Indiana commission okays latest, lower coal costs for Duke Energy Indiana

The Indiana Utility Regulatory Commission on march 25 approved the latest twice-yearly fuel cost case for the Duke Energy Indiana subsidiary of Duke Energy (NYSE: DUK).

Said the order about case testimony from a Duke witness: “Mr. Brett Phipps testified regarding Applicant’s coal procurement practices and its coal inventories. Mr. Phipps testified that in December 2014 Applicant reached a settlement on disputed contractual issues with regard to a price reopener with Bear Run which are favorable to Applicant and its customers as compared to 2014. He testified that as a result of the settlement, the dispatch cost for 2015 decreased for Wabash River Station, Cayuga Station and Edwardsport IGCC Station on average 11.7%; the contract price for 2015 will show a savings of approximately 25% from the original 2015 contract price; and the total fuel costs included in the fuel clause for 2015 were decreased by 8% of the total fuel bill.

“Ms. [Suzanne] Sieferman testified that the settlement amount related to the 2014 tons is being refunded to Applicant via a per ton discount to be applied to future tons delivered over approximately three years. The application of this discount, as well as the lower base pricing for the contract, were effective beginning with January 1, 2015 deliveries. She also stated that native load customers will first see the benefits beginning with bills rendered in April 2015. Ms. Sieferman testified that the impact of the settlement to a typical residential customer using 1,000 kilowatt-hours per month is estimated to be a reduction of approximately 4% and the reduction for large power customers is estimated to be in the 4% to 6% range. Ms. Sieferman testified that there was another price reopener successfully completed in 2014 that resulted in lower per ton pricing for deliveries as of January 1, 20b.

“Phipps also testified that as of November 30, 2014, coal inventories were approximately 3,980,000 tons (or 65 days of coal supply), which is higher than what was reported in [the prior fuel case] due to lower demand over the fall months. Mr. Phipps added that Applicant continues to evaluate a host of options in order to manage effectively its growing coal inventory. Mr. Phipps stated that as inventory levels dictate, Applicant 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 Applicant did not recieve 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 was well below target levels during the summer and fall months and was forecasted to decline further if Applicant did not continue to use an alternative to support Cayuga’s forecasted coal bums. Beginning in June 2014, Applicant started to truck coal from Wabash River station to the Cayuga station in order to increase inventory levels and supplement the rail performance. This trucking ceased on November 26, 2014 after achieving sufficient and reliable inventory levels.

“Mr. Phipps testified that spot natural gas prices are dynamic, volatile, and can change significantly day to day based on market fundamental drivers. During the three-month period from September through November 2014 the price Applicant paid for delivered natural gas at its gas burning stations was between $3.52 per million BTU to $5.10 per million BTU.”

Said the order about testimony from Duke’s John Swez: “Mr. Swez testified that the Edwardsport IGCC generating station began commercial operation on June 7, 2013. The station performed its fall maintenance outage in September 2014. He testified that after the station’s fall outage when the unit’s gasifiers are operating, Edwardsport IGCC is being offered with a commitment status of must-run. The main change to the offer from Applicant’s previous MISO offer is that, because the unit has a minimum and maximum capability that are not equal to one another, to the extent possible, Edwardsport IGCC will be following MISO’s dispatch direction between the minimum and maximum capability of the unit rather than MISO following its available output. Mr. Swez also testified that because Applicant’s internal coding of the output of the station as ‘test’ ended in mid-September, generation from Edwardsport IGCC is now eligible to be split between native and non-native customers in the same manner as the rest of Applicant’s generating units based on the economic stacking process.

“Mr. Swez testified that as a result of the successful price reopeners discussed by Mr. Phipps and Ms. Sieferman, on December 19, 2014, Applicant changed its generation offers to reflect the change in price for two coal agreements. He stated that because of this change, units at Wabash River, Cayuga, Gibson, and Edwardsport IGCC experienced a reduction in their dispatch price, depending on the amount of coal delivered to each station from each contract, with some of those changes being significant reductions in the dispatch price of the unit.”

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.