility completed in 1963. Big Sandy Unit 2 is an 800-MW unit completed in 1969. Kentucky Power said in the December 2011 application for the DFGD that it anticipates retiring Big Sandy Unit 1 by Jan. 1, 2015. AEP needs to do something about Big Sandy emissions under a clean-air consent decree worked out several years ago with the federal government.