The Indiana Utility Regulatory Commission on Dec. 30 approved the latest fuel cost review case for the Duke Energy Indiana unit of Duke Energy (NYSE: DUK), which has been opened on Oct. 31.
Said the final order: “Mr. Brett Phipps testified regarding Duke Energy Indiana’s coal procurement practices and its coal inventories. Mr. Phipps 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 to that contract have engaged in negotiations and reached an impasse, which requires resolution in accordance with the provisions of the contract, through arbitration. 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.
“Mr. Phipps also testified that as of September 30, 2014, coal inventories were approximately 3,280,000 tons (or 52 days of coal supply), which is slightly higher than what was reported in FAC101 due to lower demand over the summer months. Mr. Phipps added that the Company continues to evaluate a host of options in order to effectively manage its growing coal inventory. Mr. Phipps stated that as inventory levels dictate, the Company explores options to store or defer contract coal or 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.
“Mr. Phipps also testified that the Company has not been receiving all of the scheduled shipments of coal at Cayuga station due to the increased demand for rail service across the entire rail system. As a result, inventory at Cayuga station remains well below target levels and is forecasted to decline further if the Company does not continue to use an alternative to support Cayuga’s forecasted coal burns. Beginning in June 2014, the Company started and continues to truck coal from Wabash River station to the Cayuga station in order to increase inventory levels and supplement the rail performance. The Company trucked approximately 115,000 tons of coal from Wabash River to Cayuga for the period of June 2014 through November 2014 at an additional cost of approximately $2.70 per ton for a total approximate cost of $310,500.”