New wind deals to suck some life out of Southwestern Public’s coal burn in 2017

Coal usage in 2016 at the Tolk and Harrington power plants of Southwestern Public Service will be down in 2017, in part due to power provided under three new wind power purchase agreements, said David G. Horneck, employed by Xcel Energy Services, the service company subsidiary of SPS parent Xcel Energy (NYSE: XEL), as Manager Generation Modeling Service.

Horneck was one of the Xcel officials providing Oct. 16 testimony at the New Mexico Public Regulation Commission in a rate case. 

Total coal generation forecasted for 2017 will decrease by approximately 1,785 gigawatt-hours (GWh) or 12.67% compared to coal generation reflected in the 2014 Base Fuel case. The primary driver for the reduction in forecast coal generation is increased wind generation from three new wind energy PPAs, all of which were approved by this commission. Wind generation is forecasted to increase by 3,124 GWh or 90.8% for 2017. As such, during times of the day when higher cost units have been reduced to minimum levels and wind generation is at its highest, there can be a need to cycle down coal generation which is the primary contributor to the decline in coal generation forecast for 2017.

The cost of coal including rail transportation is expected to increase from the 2014 Base Fuel rate of $20.23 per megawatt-hour (MWh) to $20.37/MWh in 2017, an increase of 0.7%. The cost of coal is forecasted to increase from 2014 to 2017 due mainly to projected rail transportation cost increases, Horneck noted. The company gets its coal via the BNSF Railway out of the Powder River Basin.

The total SPS-owned, gas-fired generation in 2017 is forecast to decrease by approximately 925 GWh, or about 22.9%, in comparison to the 2014 forecast used to determine the 2014 Base Fuel costs. The primary reason for the decrease is the same increase in wind generation forecasted for 2017.

Natural gas commodity prices as reflected by the Waha delivery point are projected to decrease 25.3%, from the 2014 forecast of $4.00/MMbtu to $2.99/MMbtu for 2017. Therefore, the cost of SPS-owned, natural gas-fired generation is also expected to decrease from the 2014 forecast of $52.97/MWh to $39.27/MWh in 2017.

Natural gas prices forecast for 2014 were appreciably higher than the current forecast for 2017. Drilling efficiencies continue to improve allowing producers to continue to expand production even in the current low price environment, Horneck explained. This is resulting in daily production that continues to grow, especially in the Marcellus region, outpacing daily demand. The result is that natural gas prices are currently forecast to remain low through 2017. 

SPS has entered into contracts for 697 MW of nameplate wind energy through PPAs for the Roosevelt, Palo Duro, and Mammoth wind facilities. These added wind energy contracts are expected to produce over 3,089 GWh of energy in 2017, which is contributing to lower SPS owned coal and natural gas generation. In addition, the PPA for the Llano Estacado 80-MW wind farm will expire prior to 2017, causing a reduction of nearly 250 GWh that had been included in the 2014 forecast.

The 2017 forecast includes solar energy purchases under long-term PPAs from two 70-MW solar facilities (total of 140 MW) that are projected to be commercially operational in December 2016. The Roswell Solar PPA and the Chaves County Solar PPA were recently approved by the commission. These projects should begin supplying energy in late 2016 and are expected to produce over 405 GWh in 2017.

Alan J. Davidson, employed by Xcel Energy Services as Director, Regional Capital Projects, outlined in his Oct. 16 testimony various capital projects undertaken lately at the SPS power plants. In the “Environmental Improvement” category were activated carbon injection systems installed on the Harrington and Tolk units for mercury reduction that were all operational by April of this year, which was the initial compliance deadline under the EPA’s Mercury and Air Toxic Standards.

Xcel predicts higher rail costs, looks at future coal purchasing options

H. Craig Romer, employed by Xcel Energy Services as Director, Fuel Supply Operations, provided testimony on SPS’s coal procurements under its long-standing Coal Supply Agreements (CSA) with agent TUCO Inc. for Harrington (called the “SPS/TUCO-Harrington CSA”) and Tolk (“SPS/TUCO-Tolk CSA”) coal-fired generation stations. The SPS/TUCO-Harrington CSA terminates on Dec. 31, 2016, and the SPS/TUCO-Tolk CSA terminates one year later on Dec. 31, 2017.

TUCO recently purchased coal for SPS under the following three existing contracts:

  • Arch Coal Sales – This Master Coal Supply Agreement was entered into on Dec. 31, 2010, and is an evergreen agreement where coal is purchased under Confirmation Notices with specific pricing, quantities, term, and quality. Purchases can be used for either Harrington’s or Tolk’s coal needs.
  • Peabody COALSALES LLC – This Master Coal Supply Agreement was entered into on Dec. 15, 2010, and is an evergreen agreement where coal is purchased under Confirmation Notices with specific pricing, quantities, term, and quality. Purchases can be used for either Harrington’s or Tolk’s coal needs.
  • Cloud Peak Energy Resource LLC – This Master Coal Supply Agreement was entered into on Nov. 1, 2010, and is an evergreen agreement where coal is purchased under Confirmation Notices with specific pricing, quantities, term, and quality. Purchases can be used for either Harrington’s or Tolk’s coal needs.

The current rail transportation agreements with BNSF began on Jan. 1, 2013 for both Harrington and Tolk. The agreement for Harrington expires on Dec. 31, 2016, and the agreement for Tolk expires on Dec. 31, 2017. SPS has asked TUCO to provide information on extending the Harrington CSA through Dec. 31, 2017, to coincide with the expiration of the Tolk Station CSA. As part of this request, the BNSF transportation agreement for rail service to Harrington Station would also need to be extended until Dec. 31, 2017.

Over the last several years, upon the expiration of the railroad transportation agreement(s), Xcel Energy has experienced rail rate increases as large as 40% in base railroad transportation rates at its plants served by the BNSF and/or the Union Pacific Railroad (UPRR), said Romer. When the Harrington and Tolk rail agreements were negotiated in 2012, SPS experienced a significant rate increase on Jan. 1, 2013. The cost estimates for the Harrington station coal transportation needs in 2017 were developed using a 20% increase based on Xcel Energy’s past negotiations and resulting transportation agreements.

The 2017 projected average cost of coal fuel costs for the 2017 is $2.00/MMBtu. This amount is 12.36% higher than the $1.78/MMBtu average cost of coal incurred in the Base Period. The increase in the average cost of coal was driven by: the projected increase in the rail rate; an anticipated increase in diesel prices, which drive the surcharges on the rail rate; and a forecasted increase in the FOB mine price of coal.

After the current CSAs expire, SPS is considering a number of options to meet its coal procurement and coal-handling requirements at both Harrington and Tolk. Romer said the options that are currently being evaluated include on one end of the spectrum SPS assuming all coal-handling responsibilities in-house and on the other end of the spectrum having a third party manage the coal procurement and coal-handling activities for SPS. SPS’s analysis will compare the current roles of TUCO and Savage Industries, which handles the coal under contract at the two plants, in the coal delivery process with SPS assuming, to some degree, those roles and responsibilities in-house. SPS has begun preliminary analysis of the options but has not yet made a final determination, Romer said.

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.