Consumers Energy coal burn to plunge in 2016 – and beyond

Consumers Energy is bracing for a plunge in coal burn starting in 2016, but in the meantime will be procuring coal this year for use in 2014, said Jim Chilson II, employed by Consumers Energy as the Fuels Transportation & Planning Director in the Energy Supply Operations Department.

Chilson was one of several officials of this CMS Energy (NYSE: CMS) subsidiary to provide testimony in the utility’s Sept. 30 annual power supply cost recovery (PSCR) filing at the Michigan Public Service Commission.

During 2014, the Michigan Natural Resources and Environmental Protection Act will require the use of fuel with a maximum of 1.67 pounds of SO2/mmBtu to meet the SO2 emission limit at the JC Weadock and DE Karn plants at Essexville, the BC Cobb plant at Muskegon, the JR Whiting plant at Erie, and the JH Campbell plant Units 1 and 2 at West Olive. The U.S. Environmental Protection Agency has established 1.2 lbs SO2/mmBtu as the emission limit for JH Campbell Unit 3. Also, the company must keep stack emission opacity levels at all plants below 20%. These restrictions dictate the quality of coal purchased to meet system requirements.

Presently the company has seven multi-year and annual coal purchase contracts that will be in effect during 2014. Six of these contracts provide for the western (i.e. Powder River Basin) coal supply to JH Campbell, BC Cobb, DE Karn 1-2, JC Weadock and JR Whiting, and the remaining contract provides for eastern coal supply for these same plants.

“We anticipate soliciting for additional western coal before the end of 2013 for delivery in 2014,” Chilson noted.

Consumers Energy presently has about 6.07 million tons of coal committed for 2014 from the multi-year or annual purchases. At this time, the company anticipates it will purchase additional coal in 2013 for 2014 delivery. However, the volume of coal for this purchase is yet to be determined.

Approximately 2 million to 3 million tons of coal is expected to be purchased in 2014 on a spot basis. “Lower natural gas prices have reduced the demand for coal resulting in relatively low prices,” Chilson noted. “Spot prices are expected to remain relatively low throughout 2014.”

The utility expects to burn about 8.6 million tons of western coal or approximately 97% by weight of its total coal burn requirements in 2014. The company presently has a single eastern coal contract in effect for 2014 with a contract volume of 264,000 tons. Because of the anticipated lower cost of natural gas in 2014 relative to eastern coal and power available off the market, eastern coal is only projected to be used during periods of high electrical demand when eastern coal is necessary to achieve full capability from the coal generation fleet because its higher Btu content avoids PRB coal derates. The company believes it has purchased enough eastern coal to ensure an adequate supply for the estimated high demand days.

The six western coal contracts good in 2014 have a range of 533,520 tons to 1.3 million tons of coal deliveries in 2014, with a total for all six of 6.1 million tons. Three of these contracts expire at the end of 2014, with the other three to expire at the end of 2015.

The expected coal burn in 2014 is 8.7 million tons, with JH Campbell Units 1-2 contributing 1.9 million tons of that and JH Campbell Unit 3 (Consumers Energy share of unit) consuming another 2.6 million tons.

Coal burn to plunge as coal units are deactivated in 2016

Consumers Energy has said for some time that it plans to deactivate seven older, smaller coal units in April 2016 due largely to the federal Mercury and Air Toxics Standards (MATS). And the coal burn projections reflect that. Consumers expects 9.5 million tons of coal burn in 2015, falling to 7.5 million tons in 2016 when the seven units are shut part way through the year, with burns of 7.1 million tons in 2017 and 6.3 million tons in 2018.

