The relative mercury and chlorine levels in the Indiana coals that Indianapolis Power & Light burns became a critical factor in deciding how to comply with the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS), said Harold Leitze, IPL’s Manager of Coal and Transportation.
Those were among the facts in testimony that IPL, a unit of AES Corp. (NYSE: AES), filed Sept. 26 at the Indiana Utility Regulatory Commission. The new emissions controls that the utility is asking the commission to approve are needed to comply with environmental regulations, including the MATS rule governing regulation of mercury, non-mercury metal hazardous air pollutants (HAPs) and acid gas HAPs.
The summer-rated capacity of the Petersburg Units 1-4 is 1,752 MW and it is 427 MW for Harding Street Unit 7, which are the units to get these new emissions controls. To comply, IPL wants permission to:
- install and operate a Pulse Air Fabric Filter System (baghouse) on Units 2 and 3 at Petersburg;
- upgrade the electrostatic precipitators on Unit 7 at Harding Street and Petersburg Units 1, 3 and 4;
- and install other environmental controls and monitoring equipment including activated carbon injection, sorbent injection, flue gas desulfurization (FGD) system upgrades and continuous emission monitoring equipment.
Leitze testified that IPL currently buys about 7.5 million tons of coal per year from 13 mines, all in Indiana. IPL samples and analyzes every shipment every day from every supplier for quality characteristics such as moisture, ash, sulfur and Btu content, all of which are guaranteed to meet certain contractual limits.
Attached to his testimony is a list of Indiana coal mines with their average specs, including mercury and chlorine content, blacked out. The listed mines include Carlisle, Log Creek, Somerville (South, Central and North), Wild Boar, Prosperity, Landree, Gibson County, Antioch and Bear Run.
In a separate fuels case opened in September at the commission, IPL said its current coal supply contracts are with: Peabody Energy (NYSE: BTU); Triad Mining; Sunrise Coal LLC; Prosperity Mine LLC; and The Lily Group Inc.
Mercury is found in small concentrations in coal, measured in pounds per trillion Btu (lbs/TBtu), Leitze noted. Mercury content can vary sharply. The amount of mercury in Indiana coals used by IPL was found to range from 3.6 to 14.2 lbs/TBtu. Mercury can be expected to vary from mine to mine and within coal seams as mining progresses. IPL has not yet found any coal suppliers willing to contractually guarantee the level of mercury in their coal, Leitze noted.
The chlorine content of the coals can also vary from mine to mine. Although most of the Indiana coal was deposited in a fresh water environment, the southwestern coals, i.e., Prosperity and Gibson County, were deposited on the edge of a salt water ocean (salt=sodium chloride) and therefore have a higher chlorine content, he explained. Similarly, the coals in southern Illinois can have up to ten times as much chlorine as Indiana coals because they too were deposited in a salt water environment.
A certain amount of mercury is removed from the coal by washing it at the mine. Studies by one of IPL’s coal suppliers indicate it removes anywhere from 33% to 55% of the mercury by washing it, but that is only mercury that is tied up with pyritic sulfur. The remaining mercury is elemental and cannot be removed by washing. Since IPL already buys 100% washed coal from all of its sources, IPL is already buying the best quality it can from these Indiana mines, Leitze wrote.
Chlorine reacts with mercury during combustion to form HgCl (also known as oxidized mercury) which is soluble in water and can be removed by a power plant’s flue gas desulfurization (FGD) systems. All of the “Big Five” coal units where IPL now plans to add new emissions controls have FGD. However, because the chlorine content of the Indiana coals is so low, the FGD removal percentage is generally around 50% to 70%. In addition, the corrosive nature of the chlorine on boiler tubes and other equipment makes having coal low in chlorine a good attribute. Thus, low chlorine content is good for operations but makes mercury more difficult to capture during combustion.
Indiana has some of the lowest-mercury coal around
Research on other U.S. coal basins shows that Indiana coals are among the lowest in the country in terms of mercury content. A few small pockets of coal in Colorado are comparable in mercury content to Indiana but most other coal has two to three times as much mercury as Indiana coals, Leitze noted. “Thus, switching to coal from another region is also not a viable option,” he added.
IPL directed consultant Sargent & Lundy (S&L) to look into whether capital costs for MATS compliance could be eliminated or reduced if procuring coals with lower mercury content could be used as a compliance tool. S&L’s study is attached to the second part of the Sept. 26 filing. Leitze said he grouped IPL’s coal supplies into three logical combinations that might supply various mixes of coal for different levels of average mercury content. The current mix of coals at Petersburg includes coals from both the high mercury and medium mercury groups. The three groups are:
- Unconstrained coal supply with a weighted quarterly maximum mercury content of 11.2 lbs/TBtu or less consisting mainly of the coals located in southwestern Indiana, mainly from Freelandville, Ind, south to Interstate 64. The average mercury content of these coals is about 9.0 lbs/TBtu.
- Constrained coals with a weighted quarterly maximum mercury content of 9.0 lbs/TBtu or less consisting of a mix of high-, medium- and low-mercury southern Indiana coals located north of Petersburg, Ind., up to around the Sullivan, Ind., area. The average mercury content of these coals is about 6.5 lbs/TBtu.
- Highly constrained coals with a weighted quarterly maximum mercury content of 8.0 lbs/TBtu or less consisting mainly of the low- and medium-mercury coals located along highway 41 from Sullivan, Ind., to Vincennes, Ind., and the Freelandville, Ind., area. Average mercury content of these coals is about 5.5 lbs/TBtu.
