NIPSCO sees improvement lately in rail service for its coal supplies

In the fourth quarter of 2014, Northern Indiana Public Service Co.‘s (NIPSCO) fuel requirements were supplied by coal (76.31%) and natural gas (23.69%).

NIPSCO uses: a blend of Powder River Basin (PRB) coal and Pittsburgh #8 (Pitt8) coal in Unit 12 at its Michigan City Generating Station; Illinois Basin (ILB) coal in Units 7 and 8 at its Bailly Generating Station; and a blend of PRB coal and Pitt8 coal in Unit 14, PRB coal in Unit 15, and ILB coal in Units 17 and 18 at its R.M. Schahfer Generating Station.

Shirley Schultz, Manager, Fuel Supply for NIPSCO provided Jan. 29 testimony filed at the Indiana Utility Regulatory Commission to open the latest installment of the utility’s twice-year fuel review (FAC) case.

NIPSCO had six long-term contracts in the fourth quarter of 2014. These coal suppliers were:

  • Arch Coal Sales Co. (PRB coal);
  • Peabody COALSALES LLC (PRB coal);
  • Consol Pennsylvania Coal Co. (Pitt8 coal);
  • Peabody COALSALES LLC (ILB coal);
  • Oaktown Fuels Mine No. 1 LLC (ILB coal); and
  • Sunrise Coal LLC (ILB coal).

If needed, the remainder of NIPSCO’ s coal requirements would be met through spot purchases. Notable is that a few months ago Sunrise Coal and its parent Hallador Energy took over the Oaktown Fuels operation from utility holding company Vectren.

The delivered cost of coal for the twelve months ending Dec. 31, 2014, was $50.12 per ton or $2.478/mmBtu. The delivered cost of coal for the “reconciliation” period of October-December 2014 was $50.07 per ton or $2.454 per million Btu.

NIPSCO agreed to purchase approximately 567,000 tons of spot coal from three different suppliers during the reconciliation period. The average spot market price of coal during the reconciliation period was $12.40 per ton for PRB coal, $37.24 per ton for ILB coal and $56.89 per ton for Pitt8 coal. These average spot market prices do not include transportation charges.

Schultz wrote: “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, but railroad performance slightly improved when compared to railroad performance during the first three quarters of 2014. Inventory stockpiles also improved at NIPSCO’ s generating stations primarily due to increased deliveries as a result of improved railroad performance, and lower coal consumption. The delivered price for spot coal purchases shipped during the reconciliation period was less than the delivered price for contract coal purchases during the reconciliation period.

“The impact to NIPSCO from the railroads’ coal delivery issues was a decrease in coal inventory levels. Extreme winter weather conditions in the first quarter of 2014 led to railroad congestion and shipment delays, which resulted in a drawdown on coal inventory stockpiles and inventory levels below the Company’s target levels. Railroad fluidity and velocity did not fully recover during the second or third quarters of 2014, and all of NIPSCO’s originating rail carriers continued to report locomotive and crew shortages. NIPSCO’S inventory remained below target levels through the second quarter of 2014. In the third quarter of 2014, inventory levels started to improve and target level was achieved at all of NIPSCO’ s inventory locations in November 2014. Through the remainder of the reconciliation period, inventory levels remained at or near target level. Railroad performance also improved during the reconciliation period. NIPSCO incurred additional costs due to the acquisition of railcar equipment to ship coal during the second half of 2014 for the purpose of rebuilding inventory to target levels. NIPSCO also incurred additional costs for the purchase of spot coal, which was higher in price than contract coal, for the purpose of providing coal supplies from alternative rail suppliers. The impact of these combined additional costs was less than 0.4% of the total annual delivered fuel cost.

“NIPSCO’s delivered cost of coal during the reconciliation period decreased compared to the third quarter of 2014 from $50.92 per ton or $2.495 per million Btu to $50.07 per ton or $2.454 per million Btu. Decreased costs were due to lower spot coal prices and lower fuel surcharges associated with rail delivery.

NIPSCO anticipates that its delivered cost of coal for the forecast period of April, May and June 2015 will be approximately $51.48 per ton or an estimated $2.556 per million Btu. The average spot market prices for calendar year 2015 are currently $12.89 per ton for PRB coal, $37.92 per ton for ILB coal and $58.17 per ton for Pitt8 coal. These average spot market prices do not include the cost of transportation.

“NIPSCO plans to issue a solicitation in the first quarter of 2015 for additional high Btu coal to be used as a blend fuel at NIPSCO’s R.M. Schahfer or Michigan City Generating Stations in 2015. The price of natural gas, rail transportation delivery, and the winter weather may have an impact on the supply, demand, and cost of coal during the forecast period. NIPSCO does not anticipate needing additional spot coal during the forecast period. However, if actual coal consumption is greater than forecasted consumption, additional spot coal purchases will be required, and coal pricing could be impacted in the forecast period.”

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.