Wisconsin Public Service Corp. expects to incur some penalties from its coal rail carriers in 2013 due to lower-than-contracted coal moves, but the good news for coal producers is that its coal-fired generation should be stronger in 2013 than it has been in 2012.
WPS, a unit of Integrys Energy Group (NYSE: TEG), applied Sept. 26 at the Michigan Public Service Commission to implement a Power Supply Cost Recovery (PSCR) plan and establish a PSCR factor for the calendar year 2013. The company serves a small part of Michigan’s Upper Peninsula. Supporting testimony came from John Guntlisbergen, Manager of Electric Fuel Cost Recovery in the Regulatory Affairs Department of Integrys.
If the utility’s use of coal falls below the minimum amounts required to be moved under its coal and rail contracts, it is subject to contractual obligation costs, Guntlisbergen noted. “WPS Corp does have the potential to incur coal and rail transportation contract obligation costs in 2013,” he added. “Due to the extremely low prices for natural gas and the associated impact to market prices, WPS Corp expects MISO to dispatch its coal-fired generation in 2013 less than in the past and therefore expects to use less coal than it previously forecasted at the time it entered into the current coal and rail contracts.”
WPS has included an estimate of $3.8m of fuel expense related to rail contract obligation costs in its 2013 PSCR Plan. It does not expect to incur coal contract obligation costs in 2013 at this time, and therefore has not included any of these costs. However, WPS requested cost recovery through the PSCR mechanism for any coal and rail contract obligation costs.
In figuring out the estimated rail obligation costs for 2013, WPS did an hourly economic dispatch of its coal and gas fired generation, and purchased power sources to attempt to model the MISO market impact on its power dispatch. Considering the contract obligation is a fixed cost, WPS lowered the coal-fired dispatch price to reflect the contract obligation. This sends the correct economic signal of the true dispatch cost of its coal units which allows MISO to dispatch all units in its system on a least cost basis.
“Based on the resulting dispatch, even with the lower dispatch price, the level of coal-fired generation did not meet the minimum coal transport requirements, indicating that paying the rail contract obligation costs and purchasing or generating from lower cost sources is the lower cost option for the WPS Corp customers,” Guntlisbergen wrote. “The dispatch model indicated that the amount of coal purchased did meet the minimum coal contract obligation.”
WPS has generating facilities with a current capacity of about 2,112.5 MW. It owns and operates eight coal-fired units with a total capacity of 1,178.8 MW and jointly owns three coal fired units with assigned capacity to WPS Corp of 429 MW, with those units operated by Wisconsin Power and Light. WPS also has 454.1 MW of simple cycle gas-fired combustion turbines, 40 MW of hydro and about 10.6 MW (108 MW nameplate capacity) of wind generation.
The coal-fired capacity of WPS, according to its website, is:
- Edgewater, four units, 31.8% WPS ownership, 330 MW total of which WPS owns 105 MW;
- Columbia, two units, 31.8% WPS ownership, 1,054 MW total of which WPS owns 335 MW;
- J.P. Pulliam, four operating units (four previously retired), 100% WPS ownership, 312 MW in total for the operating units; and
- Weston, four units, 100% WPS ownership of Units 1-3 and 70% of Unit 4, 981 MW total of which WPS owns 824 MW.
The good news for the coal industry is that the forecasted 2013 fossil generation volumes are expected to increase by approximately 28% as compared to 2012, according to the testimony. The increase is primarily the result of less planned maintenance outages in 2013 than actually occurred in 2012, and higher natural gas prices of about 12%.
- The MWhs for Pulliam are projected to increase in 2013 compared to 2012 due to market conditions. In addition, the MWhs for Pulliam also reflect a planned maintenance outage totaling eight weeks at Pulliam Unit 6 in 2013 versus an actual maintenance outage at Pulliam Unit 7 in 2012 totaling four weeks. The $/MWh cost for Pulliam is lower in the 2013 plan than in 2012 due to several factors: reduced MWh generation at Pulliam 5-6 and increased MWh generation at Pulliam 7-8 in 2013 causing the heat rate to be lower and resulting in a lower cost per MWh of $2.23/MWh; increased average coal and rail contract costs resulting in an increase of $1.63/MWh; the 2013 plan is lower than 2012 due to lower contract obligation costs of $4.06/MWh resulting from increased tons burned; and the 2013 plan is lower because the 2012 actuals include a semi-annual inventory adjustment of $2.03/MWh.
- The MWhs for Weston are projected to increase in 2013 compared to 2012 mainly due to market conditions and the fact there are no planned maintenance outages scheduled in the 2013 plan versus maintenance outages in 2012 on Weston Unit 1 of one week and Weston Unit 4 of five weeks.
- The MWhs for Columbia are projected to increase in 2013 compared to 2012 due to four weeks of a planned maintenance outage at Columbia Unit 1 and four weeks of a planned maintenance outage at Columbia Unit 2 in 2013 versus maintenance outages in 2012 for Columbia Unit 1 and Columbia Unit 2 of five weeks each.
- The MWhs for Edgewater are projected to increase in 2013 compared to 2012 due to a planned maintenance outage in 2013 of two weeks versus eight weeks in 2012.