Louisville Gas & Electric reports coal supply situation

Louisville Gas & Electric bought 4.3 million tons in the November 2011-April 2012 period and burned 4.4 million tons, the utility reported in a Sept. 12 fuel report filing at the Kentucky Public Service Commission.

The biggest coal supplier during that six-month period was Alliance Coal LLC, which had three contracts under which it delivered 730,005 tons, 734,482 tons and 1.03 million tons. Notable is that one of those contracts with Alliance, which had called for 4 million tons per year, expired at the end of 2011.

The coal burn in the November 2011-April 2012 period, by plant and unit, broke down as: Cane Run, 594,242 tons; Mill Creek, 2.1 million tons; Trimble County Unit 1, 781,124 tons; and Trimble County Unit 2, 938,107 tons.

Coal contracts in effect during the period are outlined here. Note in some cases tons under these contracts are shared with Kentucky Utilities, a sister company to LG&E.

  • Alliance Coal, source is River View mine in western Kentucky, contract effective in November 2008 and runs to end of 2015, calls for 2 million tons per year for the rest of the contract, current price of $49.54/ton.
  • Alliance Coal, various source mines in western Kentucky, December 2005 contract that expired at the end of 2011, was for 4 million tons per year, with apparently some carryover coal, 81,646 tons, delivered earlier this year.
  • Alliance Coal, various western Kentucky mines, effective December 2011 and runs through end of 2016, calls for 3 million tons per year, current price of $47 FOB railcar.
  • Armstrong Coal, various western Kentucky mines, effective December 2007 to end of 2016, calls for 2.1 million tons per year in 2011-2015 period and 900,000 tons in 2016, current price of $29.63/ton for Quality 1 coal specs (there is one other set of specs).
  • Armstrong Coal, various western Kentucky mines, effective December 2009 to end of 2016, calls for 1.25 million tons in 2012 and 2013 and 750,000 tons per year in 2014-2016, current price of $46.94/ton.
  • Peabody COALSALES LLC, various Patriot Coal mines in western Kentucky and the Somerville mine in Indiana, effective May 2006 to end of 2011, was for 1 million tons in 2011.
  • Peabody COALSALES, mines in Indiana, effective December 2011 to the end of 2014, calls for 1.5 million tons per year, current prices are $50.89/ton FOB barge at Evansville, $50.49/ton FOB barge in Warrick County, and $45.39/ton FOB railcar.
  • CONSOL Energy, source is Shoemaker longwall mine in West Virginia, effective in January 2010 and runs to end of 2014, was for 1.2 million tons in 2011 and no contract tons are shown for 2012-2014, but there is an indication those years are subject to a contract reopener or reopeners, current price is $54.50/ton.
  • Foresight Coal Sales LLC, various mines in Illinois, effective March 2012 and runs to end of 2013, calls for 500,000 tons in 2012 and 1 million tons in 2013 and tons subject to reopener in 2014, current price of $46/ton.
  • Oxford Mining Co.-Kentucky LLC, various western Kentucky mines, effective December 2006 to the end of 2011, but 250,000 tons of contract deliveries shown for 2012, current price of $36.10/ton.
  • Oxford Mining Co.-Kentucky, various western Kentucky mines, effective September 2011 through end of 2013, calls for 400,000 tons in 2012 and 600,000 tons in 2013, current price of $49.21/ton.
  • Patriot Coal Sales LLC, various western Kentucky mines, ran from January 2008 to end of 2011.
  • Patriot Coal Sales, various western Kentucky mines, ran from December 2009 to the end of 2011.
  • Patriot Coal Sales, western Kentucky mines, ran from January 2010 to end of 2011.
  • Patriot Coal Sales, western Kentucky mines, effective April 2011 and runs to end of 2013, calls for 1.25 million tons per year in both 2012 and 2013, current prices of $46.25/ton for Quality 1 and $49.50/ton for Quality 2.
  • Rhino Energy LLC, Sands Hill mining operations in Ohio, effective July 2008 and runs to end of 2012, calls for 360,000 tons in 2012, current price of $52.76/ton.
  • Solar Sources, various mines in Indiana, effective December 2011 and runs to end of 2013, calls for 300,000 tons in 2012 and 400,000 tons in 2013, current price of $51.03/ton.
  • American Coal, Galatia mine in Illinois, effective December 2009 and runs to end of 2014, but no tons shown for delivery beyond the end of 2011 (2011 contract tonnage was 750,000 tons), current price of $46.73/ton.
  • Triad Mining, Log Creek mine in Indiana, effective December 2011 and goes to end of 2014, calls for 700,000 tons per year in 2012-2014 period, current price of $45.33/ton.
  • Western Kentucky Minerals, mines in western Kentucky and in Indiana, effective December 2009 and goes to end of 2012, calls for 403,300 tons in 2012, current price of $71.34/ton.

