Indiana commission approves fuel costs for Duke Energy Indiana

The Indiana Utility Regulatory Commission on Oct. 30 approved the latest fuel cost adjustment case of Duke Energy Indiana, which relies heavily on coal-fired generation.

Utility official Brett Phipps testified regarding Duke Energy Indiana’s coal procurement practices and its coal inventories. Phipps testified that as of June 30, coal inventories were approximately 3,400,000 tons (or 56 days of coal supply), slightly higher than what was reported in a prior case.

Phipps testified that the company continues to evaluate a host of options in order to effectively manage the growing inventories. He testified that the company has entered into a short-term storage agreement with one supplier to store coal at the supplier’s mine facilities and began storing coal at this location during September 2012. Duke Energy Indiana also shaped and compacted the Gibson power plant remote pile for receipt of additional coal for storage.

Phipps said the company continues to actively explore options to resell surplus coal into the market; however, due to continued weak coal market conditions, resell opportunities will continue to be extremely difficult in the near term.

Phipps testified that the price of delivered natural gas at the company’s gas-fired stations increased slightly but stayed at relatively low levels during the three-month period from March 2013 through May 2013 with a range of delivered prices between $3.62 per million BTU to $4.85 per million BTU.

The state Office of Utility Consumer Counselor’s witness, Michael Eckert, testified regarding applicant’s excess coal and coal decrement pricing. He said that Duke’s assumptions and calculations show that coal decrement pricing has not harmed ratepayers. He testified that coal contract pricing and the operational delays at the Edwardsport IGCC plant may also have aggravated the coal inventory issue. He recommended Duke Energy Indiana continue to update the commission on its coal inventory, including the development of alternatives to its below cost bidding approach to manage the company’s supply of coal.

Eckert further recommended applicant be required to report on the impacts of its past, current, and future coal contracts and the commercial operational delays at the Edwardsport IGCC on its coal inventory and resulting coal decrement pricing.

A decrement is when the utility subtracts the cost of not burning coal to the offered price of electricity from a power plant, thus making that plant more competitive on the Midcontinent ISO open market.

Phipps provided rebuttal testimony stating that Duke Energy Indiana does not believe operational delays at Edwardsport IGCC are the reason for the coal inventory issues that have required coal decrement pricing. He indicated that several issues have caused this problem, including; low natural gas prices, mild weather, lower dispatch levels, and lower demand for coal-fired energy. He also stated that the decrement has had no impact to the operations at the Edwardsport IGCC plant. Currently the coal decrement pricing is being applied only to the Cayuga, Gibson and Wabash River stations. He stated that Duke Energy Indiana will continue to update the commission on the status of its coal inventory.

“Based upon the evidence presented, we find that Duke Energy Indiana made reasonable efforts to acquire fuel for its own generation so as to provide electricity to its retail customers at the lowest fuel cost reasonably possible,” said the Oct. 30 order. With regard to its coal inventory levels, Duke Energy Indiana will need to provide an update on that in its next fuel proceeding, the commission added.

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.