The Indiana Utility Regulatory Commission on Oct. 30 approved the latest fuel costs case for Southern Indiana Gas and Electric, a unit of Vectren (NYSE: VVC).
The utility said during the review case that it has proceeded to acquire coal through spot purchases during the remainder of 2013. It said it has entered into a spot purchase agreement with Indiana producer Sunrise Coal to buy 50,000 tons of coal in 2013. It also said it continues to negotiate with another non-affiliate Indiana producer for a potential spot purchase in 2013 of 30,000 tons of coal, with an option to increase the quantities by an additional 20,000 tons.
These spot purchases do not create a term commitment and are based on near term prices. These spot purchases should allow the utility to assess the coal quality of these suppliers and make future procurements less contingent upon test burns. Vectren has not previously bought from either of these suppliers.
Vectren’s Vice President of Power Supply, Wayne Games, said that the company was negotiating with Alliance Coal and affiliate Vectren Fuels, which operates coal mines in Indiana, on contract reopener terms for 2014 and 2015.
- The Alliance deal is a 250,000 tons per year agreement to supply the A.B. Brown power plant. Vectren said it has agreed in principle with Alliance for 2014 and 2015 deliveries under this contract.
- Vectren Fuels holds a 410,000 tons per year contract to supply A.B. Brown, which has the option to reduce or increase the contract volume by 15%. Vectren has agreed in principle to reopener terms with Vectren Fuels for delivery in 2014 and 2015. “The suppliers agreed to prices that are reasonable and consistent with prevailing market prices,” the commission noted.
Indiana Office of the Utility Consumer Counselor (OUCC) Senior Utility Analyst Michael Eckert testified that Vectren is purchasing 100% of its long-term contract coal from Vectren Fuels in 2013. This is because of the cancellation of a Foresight Coal Sales contract, which in 2012 failed a test burn, and the deferral of take from the Alliance Coal contract in 2013.
Eckert expressed the OUCC’s continuing concern that applicant is over-relying on its affiliate Vectren Fuels for coal supply. He expressed his opinion that in the past certain coal purchases had been made at above market prices. He also stated that the commission and Vectren should not rely solely on the request for proposals (RFP) process in the future, but should review future RFP responses in conjunction with past, present and future coal markets. Eckert also recommended that if applicant’s future RFP process does not provide competitive responses, the commission may want to revisit a cost-plus contract between applicant and Vectren Fuels.