Indiana commission okays NIPSCO’s latest coal costs

The Indiana Utility Regulatory Commission on Jan. 28 approved the latest fuel cost case for Northern Indiana Public Service Co., which relies heavily on coal-fired power.

The case was opened last October and the coal-related testimony was offered by Shirley Schultz, Manager, Fuel Supply at NIPSCO. 

Said the Jan. 28 order: “NIPSCO had six long-term contracts in the third quarter of 2014. Ms. Schultz said that NIPSCO would meet any remaining coal requirements through spot purchases. Ms. Schultz testified that due to volatility in the coal markets, producers and customers are reluctant to execute fixed-price, long-term contracts without some type of market price adjustment mechanism and that maintaining a market price balance is beneficial to both parties. Four of NIPSCO’s long-term contracts have firm prices that increase each year as set out in the contract. One long-term contract has prices that are adjusted annually for the succeeding year based on the average weekly indexed prices of that particular coal in the previous year, and one long-term contract has an annual market price reopener that will determine the contract coal price for the succeeding year of the contract.

“Ms. Schultz testified that the delivered cost of coal for NIPSCO for the 12 months ending September 30, 2014, was $50.24 per ton or $2.481 per million Btu. The delivered coal cost for the reconciliation period (July, August, and September 2014) was $50.92 per ton or $2.495 per million Btu.

“NIPSCO purchased approximately 784,000 tons of spot coal from five different suppliers during the reconciliation period of July through September, 2014. The average spot market price of coal (excluding transportation costs) during the reconciliation period was $11.82 per ton for Powder River Basin (‘PRB’) coal, $38.56 per ton for Illinois Basin (‘ILB’) coal, and $59.06 per ton for Pittsburgh #8 (‘Pitt8’) coal.

“With respect to the market factors affecting the supply, demand, and cost of coal during the reconciliation period, Ms. Schultz testified that coal supply during the reconciliation period continued to be impacted by railroad congestion and shipment delays. Railroad fluidity and velocity have not fully recovered to normal levels, and all of NIPSCO’s originating rail carriers continued to report locomotive and crew shortages throughout the reconciliation period.

“Additionally, the drawdown on coal inventory stockpiles throughout the industry during the first quarter led to increased demand for coal by other utilities during the reconciliation period, also contributing to the price increase on spot market coal. Spot market pricing decreased in the reconciliation period, compared to the second quarter of 2014, but remained higher than contract coal pricing for PRB and ILB coal.

“NIPSCO’s delivered cost of coal during the reconciliation period increased compared to the second quarter of 2014 from $48.41 per ton or $2.447 per million Btu to $50.24 per ton or $2.481 per million Btu due to higher delivered cost of PRB coal (from $2.325/MMBtu to $2.380/MMBtu) and higher delivered cost of ILB coal (from $2.312/MMBtu to $2.333/MMBtu). Factors impacting the higher delivered costs of PRB and ILB coal include the purchase of additional tons of spot coal, which were higher in price than contract coal, and were required because actual consumption was greater than forecasted consumption. Fuel surcharges decreased slightly during the reconciliation period.

“NIPSCO’s estimate for its prospective total average fuel costs for the months of January, February, and March 2015 will be $46,806,976 on a monthly basis. Ms. Schultz testified that NIPSCO anticipates that its delivered coal cost during the forecast period of January, February, and March 2015 will be approximately $52.23 per ton or an estimated $2.572 per million Btu. The average spot market prices for calendar year 2015, excluding transportation, are currently $12.89 per ton for PRB coal, $39.59 per ton for ILB coal and $59.12 per ton for Pitt8 coal.

“Ms. Schultz stated that NIPSCO has coal supply agreements in effect for 2015 with firm pricing, and recently issued a solicitation for additional ILB spot coal to supplement the term purchases for January through March 2015. NIPSCO does not anticipate any issues in securing spot coal, if needed, during the forecast period. However, NIPSCO’s originating rail carriers continued to report locomotive and crew shortages, and railroad fluidity and velocity have not yet recovered to normal levels. If these rail transportation issues continue into the forecasted period, coal supply could be impacted.

“NIPSCO has a transportation agreement for the delivery of shipments to its R.M. Schahfer Generating Station that will expire at the end of 2014 which is currently being negotiated to commence January 1, 2015, with the same counterparty. The renegotiation of this agreement is expected to result in an increase to the delivered cost of coal for the forecast period. NIPSCO’s other transportation agreements remain in effect for 2015 with firm pricing (exclusive of fuel surcharges) so there will be no additional transportation price increases in the forecast period related to these existing transportation agreements. The prices of West Texas Intermediate crude decreased slightly in the last quarter. If this trend continues, NIPSCO would pay lower fuel surcharges to the railroad, and its delivered coal cost would be reduced during the forecast period. This impact, however, would be minimal.”

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.