Upper Peninsula Power takes nothing from White Pine coal unit

Although coal prices for a White Pine Electric Power LLC unit that is contracted to supply power to Upper Peninsula Power have declined somewhat since 2008, they remain high relative to other power supply options, said Upper Peninsula Power.

Also, in addition to the high coal prices, a decline in the MISO locational marginal prices (LMPs) since 2008 has resulted in no dispatch of the White Pine unit to date in 2012, and no expected dispatch in 2013, the utility said in a Sept. 24 filing at the Michigan Public Service Commission

Upper Peninsula Power (UPPCO), a unit of Integrys Energy Group (NYSE: TEG), outlined its power supply situation in this Power Supply Cost Recovery plan for 2013 filed with the Michigan PSC.

In December 2004, UPPCO entered into a purchase power agreement (PPA) with White Pine Electric Power, located near White Pine, Mich. White Pine operates two 17.5-MW coal-fired units. The White Pine PPA included the capacity and energy rights to both units (35 MW) and has a term ending Dec. 31, 2014.

The PPA allows for a pass through of the White Pine coal price to be reflected in the energy price paid by UPPCO. At the time of the White Pine PPA, White Pine Copper Refinery had entered into a coal sales agreement with Central Penn Energy Co. Inc., under which the coal price was effective through Dec. 31, 2007. White Pine was unable to secure a new price agreement from Central Penn prior to the end of that coal agreement. Furthermore, during the time of the negotiations between White Pine and Central Penn, the coal price increased dramatically and a new coal agreement resulted in a significant increase in the coal price, effective on April 1, 2008, UPPCO noted.

UPPCO filed a notice of dispute on Oct. 8, 2008, which indicated that White Pine Electric’s failure to negotiate an appropriate coal supply agreement was a material breach of their agreement. UPPCO and White Pine settled the dispute in April 2009. The existing PPA was amended to 17.5 MW (one unit) beginning March 1, 2011, with a reduction to 60% of the original contract termination payment.

For the period between Jan. 1, 2009, and Feb. 28, 2011, the energy cost from one unit mirrored the energy cost and availability from the Warden unit at $52/MWh in 2009, $54.60/MWh in 2010 and $57.33/MWh in 2011, with a 5 MW minimum dispatch and 17.5 MW maximum dispatch. Energy was sourced at the Warden node and delivered to the White Pine node financially. Renewable Energy Credits generated from the Warden unit remained the property of White Pine. The remaining White Pine unit that continues as an UPPCO power source is being dispatched under the terms of the original contract.

“Although coal prices for the White Pine unit have declined somewhat since 2008, they remain high relative to other power supply options,” UPPCO wrote. “Furthermore, the decline in the MISO LMP prices since 2008, along with the high cost of coal, has resulted in no dispatch of the White Pine unit to date in 2012, and no expected dispatch in 2013.”

In other points of note from the Sept. 24 PSCR filing:

  • In May, UPPCO signed a short-term agreement with Cargill Energy Markets LLC. The agreement provides for 25 MW of firm on-peak energy for 2013 and January-May 2014. There are no capacity charges with this agreement. UPPCO noted that due to its small size, large power purchase deals aren’t needed. UPPCO also buys power from fellow Integrys subsidiary Wisconsin Public Service.
  • UPPCO owns two oil-fired combustion turbines, which are typically higher cost to operate than the MISO market price for energy. As a result, the Portage (23.8 MW) and Gladstone (22.6 MW) plants rarely dispatch on economics. When available, the units do provide firm capacity and back-up capabilities that allows for interruptible energy purchases at lower prices.
  • In June 2010, the Portage CT experienced a forced-outage due to a short in the rotor winding. The market price for capacity at the time was depressed and UPPCO was able to economically purchase replacement capacity. It was decided that the plant was not needed for system reliability. “The market for capacity continues to be low, but there is reason to believe that prices will rise significantly within the next five years,” said the company. “This market shift will likely be the result of a number of regulatory factors that cause a reduction in available market capacity. The projected future increases in the price of replacement capacity, along with the pending expiration of the White Pine PPA, have increased the value of the Portage CT within UPPCO’s Power Supply portfolio. … The current plan is to repair Portage so that it is available beginning with the 2013/14 MISO planning year which begins on June 1, 2013.”
  • UPPCO has one significant generation outage planned in 2013. In June 2013, the reservoir serving Victoria hydroelectric Units 1 and 2, with a total capacity of 12.2 MW, will be drawn down to facilitate work on the spillway. The work is expected to be completed by November 2013 and the reservoir drawdown will result in a complete shutdown of both units at the facility. The work was scheduled during the time of year when water levels are typically lowest to minimize shutdown impacts.
  • The sale of the Cataract hydro plant occurred in early 2011. The sale agreement included a 10-year obligation for UPPCO to purchase power from U.P. Hydro LLC, the new owner. Cataract was not in operation at the time of the sale due to the need for a penstock replacement and is projected to return to service in late 2012 or early 2013, at which point the 10-year purchase power agreement will commence, wrote Russell Laursen, Manager of UPPCO Power Supply.
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.