IPL determined that the weighted average mercury content of the coals received at Petersburg for a calendar quarter was 10.2 lbs/TBtu. An 11.2 value was selected as being representative of the maximum average of multiple mines that could be expected over a 90-day period based upon an analysis of the quarterly data factoring in the variability of the mercury content of the various seams of coal received.
Petersburg not located near the low-mercury mines
Unfortunately, the mines in closest proximity to Petersburg generally have the highest levels of mercury in Indiana, Leitze said. Location of the coal is important because of the need to consider transportation logistics and cost when considering the impact of restricting coal supply. IPL also considered how long the mine has been in operation because new mines have less historical data on coal quality, especially trace amounts of minerals such as mercury and arsenic.
Under the Highly Constrained Coal Supply case reflected in the S&L study, the mercury content of this coal would not permit IPL to comply with the MATS Rule by simply using low mercury coal, Leitze wrote. Furthermore, when supply limitations and transportation costs are considered, this is not a reasonable compliance option from a cost or risk perspective. Narrowing the market of eligible suppliers to only a few mines which are a greater distance from Petersburg will expose IPL to increased risk of transportation options, supply risk due to operational problems at any of the mines, potential risk due to labor disputes, mine closures and lack of alternative supplies, price risk due to lack of competition, and quality risk due to the variable nature of the coal itself (i.e. unforeseen increases in the mercury in the coal seam as mining progresses), he added.
The high-sulfur coal mines in Indiana with the lowest mercury are also relatively new operations that do not have an extensive historical data base on coal quality, especially trace amounts of minerals such as mercury and arsenic, Leitze said. “Even so, their mercury content will not comply with the MATS Rule because they average 4 to 6 lbs/TBtu of mercury content as compared to the limit of 1 lb/TBtu. Furthermore, these mines combined produce approximately 17 to 18 million tons per year. The five Indiana generating stations equipped with FGD systems in closest proximity to these mines burn 22 to 23 million tons per year. Limiting IPL’s fuel sources to three mines would not only drive up the price but could place IPL’s fuel supply in jeopardy if other Indiana plants did the same.”
IPL performed an economic evaluation of complying with the MATS rule at Petersburg using only low-mercury coal that ignored the operational risk constraints. In the analysis, coal supply was limited to either 9 lbs/TBtu max or 8 lbs/TBtu max and the transportation costs from the compliant mines was calculated taking into consideration where the coal might originate under such restrictions and whether the coal would be delivered by rail or truck. Petersburg takes coal by both rail and truck but cannot take 100% of its coal by rail due to unloading constraints. Absent capital improvements to the coal handling system, Petersburg needs the flexibility of having at least 30%-40% of its coal delivered by truck. Even if Petersburg were able to take more coal by rail, transportation costs will increase if the coal supply is constrained and the mines within 25 miles of Petersburg are eliminated from consideration, Leitze said. Under a 9 lb constraint the transportation costs increased $1.78 per ton and under an 8 lb constraint the increase was $2.85 per ton.
IPL leary of a premium price being added to low-mercury coal
Coal has never been priced based upon its mercury content. Therefore the market price adder based upon mercury that would need to be placed on coal is unknown, Leitze pointed out. The ability to forecast a market premium is also hindered by the fact that coal suppliers are unwilling to guarantee the mercury content of the coal.
“However, parallels can be drawn to the low sulfur coal markets that developed in the 1970s when the sulfur dioxide rules were implemented,” Leitze wrote. “In addition to the supply and demand pressures of restricted coal supplies, coal companies supplying low sulfur coal tried to capture the cost that utilities avoided by not building scrubbers, i.e. capital costs and O&M costs. Over time a market for low sulfur coal developed that was very distinct from the market for high sulfur coal. Therefore, it is reasonable to assume that different markets could develop for low mercury and high mercury coals with one exception. There are no low mercury coals that, by themselves, will comply with the MATS Rule. Even low mercury coals will require some type of supplemental controls to comply with the MATS Rule. Furthermore, any increase in the demand for coal low in mercury content will deplete those reserves at a faster rate than would normally occur. Therefore, in a relatively short period of time, the supply and demand pressures would cause the price of low mercury coal to increase faster than the price for higher mercury coal causing the gap between the two to widen.”
Leitze projected some market premiums that were then added to the representative coals and weight averaged into Petersburg’s coal supply, including transportation cost impacts, to determine the total estimated impact of constraining the coal supply on Petersburg’s fuel cost. The coal price adders recommended to S&L were $3.87 per ton for medium mercury coal and $5.76 per ton for low mercury coal, which includes both transportation and market cost impacts.
S&L used these coal groupings in developing its recommended compliance strategy to IPL. IPL concluded that the best-case scenario for fuel supply, factoring in risk associated with constrained coal supply, risk of increases in market prices and risk of fluctuations in the quality of the coal itself, was to maintain an unconstrained fuel supply for Petersburg. Restricting IPL’s fuel supply is not a prudent long-term option in order to comply with MATS, Leitze argued.
IPL’s plan indicates that Harding Street Unit 7 can comply with MATS without a baghouse. Due to the characteristics of Harding Street Unit 7 in conjunction with a planned electrostatic precipitator (ESP) upgrade, this unit is expected to be able to comply with its current coal supply or other combinations of Indiana coal, Leitze said.