The Indiana Utility Regulatory Commission on Dec. 30 rejected any attempt to find fuel costs during the startup phase of the Edwardsport integrated gasification combined cycle (IGCC) plant to be imprudent.
The decision came in a routine fuel adjustment clause (FAC) case for Duke Energy Indiana, a unit of Duke Energy (NYSE: DUK). The Edwardsport IGCC project, due to bloated final cost figures, has long been controversial in Indiana regulatory circles. On June 7, 2013, it began commercial operation. On Aug. 9, the unit reached approximately 586 net MW output under syngas production.
The Indiana Office of Utility Consumer Counselor (OUCC) took exception with the fuel cost assigned to the Edwardsport IGCC plant. An OUCC witness testified that he was concerned because it was unclear what blends of fuels were being used during the “test mode.” Without knowing what blend of fuels was being used, the OUCC said it could not accurately calculate the FAC factors.
Duke Energy Indiana testified that activity during this testing, tuning, and optimization time period produces long-term benefits and efficiencies for the customer and is consistent with the original start-up plan of the Edwardsport IGCC station. During June through August 2013 natural gas consumption in this coal gasification plant occurred for various reasons, including station startup, specific natural gas testing, to avoid shutting down the station while syngas was temporarily unavailable, and minimal daily gas usage necessary during unit operation while on syngas.
A utility witness stated that because all generation produced and coal/natural gas consumed by the Edwardsport IGCC facility during the months of June through August 2013 was the result of specific unit testing, tuning, and optimization, no dispatch decisions were made that determined the amount of each fuel being used during the time period. Duke’s John Swez testified that fuel costs for the Edwardsport IGCC plant have come in as expected and have steadily decreased since the plant was placed in service.
Swez stated that the Edwardsport IGCC continues to be on schedule to meet its expected availability within approximately 15 months after the June 2013 in-service date and that Duke Energy Indiana expects the plant to have an availability rating of approximately 85% at that time.
The commission in its Dec. 30 ruling said that the evidence supports that generating stations at times consume fuel when not producing electricity available for customer consumption and that such fuel costs have been historically included for recovery through the FAC.
The evidence presented in support of excluding the costs in question relies primarily on the premise that the amount of fuel consumption in this situation seems larger than in previous situations, the commission added. “Although we recognize the OUCC’s concern of a larger amount of fuel being consumed, its evidence did not focus on the testing program and did not raise issue with, or offer an opinion on the reasonableness of, the underlying cause of the larger amount of fuel being consumed. The evidence before the Commission does not sufficiently call into question the Company’s support that the consumption was related to reasonable testing.”
Duke says that coal price ‘decrement’ program is working
Another issue raised in this FAC proceeding is the use of a price “decrement” mechanism, put in place some time ago to address burgeoning coal stockpiles at the utility’s power plants. The stockpiles were growing due to the combination of firm coal quantities under contract, and depressed power markets that cut into coal burns. A decrement basically figures the cost of not burning coal, like stockpile maintenance costs, into the cost of generation for any particular coal unit, making that unit more competitive in the power markets.
Swez testified that, as discussed in the last few FAC proceedings, prior to the application of a coal price decrement, a number of factors caused the company’s coal generating facilities to experience lower dispatch levels and even periods of economic shutdown which led to increased coal inventories. To remedy this situation, beginning in late February 2012, a coal price decrement was applied to the dispatch costs of Gibson Units 1-5, Wabash River Units 2-6, and Cayuga Units 1-2 to correctly reflect the economics of additional costs associated with avoiding or reducing surplus coal inventories. He stated that to the extent units are dispatched (when they wouldn’t otherwise) with the price decrement in place, coal coming to the station is consumed, other potential costs are avoided, and customers ultimately benefit because higher cost options are not incurred.
Swez testified the price decrement is working as designed as the company initially saw a significant increase in generation output from these units. As the level of the coal price decrement has decreased in recent months, the impact of the decrement is lessened.
“Based upon the evidence presented and incorporating our previous discussion on coal decrement pricing above, we find Duke Energy Indiana’s participation in the Energy and Ancillary Services Markets and utilization of the coal price decrement constituted reasonable efforts to generate or purchase power, or both, to serve its retail customers at the lowest fuel cost reasonably possible,” the commission wrote.
Duke’s Brett Phipps testified regarding Duke Energy Indiana’s coal procurement practices and its coal inventories. Phipps testified that as of Sept. 30, 2013, coal inventories were approximately 3,600,000 tons (or 58 days of coal supply), slightly higher than what was reported in a prior fuel case.
Phipps testified that the company continues to evaluate a host of options in order to effectively manage the growing inventories. 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. He further stated that Duke Energy Indiana shaped and compacted the Gibson Remote Pile for receipt of additional coal for storage. The company continues to actively explore options to resell surplus coal into the market; however, due to continued weak coal market conditions, Duke said that resell opportunities will continue to be extremely difficult in the near term.