Indiana URC approves latest Duke Energy Indiana fuel costs

The Indiana Utility Regulatory Commission on June 29 approved an April 28 application from Duke Energy Indiana LLC for a change in its fuel adjustment charge (FAC) to be applicable during the billing cycles of July, August, and September 2016 for electric and steam service and to update monthly benchmarks for purchased power costs.

Said the approval order about testimony from a Duke fuels official: “Mr. Brett Phipps testified regarding Applicant’s coal procurement practices and its coal inventories. Mr. Phipps testified that as of February 29, 2016, coal inventories were approximately 4,093,665 tons (or 66 days of coal supply), which is lower than what was reported in FAC107 due to a number of factors, including drawing down the inventory at Wabash River in planned amounts in preparation for the retirement of units 2 through 5 on April 15, 2016, and suspension of the operation of unit 6 on that same date, and a reduction of inventory due to the utilization of the coal price decrement.

“Mr. Phipps added that Applicant continues to evaluate a host of options in order to effectively manage its 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, resale 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 December 2015 through February 2016 the price Applicant paid for delivered natural gas at its gas burning stations was between $1.48 per million BTU and $4.00 per million BTU.

“The [Office of Utility Consumer Counselor] witness Mr. Michael Eckert testified regarding Applicant’s coal inventory. He testified that Applicant has met with its suppliers, determined maximum storage at its facilities, is exploring options to resell surplus coal, and decrement coal pricing. He recommended Applicant should continue to update the Commission on its coal inventory and its use of decrement pricing.

“Mr. Swez testified that in February 2016, the Edwardsport IGCC Generating Station produced the most generation in any month since being declared commercial. During December 2015 and January 2016, the station produced near record amounts of generation. He testified that when the unit’s gasifiers are available or 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 every reasonable effort 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 were retired on April 15, 2016. These units 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 employed a MISO offer strategy that prioritized availability and operation of the units to solve transmission reliability constraints. As a result, Applicant generally held 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 varied depending on unit availability, the needs of the transmission system, and energy prices in the MISO market.

“Mr. Swez testified that Applicant’s goal was 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 had 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.”

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.