Citizens Energy Group makes progress on Perry K conversion

Citizens Energy Group is moving ahead with the coal-to-gas switch at its Perry K steam plant in Indianapolis, with the Citizens Energy Group Board of Directors giving final approval of the project in September.

The conversion project received final approval from the Indiana Utility Regulatory Commission in August. A request for proposals (RFP) process was conducted for the design and build of the new gas burners. The Indiana Department of Environmental Management (IDEM) on Aug. 7 granted permission for construction to commence, which allowed Citizens to start negotiations with the selected gas burner vendor for the design and build of the new burners.

The final air permit went out for 30-day public comment on Oct. 30. IDEM is taking public comment until Nov. 29 on the draft change. Citizens Thermal requested a change in the primary fuel used in boiler Units 12, 15, 16, 17 and 18. Boiler Units 12, 15 and 16 will no longer burn coal and will be converted to natural gas. Boiler Units 17 and 18 will change their primary fuel from fuel oil to natural gas, but will maintain the ability to burn fuel oil as a backup.

“Negotiations with the new gas burner vendor to start the design and build of the gas burners concluded and a notice to proceed order was granted on October 19, 2012,” wrote company official Robert Purdue in Nov. 15 testimony filed at the commission. “An internal team has been formed to develop a natural gas purchasing policy for the steam division in preparation of the dramatic increase of natural gas requirements for the steam business. The team has met once and we are analyzing the future natural gas usage requirements for Perry ‘K’ based on the expected steam system load requirements and Covanta Energy’s performance.”

Purdue, Director of Thermal Operations for Citizens Energy Group, was testifying in the company’s latest fuel cost adjustment case. The Perry K plant is owned and operated by the Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis, as Successor Trustee of a Public Charitable Trust, d/b/a Citizens Thermal.

Coal contract still in place until end of 2013

In the meantime, while the conversion project is ongoing, the plant does still burn coal. This must be low-sulfur, compliance coal. Purdue noted that Citizens has a contract with an unnamed producer to provide coal over a three-year term, which ends on Dec. 31, 2013. The annual quantity of coal to be delivered to Citizens will be 175,000 tons, plus or minus 10%. Citizens must give the coal producer its estimated annual nominations at least 90 days prior to the beginning of each contract year and include a monthly breakdown of the amount of coal requested. Coal is priced FOB railcar and the price per ton changes by year.

Transportation of coal to the Perry K plant is provided by Indiana Southern Railroad (ISSR) or Indiana Rail Road (INRD) and CSX. Pricing of transportation is set utilizing Private Price List and Contract CXST 36771, issued July 1, 2009, and Private Pricing Authority CSXT-C-46031(1) issued January 1, 2011. Effective Oct. 1, 2012, the transportation price for CXST 36771 was $8.31 per ton.

“Effective January 1, 2011, our coal supplier notified Citizens that the coal supply for 2011 would be supplied by the Bear Run mine, which is served by INRD,” Purdue wrote. “INRD transportation pricing, using the CSXT-C-46031 (1) Private Pricing effective October 1, 2012, was $9.48 per ton. However, the coal supplier reserves the right to supply coal from alternate sources that are served by ISSR. Both pricing structures are subject to quarterly price adjustments.”

Citizens purchases approximately 175,000 tons of coal per year, which has decreased the past couple of years from 230,000 tons. Purdue noted that the reported spot coal price for Illinois Basin coal as of Oct. 8 was $45.10/ton for 2.5 lb sulfur coal and the lookout price for calendar year 2013 is estimated to be $45.50/ton, which reflects the changing market dynamics of compliance coal contracts expiring and the effect of low natural gas prices on coal generation by electric utilities. “Therefore, our current contract price of $53.56 per ton of coal reaffirms the opinion set forth in my testimony that Citizens has negotiated a competitive coal contract for its customers through December 2013,” he added. “On January 1, 2013, Citizens will experience an increase of 3% as part of the current coal contract.”

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.