Coal inventories run high at LG&E’s three coal plants

As of the end of April 30, LG&E had 1.3 million tons of coal in inventory, which is 49 days of supply, against a wide target of 24 to 42 days. The most bloated coal inventory in terms of tons is at Mill Creek, which had 759,474 tons (52 days of supply), against a target of 25 to 44 days. Notable is that the Trimble County inventory total of 314,112 tons (58 days) includes both high-sulfur coal for Units 1-2, and some Powder River Basin coal also used at Unit 2.

LG&E said it is involved in one coal contract lawsuit, along with KU, which is pending at the Webster County, Ky., Circuit Court, with that case currently in discovery. The other parties are Resource Sales, Allied Resources, Cochise Coal and Smoky Mountain Coal. The dispute is over the non-delivery of 1 million tons of coal. The utility said the other parties are pursuing force majeure claims and also seeking to recover payments for delivered coal that the utilities withheld.

There were some personnel changes in fuel procurement in the review period. Effective March 5, Tom Axtell, Mining Engineer, was promoted to Lead Engineer. Effective July 9, Axtell moved from being a direct report to Caryl Pfeiffer, Director of Corporate Fuels and By-Products, to being a direct report to Delbert Billiter, Manager Fuels Risk Management. Effective July 9, Justin Thompson joined the Fuels Department as Mining Engineer reporting to Billiter.

LG&E noted that it issued a spot and contract coal solicitation on March 5 for a period of to 10 years. This was for all LG&E coal-fired units and KU’s Ghent power plant (beginning July 1, 2012). A total of 23 companies made 47 offers. “The final selection of the vendor from the high sulfur bids has not been made; however, negotiations are still in progress,” the filing said. “The name of the selected vendors and supporting bid tabulation will be provided to the Commission after the negotiations are completed and the agreements signed.” The selected vendor for middlings coal for Ghent (July-December 2012) was Revelation Energy LLC.

Asked about coal supply stability in the face of a poor coal market and numerous mine closures, LG&E responded: “The majority of the coal mines closed have been in the Central Appalachian Region primarily due to oversupply and reduced demand. At this time the Company has not seen a significant impact to the mines supplying LG&E and KU. The majority of the coal used is supplied from the Illinois Basin and the Company has seen an increase in supply from this region. As overall coal demand returns, shortages due to the mine closures could occur. The Company continues to monitor the markets and will position itself to minimize any impacts to the Company’s coal supply.”

LG&E later added: “Both Companies’ cost of coal has been increasing; however, KU’s overall cost of fuel has increased less due to the fuel switching that has occurred with the construction and operation of the FGDs at the Ghent and Brown generating stations. With the majority of the LG&E and KU coal generation now utilizing high sulfur coal, the overall system fuel cost for each Company should become very similar. Additionally, low-cost, long term contracts have expired for LG&E and have been replaced with higher cost contracts based on market prices. Further, as KU’s cost of generation stabilized, and the gap between LG&E’s cost of generation narrowed, KU has purchased somewhat less economy power from LG&E; this decrease results in a decrease in LG&E’s intercompany sales, which results in an increase in the FAC cost, all other variables being held constant.”

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.