The Indiana Utility Regulatory Commission on Jan. 27 okayed an October 2015 application from Northern Indiana Public Service Co. (NIPSCO) for approval of a fuel cost adjustment to be applicable for February through April 2016.
Among those that supplied testimony in this twice-year fuel review case was Dennis S. Rackers, Manager of Fuel Supply at NIPSCO.
Said the Jan. 27 commission order: “With respect to NIPSCO’s coal procurement process, Mr. Rackers testified that NIPSCO considers several factors in coal purchase evaluations for a specific generating unit, including the delivered price and coal quality parameters including the moisture, ash, sulfur, mercury, and arsenic plus fouling and slagging characteristics. These parameters affect the unit’s operational reliability and ability to comply with environmental emission limits. He said that the schedule flexibility and reliability of individual coal supply sources and related transportation carriers are also considered in NIPSCO’s fuel procurement practices.
“NIPSCO had six long-term supply contracts in the third quarter of 2015. Mr. Rackers said that the remainder of NIPSCO’s coal requirements was met through spot purchases.
“Mr. Rackers testified that due to volatility in the coal markets, producers and customers are reluctant to execute fixed-price, long-term contracts without some type of market price adjustment mechanism and that maintaining a market price balance is beneficial to both parties. Four of NIPSCO’ s contracts have firm prices that increase each year as set out in the contract. One contract has prices that are adjusted annually based on the average weekly indexed prices of that particular coal in the previous year and one contract has an annual market price reopener that determines the contract coal price for next year.
“Mr. Rackers testified that the delivered cost of coal for NIPSCO for the 12 months ending September 30, 2015, was $50.70 per ton or $2.484 per million Btu. The delivered coal cost for all coal shipments during the reconciliation period (July through September 2015) was $50.48 per ton or $2.470 per million Btu. The delivered cost of coal for contract coal shipments during the reconciliation period was $51.03 per ton or $2.505 per million Btu. The delivered cost of coal for spot coal shipments during the reconciliation period was $40.29 per ton or $1.860 per million Btu.
“The average spot-market price of coal (excluding transportation costs) during the reconciliation period was $10.53 per ton for Powder River Basin (‘PRB’) coal, $31.09 per ton for Illinois Basin (‘ILB’) coal, and $42.88 per ton for Pittsburgh #8 (‘Pitt8’) coal.
“With respect to the market factors affecting the supply, demand, and cost of coal during the reconciliation period, Mr. Rackers testified that low natural gas prices and mild summer temperatures depressed coal bum, and consequently inventory stocks continue to be well above customer targets. Coal unit retirements under the Mercury and Air Toxics Standard (‘MATS’) rule are also reducing demand for coal, and spot market prices across all coal regions remained relatively soft.
“NIPSCO’s delivered cost of coal during the reconciliation period was $50.48 per ton or $2.470 per million Btu. This decreased $1.32 per ton and $0.092 per million Btu from the $51.80 per ton or $2.562 per million Btu in the second quarter of 2015. The cost decrease was primarily due to a change in the mix of coal received. The volume of less expensive ILB spot shipments was up from the previous period, while the more costly Pitt8 shipments were down.”
Incidentally, NIPSCO on Jan. 28 filed the next fuel cost case with the commission.