The Indiana Utility Regulatory Commission on June 30 approved the latest twice-yearly fuel adjustment case of Duke Energy Indiana, a unit of Duke Energy (NYSE: DUK).
The application in this case was filed on April 30. Duke’s Brett Phipps testified regarding Duke Energy Indiana’s coal procurement practices and its coal inventories. Phipps told the commission that the company utilized the periodic price re-opener methodology to complete amendments to two Indiana coal agreements, resulting in lower mine prices for coal for 2013.
Phipps also testified that Duke Energy Indiana exercised its right to reopen the contract price under its Bear Run contract in accordance with the terms of the contract. The parties have engaged in negotiations and reached an impasse, which requires resolution through arbitration, the commission noted.
The company also has exercised its right to reopen the contract price of another long-term agreement in accordance with the terms of the contract by giving notice in April 2014.
Phipps also testified that as of March 31, coal inventories were about 3,300,000 tons (54 days), which is lower than what was reported in the recent past due to below normal temperatures and higher natural gas and power prices. Phipps added that the company continues to evaluate a host of options in order to effectively manage its higher than normal coal inventory.
Furthermore, the company has extended an existing storage agreement with one supplier to store coal at the supplier’s mine facilities for up to one additional year. In addition, the company has agreed to defer up to 475,000 tons of coal for delivery in 2014 to 2015 with one supplier. Phipps said that Duke continues to actively explore options to defer contract coal or resell surplus coal into the market; however, due to continued weak coal market conditions, resale opportunities will continue to be extremely difficult in the near term.
Edwardsport IGCC had some operating issues last winter
John Swez testified for Duke that since the coal-fueled Edwardsport IGCC generating station began commercial operation in June 2013, it has performed as expected, although significant challenges did arise this past winter as a result of the extreme weather. He explained that during much of January, the syngas production at the station was limited due to various issues associated with freezing temperatures. In the first week of February, syngas production was limited due to blockage in the plant’s sulfur recovery unit, caused by the extreme cold temperatures. In the case of issues associated with freezing temperatures, multiple temporary structures were constructed to address operational impacts from freezing temperatures and, in some cases, permanent structures are anticipated to be constructed by the winter of 2014-2015.
Swez testified that as a result of this situation, officials decided to move the previously planned 30-day outage at the IGCC that was scheduled for this spring to the month of February, thereby eliminating the need for the outage in April/May.
Swez testified that 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. The decrement made this coal-fired power more competitive on the open market in the Midcontinent ISO region.
Swez 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 over time, the impact of the decrement has lessened. Swez said that on Jan. 22, 2014, the coal price decrement dropped to zero and had remained at zero through April 2014.