With the retirement last year of the Tanners Creek power plant, the lone coal-fired plant of Indiana Michigan Power is the 2,600-MW Rockport facility, with that plant mostly taking coal from a subsidiary of Peabody Energy (NYSE: BTU).
Providing Jan. 29 fuel cost testimony to the Indiana Utilitiy Regulatory Commission was Charles F. West, employed by American Electric Power Service Corp. (AEPSC), a subsidiary of Indiana Michigan parent American Electric Power (NYSE: AEP), in the regulated Commercial Operations organization as Manager, Coal Procurement. These fuel cost cases are filed twice per year.
The purpose of West’s testimony is to provide a comparison of the forecasted June-November 2015 delivered coal costs to actual deliveries, comment on current coal market conditions, address l&M’s coal delivery forecast for the period covering April-September 2016, and to summarize I&M’s long-term coal supply agreements.
The Rockport Generating Station, located in Spencer County, Indiana, consists of two 1,300-MW coal-fired units. Sulfur dioxide (SO2) emissions at Rockport are limited by the New Source Performance Standard to 1.2 lbs. SO2/MMBtu. Compliance with the emission limit is achieved by using a blend consisting primarily of low-sulfur subbituminous coal. The coal supply for Rockport currently uses a blend of Powder River Basin (PRB) coal from Wyoming and low-sulfur bituminous coal from eastern sources.
In order to comply with stricter U.S. Environmental Protection Agency (EPA) emissions standards, Dry Sorbent Injection (DSI) technology is being used at both Rockport units. Rockport Unit 2’s DSI technology began operating in December 2014 and Rockport Unit 1’s DSI began operating in April 2015. The DSI system uses sodium bicarbonate to reduce emissions of acid gases, the Activated Carbon Injection system uses brominated activated carbon to reduce emissions of mercury, and electrostatic precipitator upgrades will ensure compliance with hazardous air pollutant limits that are measured via particulate matter emission limits. Use of DSI technology did not change the current coal blend at Rockport.
During the reconciliation period, the overall weighted average delivered cost of coal for the Rockport plant from all sources was forecasted to be $45.39/ton or 246.45 cents/MMBtu. The actual delivered cost was $42.94/ton or 235.61 cents/MMBtu. The actual weighted average delivered cost of coal was approximately 5% lower than expected due to the lower cost of spot coal purchases and increased deliveries of lower cost PRB coal to build up PRB coal inventory levels.
West wrote about coal market dynamics in general: “During 2013, low NYMEX (New York Mercantile Exchange) and CSX coal pricing and reduced demand led to the closure of a significant portion of the Central Appalachian (CAPP) coal production in Kentucky and West Virginia. The cost of NYMEX coal for Rockport was higher in mid-2014, but the NYMEX coal prices then continued to drop off until mid-2015. Prices remained relatively stable through the review period. PRB coal pricing in the beginning of 2014 was relatively strong because of rail delivery problems and low coal plant inventories, but pricing softened somewhat in the back half of 2014 and gradually dropped throughout 2015.”
Rockport’s scheduled tonnages of coal during the forecast period, from April 2016 through September 2016, will be supplied primarily by an agreement with Peabody COALSALES LLC, which has been in place for several years. The overall forecasted weighted average delivered cost of coal for Rockport from all sources during the period of April 2016 through September 2016 is projected to be $45.02/ton or 245.50 cents/MMBtu.
West noted that in June 2015, I&M experienced a reduction in train shipments into the Cook Coal Terminal (CCT) in Illinois, which, in conjunction with continued normal deliveries to Rockport, resulted in a drawdown of Rockport’s coal inventory at CCT from 357,000 tons to 41,000 tons. Then, CCT had an outage on its rail unloading capabilities that prevented rail shipments for several days. Together, these events would likely have exhausted the remaining coal inventory at Rockport. Under these circumstances, I&M had to act promptly to ensure adequate coal supplies. Fortunately, there was other coal being stored at CCT of similar quality, which could be loaded immediately to maintain barge shipments and avert the risk of exhausting the remaining inventory at Rockport. Negotiations with the seller were conducted and resulted in a purchase of 27,319 tons of coal. The delivered cost of this coal was about $2.15/ton less than the published market cost for coal of similar quality, which benefited l&M’s customers over other more costly supplier purchases that had the additional risk of not delivering within the difficult time constraints, West added.