Due to such a recent decision to retire the coal-fired Tanners Creek Unit 4 instead of switching it to natural gas, Indiana Michigan Power wasn’t able to fully model that change in a power supply cost recovery (PSCR) plan filed Sept. 30 with the Michigan Public Service Commission.
Tanners Creek Unit 4 had been assumed to be converted to natural gas, effective June 1, 2015. However, on Sept. 17, shortly before the PSCR filing, I&M announced that Tanners Creek 4 would be retired instead of refueled. Since the retirement of Tanners Creek 4 does not occur until mid-2015, I&M does not expect the retirement to impact the 2014 plan year projection in this filing. Given the timing of the decision and the filing deadline in this case, I&M was not able to model the impact of the retirement in its five-year forecast. Nevertheless, I&M does not expect there to be a material difference if the retirement were reflected in its five-year forecast.
That is according to Jon MacLean, Manager-Resource Planning in the Resource Planning Section of the Corporate Planning & Budgeting Department of American Electric Power Service Corp., a wholly owned subsidiary of American Electric Power (NYSE: AEP), which is also the parent company of I&M.
At this time, I&M’s strategy for compliance with various air emissions rules and agreements includes: the installation of dry sorbent injection (DSI) technology, activated carbon injection and selective catalytic reduction at the two, 1,300-MW Rockport coal units; and retirement of the coal-fired Tanners Creek Units 1-4 (995 MW total winter capacity) by May 31, 2015.
At this time, the capacity plan for I&M includes the purchase of an additional 200 MW (nominal/nameplate rating) block of wind energy by 2015, MacLean noted. No new capacity additions are under construction, or have been approved for construction, for I&M. That wind addition was part of a revised consent decree worked out earlier this year with the U.S. Environmental Protection Agency.
I&M’s coal burn to plunge in 2015 as a plant shuts, another gets retrofitted
Charles West, Manager, Fuel Procurement, in the Fuel, Emissions and Logistics Department for AEPSC, testified that Rockport, located in Spencer County, Ind., has an SO2 emissions of 1.2 lbs SO2 per MMBtu. Compliance with the emission limit is achieved by using a blend consisting primarily of low-sulfur subbituminous coal. The coal supply for Rockport currently uses a blend of Powder River Basin (PRB) coal from Wyoming and low-sulfur bituminous coal from Colorado and various eastern sources.
The Tanners Creek plant, located in Dearborn County, Ind., consists of four coal units with a total nominal capacity of 995 MW. Units 1, 2, and 3 (TC 1-3) are limited to SO2 emissions of 1.2 lbs SO2/MMBtu and Unit 4 (TC 4) has been modified to a 1.2% sulfur standard on an annual basis. As a result of the different air emission standards, as well as differences in the boiler designs, the coal supplies for TC 1-3 and TC 4 vary in order to meet the differing coal quality needs. The fuel requirements of TC 1-3 will be met from bituminous sources located in Colorado and/or from eastern bituminous sources. TC 4, similar to Rockport, can use a blend of subbituminous and bituminous coals.
The majority of I&M’s coal need during 2014 will be supplied by long-term contracts that have been in place for several years. Coal may also be purchased to fulfill any additional requirements through both long-term and spot agreements with other suppliers.
- I&M expects to receive about 7.8 million tons of coal in 2014 at the Rockport plant at a projected weighted average delivered cost of 202.75 cents/MMBtu (exclusive of affiliated transportation costs).
- I&M expects to take around 448,000 tons of coal in 2014 at TC 1-3 at a projected weighted average delivered cost 302.69 cents/MMBtu (exclusive of affiliate transportation costs).
- I&M expects to receive about 1.2 million tons of coal in 2014 at TC 4 at a projected weighted average delivered cost of 197.80 cents/MMBtu (exclusive of affiliate transportation costs).
Uncertainty over certain EPA air emissions initiatives due to court challenges continues to contribute to, or impact, the price differential for the ultra-low sulfur PRB (0.55 lbs. SO2/MMBtu), West noted. Beginning in 2015, EPA’s Mercury and Air Toxics Standards (MATS) will introduce new constraints. The expected impact of MATS is reflected particularly in 2015 when Tanners Creek is shut down and when Rockport will experience decreased burn while efforts are made to install environmental controls, West wrote.
- AEPSC is projecting a take of 7.8 million tons of coal at Rockport in 2014, falling to 6.3 million tons in 2015, then rebounding to 9.1 million tons in 2016, 8.6 million tons in 2017 and 8.5 million tons in 2018.
- At TC Units 1-3, the projected coal take is 448,000 tons in 2014, then only 43,000 tons in 2015, their final year of operation.
- At TC 4, the projected coal take is 1.2 million tons in 2014, then only 235,000 tons in 2015, which is the final year of operation for this unit, as well.
Based on current market projections, I&M may expect to pay between $11/ton and $13/ton for PRB coal and between $62/ton and $73/ton for bituminous coal in 2014, West said.
Coal transportation costs were forecasted based on an estimate of the rates under the rail contract with the Union Pacific to deliver western coal to AEP’s Cook Coal Terminal on the Ohio River that became effective on Jan. 1, 2013.