Wisconsin Electric Power will be trying to maximize the percentage of cheaper Powder River Basin coal in blends with Pittsburgh-seam coal at the two Elm Road Generating Station units in 2016, but will be limited by its capacity to handle trains at the site through 2016, said Mary L. Wolter, the Manager-Fuel Cost Planning for Wisconsin Electric Power d/b/a We Energies.
Wolter was one of the utility officials that supplied testimony in the Sept. 30 filing at the Michigan Public Service Commission of a Power Sipply Cost Recovery plan for 2016. We Energies serves a small area of Michigan’s Upper Peninsula, thus the need to file these plans at the Michigan PSC.
Wolter wrote: “There is a desire to maximize the benefits from fuel blending at Elm Road Generating Station (‘ERGS’) – that is, increasing the % blend of Powder River Basin ‘PRB’ coal. However, there are physical limitations to the combined amount of PRB and bituminous coal that can be physically processed at Oak Creek Power Plant (‘OCPP’) and ERGS.”
Elm Road has 1,057 MW of capacity, while the adjacent Oak Creek plant, which has burned PRB coal in blends for year, is at 993 MW.
“Until the ongoing fuel flexibility capital projects are completed, the Site Bulk Material Handling (‘SBMH’) facility that serves both OCPP and ERGS has physical limits as to the amount of coal that can be delivered and/or stored,” Wolter said. “SBMH can only reasonably expect to handle coal deliveries of about 7.5 trains per week on average throughout 2016. Allowing PROMOD to dispatch the OCPP and ERGS units without limits at increasingly higher blends of PRB coal results in more than 7.5 trains per week forecasted to be delivered on average.
“Through an iterative process, varying bid adders were tested to determine the price at which PROMOD would limit the dispatch of OCPP and ERGS within the range of the targeted 7.5 trains per week. We propose to include bid adders in the final 2016 fuel cost plan that will limit deliveries to SBMH to 7.5 trains per week after all of the other Commission-approved adjustments are accounted for in this proceeding.”
Wolter added: “Projected costs for coal generation have decreased approximately $1.56/MWh for the 2016 plan year as compared to the 2015 PSCR plan. This is due primarily to reductions in delivered coal costs and increased blending of PRB coal at the Elm Road Generating Station.
“Existing coal transportation agreements with Union Pacific, BNSF, and Norfolk Southern include provisions which allow a fuel surcharge on transportation rates for delivery of coal to power plants and/or to rail/boat coal transportation transfer points. The Union Pacific and BNSF rail transportation contracts have surcharge rates that are driven by changes in the price of diesel fuel, the fuel used in the locomotives. The Norfolk Southern rail transportation contract for the Elm Road Generating Station (ERGS) has a surcharge rate that is driven by changes in the price of crude oil.
“The diesel fuel contract futures trading volumes are low, making for limited liquidity in that market, so we do not currently use diesel fuel futures prices for forecasting coal transportation costs. Instead, we used heating oil contracts as a cross-commodity price forecast for diesel fuel because of the sustained correlation between diesel fuel and heating oil prices (above 80%). The NYMEX crude oil futures prices are used in the model to forecast rail transportation costs for ERGS. Price estimates for both heating oil and crude oil were based upon the June 17, 2015, closing NYMEX futures prices.”
Wolter said about natural gas procurement: “The Company forecasts the use of 50.9 million MBTU of natural gas in 2016 at $3.35/MBTU, for a total estimated cost of approximately $170 million. This includes the use of natural gas as auxiliary fuel at the Company’s coal plants, gas used for the Company’s combined cycle and combustion turbine generating facilities, and gas used at LSP-Whitewater under the purchase power agreement. It also includes Valley Power Plant fully converted to natural gas from coal for the entire year. Price estimates were based upon the June 17, 2015, closing NYMEX natural gas futures price.”
In 2016, We Energies is projecting 12.1 million tons of coal burn, with that coal costing an average of $2.38/mmBtu, for a total cost of $486.1 million. That coal cost in 2016 by plant is: Oak Creek, $2.14/mmBtu; Pleasant Prairie, $1.93/mmBtu; Elm Road, $2.47/mmBtu; and Presque Isle, $2.62/mmBtu. Presque Isle is the only one of these plants located in Michigan.
There has been an effort ongoing over the past couple of years, with involvement by the Michigan state government, to eventually close the aging Presque Isle plant and replace it with new gas-fired capacity. The We Energies filing shows projections of coal burn at the plant each year through 2020, the final year in the forecast. For example, in 2020, the projection is for 1,585 GWh of output at the plant (which is pretty close to its output in the prior years), with an average coal cost of $2.91/mmBtu. The plant is also shown with 344 MW of capacity in each year through 2020.