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Low coal stocks forced Consumers to curtail generation last year: Michigan attorney general

Low coal stockpiles at Consumers Energy forced the utility to curtail generation at its coal-fired power plants last year, in particular the 1,450-MW JH Campbell baseload facility, costing its customers millions of dollars, Michigan's attorney general claims.

The CMS Energy subsidiary entered the winter of 2014 with far less coal on hand than needed to adequately supply its 1.8 million electric customers, Sebastian Coppola, an independent business consultant representing Attorney General Bill Schuette said in testimony filed last week with the Michigan Public Service Commission.

Coppola, citing information from the Jackson-based utility, said Consumers had to curtail generation at some of its coal plants on multiple days in the winter, summer and fall of 2014 "in order to avoid a complete shutdown of those plants due to insufficient coal stocks at those plants."

The generation curtailment totaled 825,000 MWh during that period, he said.

"As a result of curtailing power generation, the company missed opportunities to sell power and at times had to purchase additional power to meet customer demand," Coppola said.

Generation at Campbell, Consumers' largest power plant, has averaged about 8.5 million MWh annually, spokesman Dan Bishop said Monday. Therefore, the curtailment referenced by the attorney general amounted to less than 1% of that total.

Consumers has estimated the cost of the generation curtailments last year at $18.3 million, and Schuette is asking the PSC to disallow $15.7 million in costs in its current power supply cost recovery case.

WINTER RAIL ISSUES

Many coal-burning electric utilities, especially in the Upper Midwest, experienced rail transportation difficulties over the past two winters, making it difficult to replenish inventories. The problem was exacerbated by extremely cold weather, mainly in January and February of both years.

Bishop said Consumers disagrees with the attorney general's assessment but did not say what caused Consumers' low coal stockpiles.

Coppola, though, suggested the utility was not prudent in rebuilding its coal inventory.

"My assessment is that the company failed to take reasonable steps to prevent its coal inventories from declining to dangerous levels leading into the winter of 2014," he said. "This was particularly more acute with regard to the coal inventory at the Campbell power plant. Simply focusing at bringing the inventory level at this plant to near its high target level would have resolved at least the power generation curtailments in the winter and summer of 2014."

Starting in 2013, "total system coal inventory levels began to decline finishing the year at barely above the low end of the targeted level," Coppola added. "The Campbell plant in particular finished 2013 with coal stocks of 350,829 tons, or 25% below the low end target of 473,750 tons."

According to Coppola, Consumers could have avoided power curtailments and $12.4 million in higher net power costs last winter if it had procured an additional 70,000 tons of coal. For the summer months, an additional 181,000 tons of coal "would have avoided those curtailments at a cost savings at $3.3 million."

For these two periods procuring delivery of only an additional 251,000 tons by the beginning of 2014 would have avoided $15.7 million of the $18.3 million net incremental power costs incurred during 2014, Coppola said.

"The total required incremental coal supply to avoid all power curtailments if estimated at approximately 475,000 tons," he said.

Consumers has unveiled plans to close its "classic seven" older coal units, totaling more than 950 MW, by April 2016. But the utility intends to continue operating the three-unit Campbell plant, located at West Olive, Michigan.

source: http://www.platts.com