Kentucky PSC okays Kentucky Power assignment of coal deliveries

The Kentucky Public Service Commission on Dec. 16 approved a deviation request from the Kentucky Power unit of American Electric Power (NYSE: AEP) over coal contract business.

On July 22, Kentucky Power filed an application requesting that the commission grant it a deviation, to the extent required, from the asymmetrical pricing requirements of Kentucky statute in connection with the assignment by Kentucky Power to fellow AEP subsidiary Appalachian Power of seven deliveries of coal at Kentucky Power’s cost.

Kentucky Power is a party to two Coal Purchase and Sales Agreements with Trafigura AG. Kentucky Power is also a party to a Coal Contract with RWE Trading Americas. Under the terms of these agreements, Kentucky Power was to receive delivery of coal by barge at the Mitchell station during May 2014.

Kentucky Power, incidentally, at the end of 2013 bought half of the Mitchell plant in West Virginia from another AEP subsidiary as compensation for the closure next year of the 800-MW Unit 2 at its Big Sandy coal plant in eastern Kentucky. The 278-MW Unit 1 at Big Sandy will be switched from coal to natural gas.

On April 30, 2014, the barge unloader at the Mitchell station sustained a forced outage as a result of a broken head shaft. The forced outage lasted approximately six weeks. As a result of the outage, Kentucky Power assigned seven deliveries of coal under the three contracts to Appalachian Power. Kentucky Power said the assignments were required in order to avoid demurrage charges. The agreement for barge transportation services for the coal requires that Kentucky Power pay demurrage charges at the rate of $100 per day per barge in the event that the coal is not unloaded within the contractually specified period.

Kentucky Power told the PSC that it sought to negotiate an agreement with Trafigura and RWE Trading whereby the coal scheduled for delivery to the Mitchell station would be applied to “satisfy” Appalachian Power’s obligations under agreements it had with Trafigura and RWE Trading. However, when an agreement could not be reached, Kentucky Power assigned the deliveries to Appalachian Power. As a result of the assignment, Appalachian Power was invoiced by Trafigura and RWE Trading for the deliveries, and Appalachian Power paid the two suppliers directly for the coal deliveries.

Kentucky Power stated that the contract price for the assigned coal deliveries was slightly less than the $61.35 per ton market price at the time of the assignments. As a result, the assignments to Appalachian Power were made at $11,531.85 less than the higher of cost or market. By making the assignment, Kentucky Power was able to avoid $13,000 in demurrage costs.

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.