The burn projections by plant and unit in the 2015-2018 period are:

  • JH Campbell 1-2, 1.9 million tons in 2015, 2.1 million tons in 2016, 2.1 million tons in 2017 and 1.8 million tons in 2018;
  • JH Campbell 3 (Consumers share of unit), 3 million tons in 2015, 2.5 million tons in 2016, 3.2 million tons in 2017 and 2.9 million tons in 2018;
  • BC Cobb 4-5, 977,117 tons in 2015, 311,613 tons in 2016, then no tons after that due to unit shutdowns;
  • DE Karn 1-2, 1.6 million tons in 2015, 2 million tons in 2016, 1.8 million tons in 2017 and 1.6 million tons in 2018;
  • JC Weadock 7-8, 1 million tons in 2015, 310,765 tons in 2016, then no burn after that due to unit shutdowns; and
  • JR Whiting 1-3, 1.1 million tons in 2015, 345,072 tons in 2016, then no burn after that due to unit shutdowns.

Also providing Sept. 30 testimony was David Kehoe, Director of Staff, Electric Generation at Consumers. He noted that the Midcontinent ISO initially approved the company’s plans to suspend operation of the seven small coal units effective April 16, 2015, providing a series of network upgrades were completed. The company subsequently filed additional documents with MISO declaring its intention to suspend operation of these units on April 16, 2016. MISO approved the company’s April 16, 2016, suspension date without any prerequisite network upgrades.

U.S. Energy Information Administration data shows coal deliveries to Consumers plants earlier this year from PRB mines like the Black Thunder operation of Arch Coal, the North Antelope Rochelle mine of Peabody Energy, and the Antelope mine of Cloud Peak Energy, with deliveries also from the Fanco and Wells operations in southern West Virginia through Coal Trade.

Small gas-fired units also on the shutdown list at Consumers Energy

David Ronk Jr., Director for Electric Transactions and Wholesale Settlements at Consumers, testified that the company is evaluating whether it can remove the gas-fired Karn Units 3 and 4 from service for planning years 2014 and 2015 and replace that capacity with Zonal Resource Credits (ZRCs) at a lower cost than the company’s cost of maintaining these units for service. If the company concludes that such a strategy is likely to be successful, then that additional capacity will be acquired prior to Planning Year 2014, he added. Additionally, the company is evaluating its capacity needs for years beyond 2014 and may make capacity purchases in the near future to address those later year needs. In so doing it may acquire capacity for 2014 as part of a larger transaction to address capacity needs for later years.

Ronk said the company had at one point planned to remove Gaylord Units 1, 2 and 3 and the Straits combustion turbines (as well as other small combustion turbines) from service, effective March 1, 2012. In February 2012, however, the company received notice from MISO that its transmission study showed that by removing these units, it would create a violation of its reliability standards. As a result, these units would need to be designated as System Support Resources (SSRs) until transmission upgrades are made. SSRs get compensation from MISO to stay open between a planned shutdown time, and the end of when MISO needs them for system support. Ronk said that Consumers is still negotiating the SSR agreement with MISO, which will run for an initial term of 12 months.

The company has recently retired the gas-fired Thetford Units 5 through 9 and has, for purposes of this PSCR plan, modeled Morrow Units A and B, Whiting Unit A, and Weadock Unit A in extended reserve shut down status for the next several years. The company has recently made arrangements to potentially allow Morrow Units A and B and Gaylord 4 to be retired in late 2013 or 2014. It anticipates that Thetford Unit 1 will be placed in extended reserve shutdown status or retired in 2014 as well.

Sara Walz, a General Engineering Technical Analyst in the Electric Sourcing and Resource Planning Section of the Energy Supply Operations Department at Consumers, noted that the company is proposing an addition of 730 MW of gas-fired nameplate capacity at the Thetford Generating Station, assumed to be in-service on June 1, 2017. The company is also proposing to suspend the operation of the seven coal units (Cobb 4-5, Weadock 7-8, and Whiting 1-3) in lieu of retrofitting the units to comply with the MATS rule.

This PSCR case also reflects the company’s decision to mothball or place in extended reserve shutdown status the following combustion turbine units: Campbell Unit A, Morrow Units A and B, Weadock Unit A, Whiting Unit A, and Cobb Units 1-3. Gaylord Unit 4 has been assumed to retire as of September 2013. Thetford Units 5-9 are assumed to retire as of October 2013. The Thetford Units 1-4 are assumed to be available for Black Start operation only. Gaylord Units 1-3 and Straits Unit 1 are assumed to be designated as SSRs.

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.