In 2014, South Carolina Electric & Gas (SCE&G) consumed 4,648,704 tons of coal, which was 626,059 tons more than the company burned in 2013, which is an increase in the bum rate for coal of 15.56% using a year-over-year comparison.
Those were among the facts offered by Michael D. Shinn, employed by SCANA Services as General Manager of the Coal and Oil Procurement Department, in March 5 fuel cost testimony that SCE&G filed with the South Carolina Public Service Commission. Shinn manages the purchase and delivery of coal, No. 2 fuel oil, and limestone on behalf of SCE&G and as agent for South Carolina Generating Co. (GENCO).
His testimony described the procurement and delivery activities for coal and No. 2 fuel oil used in electric generation for SCE&G as well as GENCO’s Williams Station for calendar 2014 (called the “Review Period”). GENCO was incorporated in 1984 and owns Williams Electric Generating Station. GENCO sells to SCE&G the entire capacity and output from Williams Station under a Unit Power Sales Agreement approved by the Federal Energy Regulatory Commission.
Given its mix of generation assets, SCE&G has significant need for coal in any given year to provide reliable energy service to customers, Shinn noted. In 2014, for example, SCE&G consumed 4,648,704 tons of coal, which was 626,059 tons of coal more than in 2013. “This increase in the bum rate for the Review Period resulted in part from a winter that was colder in 2014 than in 2013 (as measured in heating degree days) and a summer that was hotter in 2014 than in 2013 (as measured in cooling degree days),” Shinn explained. “In addition, there was a planned outage for the Virgil C. Summer Nuclear Station in May 2014 but there was no planned outage for the station in 2013.”
But, the company projects that its burn rate for coal in 2015 will be approximately 3,692,610 tons, representing a decrease of 20.6% when compared to the bum rate in 2014. “This can substantially be attributed to the increased utilization of SCE&G’s natural gas electric generation facilities as a result of significantly lower gas price projections for the entire year of 2015,” Shinn wrote. “The company also anticipates higher costs for supplying coal to McMeekin Station due to more stringent coal quality specifications.”
In 2015, due to the significant decrease in natural gas prices, SCE&G expects to make fewer spot coal purchases and, thus, it has adjusted the balance of its coal purchases in favor of long-term agreements.
The company took delivery of 2,675,984 tons of coal under long-term agreements and 1,618,742 tons of coal through spot purchases in 2014. Long-term agreements provided 62% of the requirement for the company’s coal-fired stations, while spot purchases accounted for the remaining 38% of SCE&G’s coal requirements during 2014.
The company currently has long-term contracts with eight suppliers for the delivery of 3.1 million tons of coal. This quantity represents approximately 67.4% of SCE&G’s expected total coal receipts for 2015. The coal purchased under these contracts ranges in quality from 12,300 to 12,800 Btu/lb and from 0.75% to 1.6% sulfur content. Most of these contracts are for an initial period of two years, and some of the contracts have options to renew.
In some of the coal contracts, the utility has been successful in negotiating fixed pricing for the term of the contract, while other coal contracts contain predetermined price adjustments. It should be noted that a majority of th term contracts executed during the Review Period were two-year instead of three-year contracts, Shinn added. “Although we have had limited success in procuring three-year contracts, the overall pricing for Central Appalachian (‘CAPP’) coal has been depressed such that most suppliers will not enter the traditional three-year contract due to the fact that their projected production costs and contracted costs are substantially similar,” he explained.”
Utility works out new, cheaper transport deal with CSX
In 2014, CSX Transportation remained the primary rail transporter of coal for SCE&G. While the CSX contract rates remained relatively stable during 2014, they were subject to quarterly adjustments according to indices published by the American Association of Railroads, Shinn said. SCE&G took delivery of approximately 3.8 million tons of coal under this rail contract during 2014, representing 82.3% of its total receipts of coal.
The company in 2014 also was under contract with the Norfolk Southern Railway, which has only one delivery point in SCE&G’s system. Deliveries under this NS contract represented 11.4% of the company’s total receipts in 2014.
The company also received deliveries of international coal during the Review Period. SCE&G obtains ocean vessel shipping of coal on a spot or as-needed basis when prices for international coal are competitive with domestic coal. Presently, SCE&G has a long-term contract for transportation of coal by barge from midstream in the Cooper River – the ocean vessel delivery point – to Williams Station.
