Consumers Energy gets ready to shut seven coal units in April 2016

Consumers Energy is getting ready for the retirement in April 2016 of its “Classic Seven” coal units, leaving it with reduced coal-fired capacity.

Several officials of Consumers Energy, which is a subsidiary of CMS Energy (NYSE: CMS), touched on coal-related issues in annual Power Supply Cost Recovery plan testimony filed Sept. 30 at the Michigan Public Service Commission.

Jim K. Chilson II, employed by Consumers Energy as the Fuels Transportation & Planning Director in the Energy Supply Operations Department, said that various contracts provide Powder River Basin coal supply to the coal plants (JH Campbell, BC Cobb, DE Karn Units 1-2, JC Weadock and JR Whiting). The company also takes some eastern blender coal (originating typically in Central Appalachia in eastern Kentucky and southern West Virginia). He noted that the utility anticipates soliciting for additional coal before the end of 2015 for delivery in 2016.

During 2016, the company expects to have in effect three contracts that will provide for the shipment of coal on railroads and one or more contracts that will provide Great Lakes vessel services and terminal services for shipments. The company will not, however, have a bilateral contract with CSX Transportation in place for rail transportation east of Chicago to the Campbell plant, Chilson reported. Instead, the company plans to use common carrier (i.e. tariff) rates for rail transportation for western coal from Chicago to the Campbell plant and for transportation of eastern coal to both the Campbell and Karn plants.

In mid-2013, the company began efforts to replace its bilateral contract with CSXT for rail transportation that was set to expire on Dec. 31, 2014. In evaluating its transportation contract, it was determined that CSXT’s coal transportation costs to the Campbell plant were disproportionately higher than the company’s other coal transportation contracts, and the company believes that the costs contained in its contract were higher than some other utilities in the Midwest. Complicating matters further is the fact that the Campbell plant is “captive” to CSXT. This means that there are no other coal transportation alternatives to the plant. Consumers Energy determined that CSXT’s coal transportation rates to the Campbell plant were disproportionately high compared to other plants, said Chilson.

After several proposals and counterproposals between the company and CSXT, the rates offered by CSXT for transportation services between Chicago and the Campbell plant were no lower than the rates in effect at the end of 2014, and still at levels the company believed were above what CSXT could justify. In November 2014, Consumers Energy requested that CSXT provide rate and service terms for the transport of coal. On Dec. 26, 2014, CSXT provided Consumers Energy with Tariff CSXT 13952. On Jan. 13, 2015, Consumers Energy filed a complaint with the federal Surface Transportation Board (STB) against CSXT. It requested the STB to:

  • find the challenged rates to be unreasonable and unlawful;
  • prescribe lawful rates;
  • award damages to Consumers Energy, and
  • grant Consumers Energy any further relief as the STB may seem proper.

The potential for savings in transportation expense attributable to these efforts is estimated at over $15 million annually. The company has included in the 2016 PSCR plan its portion of the estimated litigation expense that it anticipates will be spent in 2016, which is $2,188,247. This amount is less the Campbell 3 Joint Owners’ contribution to the litigation.

The coal burn projections for the coal plants/units that won’t be shut in 2016 (Campbell 1-3 and Karn 1-2) are:

  • 2017 – 6.7 million tons;
  • 2018 – 6.5 million tons;
  • 2019 – 6.4 million tons; and
  • 2020 – 6.7 million tons.

Company projects 6.8 million tons of western coal burn in 2016

Consumers Energy presently has approximately 3.65 million tons of coal committed for 2016 from multi-year or annual purchases. At this time, the company anticipates it will purchase additional coal in 2015 for 2016 delivery. However, the volume of coal for this purchase is yet to be determined. Approximately 600 thousand to 1.9 million tons of coal is expected to be purchased on a spot basis in 2016.

On a system-wide basis, the company expects to burn approximately 6.8 million tons of western coal or approximately 99.6% by weight of the company’s total coal burn requirements in 2016. The company does not have any eastern coal contracts in effect for 2016. Eastern coal is only projected to be used during periods of high electrical demand when high-Btu eastern coal is necessary to achieve full capability from the coal generation fleet. The company plans to purchase eastern coal from the spot market as needed to meet these periods of high demand.

Also supplying Sept. 30 testimony was David F. Ronk Jr., the utility’s Executive Director for Electric Transactions and Wholesale Settlements. He noted about the Classic Seven coal retirements: “The retirement of Cobb Units 4 and 5; Weadock Units 7 and 8; and Whiting Units 1, 2, and 3 had potentially exposed the Company and its customers to the cost of purchasing replacement capacity for the six-week period between April 16, 2016 and May 31, 2016, however, the Company secured a waiver from certain requirements contained in MISO’s tariff and is not required to purchase replacement capacity for that period.” 

Robert C. Schram, employed by Consumers Energy as Director of Compliance & Quality Systems, Energy Resources Business Services, wrote testimony that touched on power plant availability in 2016, including these two down periods for coal plants to tie in new air emissions controls:

  • The outage at Campbell Unit 1 is scheduled to begin Jan. 9, 2016, and is projected to last for 35 days, until Feb. 13. The outage is necessary to tie-in the Air Quality Control Systems (AQCS) required to achieve compliance with the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS).
  • The outage at Campbell Unit 3 is scheduled to begin March 5, 2016, and is projected to last for 84 days – concluding May 28. The outage is necessary to tie-in the AQCS required to achieve MATS compliance. Also during this outage, the company will perform a turbine inspection/overhaul, and replace the low pressure rotor and valves.

The company has installed Flue Gas Desulfurization (FGD) equipment in the form of Spray Dry Absorbers (SDAs) at its Karn site, and will be installing SDAs and Dry Sorbent Injection (DSI) at its Campbell site in early 2016. These FGDs were or are being installed to comply with MATS, however an added benefit is the significant reduction in SO2 levels.

Schram wrote: “The Company has installed, and will be installing, FGD units (a.k.a. SDA and DSI) at its Karn and Campbell sites. SDAs were installed at Karn Units 1 & 2 in 2014 and will be installed at Campbell Unit 3 in early 2016. Also, DSI will be installed at Campbell Units 1 & 2 in early 2016. Lime will be injected into the SDA/DSI where it will react with SO2 and heavy metals found in the exhaust gases. When used in combination with Pulse Jet Fabric Filters (‘PJFF’), SO2 and heavy metal emissions are reduced, allowing the Company to comply with the new emission standards.”

Sara T. Walz, a General Engineering Technical Analyst in the Electric Sourcing and Resource Planning Section of the Energy Supply Operations Department at the utility, said in her testimony: “Consumers Energy is planning to retire seven of the Company’s coal units (Cobb 4 and 5; Weadock 7 and 8; and Whiting 1, 2, and 3) in lieu of retrofitting the units to comply with the Mercury and Air Toxics Standards rule that would otherwise be effective for these units on April 16, 2016. Additionally, this case reflects the Company’s continued decision to mothball or place in extended reserve shutdown status several combustion turbine (‘CT’) units. Additionally, the Company is securing 542 MW of capacity with the Jackson Plant, a natural gas-fueled generating unit, assumed to be in the Company’s service January 2016.”

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.