Vectren’s coal burn this year to be below contracted tonnage

Southern Indiana Gas and Electric (also known as Vectren South), which lost its affiliated Indiana coal mines last summer when parent Vectren (NYSE: VVC) sold them, reported on Feb. 18 to the Indiana Utility Regulatory Commission its latest fuel status.

Wayne D. Games, Vice President-Power Supply, provided supporting testimony for the latest iteration of this twice-yearly fuel cost case. He noted that as of Jan. 31, coal inventory at Vectren South’s coal-fired plants stood at about 580,400 tons, with no additional off-site storage. Vectren South entered 2015 with 602,914 tons of coal in plant inventory. For operating purposes, inventory of 450,000-500,000 tons is a good target, Games wrote. 

For 2015, Vectren South currently has in place coal deliveries priced under six separate contracts previously reviewed by the commission. Because under all but one of the contracts Vectren South negotiated the ability to adjust the contract amount in any given year, Vectren South can reduce the total specified contract volumes for 2015 of 2,880,000 tons to a firm commitment for 2015 of a redacted quantity of tons or increase the firm commitment to a redacted level of tons. Five of the contracts are with Sunrise Coal, which bought the Vectren coal mines, and one is with Alliance Coal, part of Alliance Resource Partners LP.

The Sunrise coal contract tonnages for 2015 are 410,000 tons, 590,000 tons, 480,000 tons, 150,000 tons and 1 million tons, while the Alliance contract is for 250,000 tons. There is extensive redacting, but some figures remain. Like Games wrote that the plan is to take in 2015:

  • 15% less (348,500 tons) than the base contract level under the 410,000-ton Sunrise contract;
  • 10% less (388,800 tons) under the 480,000-ton Sunrise contract;
  • 15% less (850,000 tons) under the 1-million-ton Sunrise contract; and
  • all of the 250,000 tons under the Alliance contract.

What the utility plans to do in 2015 under the tonnage options for the two other Sunrise contracts is redacted from the filing. Games said there is no volume flexibility in the Alliance contract (“Flexibility was not offered by Alliance when that contract was negotiated”). The company’s projected coal burn in 2015 is 2,619,171 tons, which is below the contracted base volume for this year, thus the need to take less than the contracted base tonnages.

Sunrise contracts #1 (410,000 tons) and #2 (590,000 tons) will combine in 2016 into one contract for 1 million tons, Games said. Sunrise Contract #5 (1 million tons) will terminate in 2016 and Sunrise contract #4 (150,000 tons) will convert to 1 million tons. In addition, the Alliance contract will expire. The base contracted volume in 2016 is 2.48 million tons, which is two Sunrise contracts at 1 million tons each, and a third Sunrise contract at 480,000 tons. Vectren South may consider an additional small contract for 2016 depending on market prices later this year. The projected burn in 2016 is 2,881,455 tons. 

One of the 1-million-ton Sunrise contracts has contract price reopeners in 2018 and 2021, and the other 1-million-ton Sunrise contract has reopeners in 2016, 2019 and 2022. The 480,000-ton Sunrise contract has reopeners in 2017 and 2020.

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.