The CSX contract was negotiated during 2014 and became effective Jan. 1, 2015, providing more favorable shipping rates than the expiring contract, Shinn said. Moreover, SCE&G has the option under the new contract to transport all of its coal requirements on CSX, but it is not obligated to do so if a more favorable transportation option is identified, such as by other railroad providers or by barge.
Shinn noted that international coal prices were not competitive with domestic coal prices in prior years. Now, however, given the substantial supply of coal in the international market for both thermal and metallurgical coal, international coal prices – including transportation costs – are competitive with domestic coal prices. He said SCE&G will continue to monitor and remain informed of opportunities to purchase international coal as part of its ongoing effort to reduce fuel costs.
“SCE&G’s coal prices for the forecasted period are expected to remam stable at current levels,” Shinn reported. “Over the past 12 months, the price per ton of CAPP coal decreased from $65.75 per ton on January 2, 2014, to $51.50 per ton on December 29, 2014, representing approximately a 21.7% price decrease. Spot coal prices have been trending downward early in 2015 to approximately $45.00 per ton on February 2, 2015. In this market, the Company potentially could reduce its coal purchase costs if it can make spot purchases of coal at prices below its long-term contract prices. However, we do not presently expect any further substantial price reductions in 2015 and anticipate that spot prices will trend upward to moderate levels.”
During 2014, in an effort to cut costs, SCE&G continued to take delivery of coals with contracted Btu values less than the company’s traditional specs. They were consumed at the Cope and Williams stations. SCE&G is also evaluating the fuel flexibility for all of its coal-fired plants. It is considering fuels from different regions of the U.S. and South America with multiple sulfur, ash, and Btu levels. Currently, transportation rates, and in some cases original plant design, lead to a situation in which coal from other basins is non-competitive with CAPP coal due in large part to significant differences in coal qualities that could impact plant operations, Shinn wrote.
Utility has gotten MATS extensions for several coal units
In companion March 5 testimony, Thomas Effinger, currently employed by SCANA Services as the Director of Environmental Services, offered an update on Mercury and Air Toxics Standards (MATS) compliance for the utility’s coal plants. The initial MATS compliance deadline is April 16 of this year.
SCE&G applied for and received a one-year MATS extension from state regulators for both the McMeekin and Canadys astations. However, with the retirement of Canadys, only McMeekin needs the waiver until April 2016. SCE&G also has requested an extension for Williams, Cope, and Wateree stations in part due to the additional requirements finalized in November 2014 after the EPA reconsidered the rule pursuant to the requests of several petitioners based largely on technical issues and questions. This extension will allow time to install additional pollution control devices that will enhance the control of certain MATS-regulated pollutants. The state has approved these extension requests, Effinger noted.
Joseph K. Todd, employed by SCE&G as General Manager, Fossil & Hydro Operations, said in his own March 5 testimony that in 2014, SCE&G generated 23,755,238 megawatt hours (MWH) of energy. Of this energy, the coal-fired plants generated approximately 49%, the combined-cycle units generated about 26%, the nuclear plant around 19%, the peaking gas turbines and hydro facilities generated about 3%, the natural gas-fired steam plant (Urquhart 3) generated approximately 1%, and a cogeneration facility and a solar facility together generated approximately 2%.
Todd described a number of planned unit outages in 2014 needed to make repairs and upgrades. The coal-fired steam unit average system heat rate for 2014 was 9,798 Btu/kWh. Cope Station had the best heat rate in the system at 9,319 Btu/kWh followed by Williams Station at 9,673 Btu/kWh. For comparison purposes, data published by Electric Light & Power magazine shows a national five-year (2009-2013) average for heat rate for all coal-fired units is 10,425 Btu/kWh, Todd said.
To comply with MATS, SCE&G has previously retired its three coal-fired units at the Canadys Station and its coal handling facilities at the Urquhart Station. SCE&G now operates Unit 3 at Urquhart exclusively on natural gas. Currently, SCE&G is planning to begin operating Units 1 and 2 at McMeekin primarily on natural gas in 2016, Todd said. That would be as of April 2016, when a one-year MATS extension runs out.