Consumers Energy is continuing to layer coal purchases in order to maintain a diverse portfolio of contracts, however the purchases will be biased to the lower end of a forecasted range.
“Low natural gas prices in the present market have resulted in natural gas generation plants being more competitive with coal generation plants,” said Jim Chilson II, the Fuels Transportation & Planning Director at Consumers. “Natural gas prices have started to increase recently and forecasts for 2013 indicate that natural gas prices will continue to increase. In the near term, coal and natural gas prices are such that a small increase or decrease in the price of one commodity could have a large impact on the need for the other commodity. Due to this price sensitivity, which creates commodity volume uncertainty, the Company is allowing more open position for 2013 delivery than it might have in previous years.”
Chilson was one of several Consumers Energy officials that supplied testimony for a Sept. 28 filing by the utility at the Michigan Public Service Commission to open an annual Power Supply Cost Recovery case. Consumers Energy is a unit of CMS Energy (NYSE: CMS).
During 2013, a Michigan law requires the use of fuel with a maximum of 1.67 lb/mmBtu of SO2 to meet the SO2 emission limit at the neighboring JC Weadock and DE Karn plants, BC Cobb, JR Whiting and JH Campbell Units 1-2. The U.S. Environmental Protection Agency has established 1.2 lbs/mmBtu of SO2 as the maximum emission limit for JH Campbell Unit 3. Also, Michigan law has stipulated that the company must keep stack emission opacity levels at all plants below 20%. These restrictions dictate the quality of coal purchased.
Presently, Consumers Energy has nine multi-year long-term and annual coal purchase contracts that will be in effect during 2013. Eight of these contracts provide for the western coal supply to JH Campbell, BC Cobb, DE Karn Units 1-2, JC Weadock and JR Whiting, and the remaining purchase contract provides for the eastern coal supply for these same plants. Chilson noted that the utility anticipates soliciting for additional western coal before the end of 2012.
Of the eight western coal contracts, two are shown as starting in January 2013, with one covering only the year 2013 and involving 374,400 tons, and the other covering the 2013-2015 period with a projected 561,600-ton take in 2013.
Coal is transported by rail from the mines either directly to generating plants or Great Lakes terminals, where the coal is transferred to lake vessels for delivery to the power plants. During 2013, the company expects to have in effect five contracts providing for the shipment of coal on railroads, one contract for vessel services and two that will provide terminal services for shipments of coal out of Chicago.
Consumers Energy presently has about 4.9 million tons of coal committed for 2013 from the multi-year or annual purchases. At this time, the company anticipates it will purchase additional coal in 2012 for 2013 delivery. However, the volume of coal for this purchase is yet to be determined, Chilson wrote. In 2013, 2 million to 3 million tons are expected to be purchased on a spot basis. No new purchases for eastern coal are expected in 2013, since the company has already secured enough of this coal to meet expected demand.
Recent low natural gas prices have reduced the demand for coal resulting in lower spot prices than in previous years. Spot prices are expected to remain relatively low in 2013. In the longer term, it is expected that the demand for coal, at least western coal, will recover and remain strong due to its lower sulfur content compared to eastern coal, Chilson pointed out. The global market for coal has not as yet appeared to significantly impact the price of western coal as compared to eastern coal, due in large part to western coal’s lower quality and transportation issues impacting its exportability, he added.
Coal burn to drop in 2015 due to coal unit mothballing
On a system-wide basis, the utility expects to burn about 8.4 million tons of western coal or about 97% by weight of its total coal burn requirements in 2013. The company presently has a single eastern coal contract in effect for 2013 for 264,000 tons that started in January 2012 and runs through the end of 2014. Because of the anticipated low cost of gas in 2013, eastern coal is only projected to be used during periods of high electricity demand when the high-Btu eastern coal is necessary to achieve full capability from the coal units.
The projected 2013 coal burns are:
- JH Campbell Units 1-2 (1.6 million tons);
- JH Campbell Unit 3 (2.6 million tons, Consumers Energy 93% share of unit ownership only);
- BC Cobb Units 4-5 (812,558 tons);
- DE Karn Units 1-2 (1.7 million tons);
- JC Weadock Units 7-8 (926,097 tons); and
- JR Whiting Units 1-3 (862,508 tons).
Consumers Energy also offered annual coal burn projections for the 2014-2017 period. Due to the planned mothballing of these units in April 2015, BC Cobb Units 4-5, JC Weadock Units 7-8 and JR Whiting Units 1-3 are shown with zero coal burn in 2016 and 2017. That loss of coal burn at those units won’t be made up elsewhere through more usage of the surviving coal units, since the projected total coal burn for the utility in 2014 is 9.3 million tons, falling to 7.3 million tons in 2015, then to 6.3 million tons in 2016, with a slight rebound to 6.7 million tons in 2017.
David Kehoe, Director of Staff, Electric Generation at Consumers, outlined coal unit outages in 2013. An outage at Campbell Unit 2 is scheduled to begin Feb. 16, 2013, and is projected to last for 72 days. The outage will be to inspect and repair the induced draft (ID) fans, the selective catalytic reduction (SCR) unit, the economizer and re-heater. During this outage, the new pulse jet fabric filters and activated carbon injection (ACI) systems for emissions control will be connected. An outage at Whiting Unit 3 is scheduled to begin April 13, 2013, is projected to last for 35 days, and is to replace the precipitator field.
As for the coal units to be mothballed as of April 2015 – Cobb 4-5, Weadock 7-8 and Whiting 1-3 – the company filed three applications related to this plan with the Midwest ISO, one for each site, in February 2012. The Midwest ISO has not responded yet to those applications, Kehoe noted.
David Ronk Jr., the Director for Electric Transactions and Resource Planning at Consumers, testified that due to the proposed cessation of service at these coal units, the company will need to purchase from others or otherwise acquire about 900 MW in 2015, 950 MW in 2016 and 1,000 MW in 2017 in order to meet planning reserve margin requirements.
The Consumers coal-fired units and net power ratings are:
- JH Campbell 1-2, 615 MW, West Olive, MI;
- JH Campbell 3, 770 MW (owned share), West Olive, MI;
- DE Karn 1-2, 515 MW, Essexville, MI;
- BC Cobb 4-5, 312 MW, Muskegon, MI;
- JR Whiting 1-3, 325 MW, Erie, MI; and
- JC Weadock 7-8, 310 MW, Essexville, MI
At Campbell Unit 3, Consumers owns 93%, with other entities owning the remaining 7%. Thus the 770 MW capacity reported is 93% of the unit size.