The Indiana Utility Regulatory Commission on March 23 approved a Jan. 28 application from Duke Energy Indiana for a change in its fuel adjustment charge (FAC) to be applicable during the billing cycles of April, May, and June 2016 for electric and steam service and to update monthly benchmarks for purchased power costs.
Said the order: “Mr. Brett Phipps testified regarding Applicant’s coal procurement practices and its coal inventories. Mr. Phipps testified that as of November 30, 2015, coal inventories were approximately 4,753,201 tons (or 77 days of coal supply), which is higher than what was reported in FAC106 due to a number of factors, including lower natural gas prices, lower purchase power costs and lower power demand.
“Mr. Phipps added that Applicant continues to evaluate a host of options in order to effectively manage its growing coal inventory. Mr. Phipps stated that as inventory levels dictate, Applicant explores options to store or defer contract coal or resell surplus coal into the market. Due to continued weak coal market conditions, resell opportunities will continue to be extremely difficult in the near term.
“Mr. Phipps testified that spot natural gas prices are dynamic, volatile, and can change significantly day to day based on market fundamental drivers. During the three-month period from September through November 2015 the price Applicant paid for delivered natural gas at its gas burning stations was between $1.79 per million BTU to $4.20 per million BTU.”
Duke’s John D. Swez testified that in September 2015, the coal-fueled Edwardsport IGCC Generating Station produced the second most generation in any month since being declared commercial. “The station underwent a scheduled outage during October and November 2015, returning to service November 29,” the order noted. “He testified that when the unit’s gasifiers are operating, Edwardsport IGCC is being offered with a commitment status of must-run. Mr. Swez stated that Edwardsport IGCC has followed MISO‘s dispatch direction between the minimum and maximum capability of the unit during this time. Mr. Swez also testified that during times when syngas is not available and the station is available on natural gas operation, the unit will typically be offered to MISO with a commitment status of economic and can be committed and dispatched at MISO’s discretion.
“Based on the evidence presented, we find that Applicant made reasonable efforts to acquire fuel for its own generation or to purchase power so as to provide electricity to its retail customers at the lowest fuel cost reasonably possible.
“Mr. Swez testified that beginning in late February 2012, a coal price decrement was applied to the dispatch costs of Gibson Units 1-5, Wabash River Units 2-6, and Cayuga Units 1-2 to correctly reflect the economics of additional costs associated with avoiding or reducing surplus coal inventories. He stated that, to the extent that the price decrement results in units being dispatched that otherwise would not be, coal coming to the station is consumed, other potential costs are avoided, and customers ultimately benefit because higher cost alternatives to manage the inventory are avoided. Mr. Swez testified the price decrement is working as designed as Applicant initially saw a significant increase in generation output from these units.
“As the level of the coal price decrement has decreased over time, the impact of the decrement has lessened. Mr. Swez testified that during 2015, the coal price decrement was zero until a non-zero coal price decrement was initiated for Cayuga 1-2 and Gibson 1-5 on July 28, 2015. In addition, on November 11, 2015, the coal price decrement was initiated for Wabash River 6.
“Mr. Swez testified that Wabash River units 2-5, which will be retired by April 15, 2016, were previously granted a one-year extension of the April 2015 Mercury and Air Toxics Standards (‘MATS’) rule compliance date due to the need for at least two of the four units to operate at any given time for transmission system reliability. He explained that in consideration of the minimization of MATS related emissions during the extension period and the operational complexities of units at this point in the lifecycle, Applicant is employing a MISO offer strategy which prioritizes availability and operation of the units to solve transmission reliability constraints. As a result, Applicant will generally be holding two of the four of Wabash River units 2-5 in reserve shutdown available for emergency operation only. He testified that the number of units in reserve versus operation may vary depending on unit availability, the needs of the transmission system, and energy prices in the MISO market. Mr. Swez testified that given the units are nearing the end of their useful lives, Applicant’s goal will be to maintain the availability of the generating units primarily for transmission reliability support, and specifically to maintain availability during peak demand times such as summer and winter periods when transmission related events and/or energy prices could have the highest customer impact.
“Based upon the evidence presented we find Applicant’s participation in the energy and ancillary services markets constituted reasonable efforts to generate or purchase power, or both, to serve its retail customers at the lowest fuel cost reasonably possible.”