Recent test burns of coal from new suppliers Sunrise Coal and Peabody Energy were very successful for the Sunrise coal, but with only qualified success for the Peabody coal, said Wayne Games, Vice President of Power Supply at Southern Indiana Gas and Electric.
The utility, also known as Vectren South, is a unit of Vectren (NYSE: VVC). It filed on Nov. 15 with the Indiana Utility Regulatory Commission the opening testimony for its latest fuel adjustment clause (FAC) case.
Vectren South has signed a spot purchase agreement with Indiana producer Sunrise Coal to buy 50,000 tons of coal in 2013. During this FAC period Vectren South completed negotiations with Peabody for a spot purchase in 2013 of 30,000 tons of coal, with an option to increase that by an additional 20,000 tons. These spot buys should allow Vectren South to assess the coal quality of these suppliers and make future procurements less contingent upon test burns, Games noted. Vectren South has not previously bought coal from either of these suppliers.
During September, Vectren South purchased 59,668 tons of Sunrise coal that was used for a test burn at the AB Brown station. The test burn at AB Brown ran from Sept. 6 through Sept. 20. Vectren South contracted for 50,000 tons with the option to purchase additional coal at a reduced rate. Because dispatch was higher than expected the first week of the test burn at AB Brown’s first unit, Vectren South scheduled the delivery of some tonnage over 50,000 in order to adequately assess Sunrise coal in the second unit as well.
Vectren South collected ash samples from the test burn to evaluate compliance with specifications required to distribute ash to Vectren South’s ash customer. Vectren South determined that the Sunrise coal met contract requirements, as well as ash quality requirements, and can be used at AB Brown.
Notable is that in 2012 a test burn of Illinois coal from Foresight Coal Sales showed poor results with the ash quality, so an agreement with Foresight was terminated.
During October, Vectren South purchased about 30,000 tons of coal from Peabody for the FB Culley plant. This coal was delivered by truck and was used at FB Culley from Oct. 21 through Oct. 27. Ash samples were collected to evaluate compliance with ash specifications required to distribute ash to Vectren South’s ash customer.
Plant personnel determined that only a limited amount of Peabody coal could be accepted and must be blended with Vectren South’s current supply in order to meet ash specifications. In addition, there were other minor concerns with the ash, Games noted. Ultimately, Vectren South determined that the FB Culley station could potentially accept Peabody coal in the future as long as there is an adequate supply of ash compliant coal to blend with it in order to meet ash specifications.
For many years coal has been delivered to AB Brown under contracts with Alliance Coal and affiliate Vectren Fuels under a rail contract between Vectren Fuels and CSX Transportation (CSXT) and Evansville Western Rail. That rail contract expires at the end of 2013.
Vectren South entered into negotiations for a replacement contract with CSXT to commence on Jan. 1, 2014. CSXT negotiated on behalf of Evansville Western in order to obtain one rate for all coal coming to the Brown plant through CSXT. After a series of meetings and proposals, Vectren South and CSXT have agreed to terms. A redacted copy of that agreement is attached to the Nov. 15 filing.
As of Aug. 31, the coal inventory at Vectren South’s coal-fired generating plants stood at approximately 365,000 tons, with additional off-site storage of 80,000 tons.