Coal Cost Pushes Power Bills

December 17, 2004
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GRAND HAVEN — Rising coal prices, resulting from rising global demand, has one municipal utility in West Michigan charging more for electricity and another may follow suit in 2005.

Municipal power companies in Holland and Grand Haven say fuel costs for coal-fired power plants are considerably higher now than last year and that corresponding rate adjustments are the result.

The Holland Board of Public Works now pays 30 percent more than it paid a year ago for coal shipments for which it contracted for next spring and summer. The cost increase forced the municipal utility to recently forego part of a seasonal rate decrease.

The Holland BPW burns 170,000 tons of coal annually at its 60-megawatt coal-fired James DeYoung power plant and also generates power with a natural gas-fired combustion turbine station. Traditionally it lowers electric rates by $0.01 per kilowatt-hour during the November to April period when electrical demand is lowest. It then moves rates back up for the summer when demand peaks.

Holland BPW General Manager Tim Morawski said that with coal prices up significantly, the utility’s directors recently had to allocate an additional $3.15 million to pay for coal shipments. The expense prevented them from implementing the full seasonal rate adjustment.

Directors approved raising rates by $0.003 per kilowatt-hour for the November to April period, an increase of about 5 percent, resulting in a net downward seasonal rate adjustment of $0.007.

Morawski believes coal prices are becoming volatile after decades of stability, possibly leading to wide year-to-year fluctuations in electric rates. Getting much of the blame for the situation is emerging global demand for coal, particularly with large exports now going to China for steel production.

“The supply and demand curve is being pushed out to its maximum performance and that will lead to greater volatility,” Morawski said. “This is going to become the norm. We’re just not going to see stable prices the way we have in the past.”

The Holland BPW is far from alone.

Grand Haven’s Board of Light and Power may adjust rates in mid-2005 after six years of holding rates steady. Under an existing one-year contract, the utility will pay $7.9 million for coal for the 2005 shipping season, up from $5.8 million in 2004.

“We are probably going to need to do something with our rates in 2005,” said Annette Allen, general manager of the Grand Haven BLP.

The municipal utility burns 170,000 tons of coal a year at its 72-megawatt J.B. Sims power plant.

Like Morawski, Allen sees the electric industry in a volatile period for coal prices that will affect customer rates, although she’s unsure where prices may go — or whether they’ll rise or fall after the current one-year coal supply contract ends.

“We don’t know where we are in that cycle of the market,” she said. “It’s hard to look in that second year of the market.”

Consumers Energy Co. presently has long-term coal contracts in place through 2006, largely negating the present market volatility, spokesman Jeff Holyfield said.

The coal supply contracts, totaling $154 million, run through 2006. Coal transportation contracts, totaling $92 million, run through 2007. The long-term coal supply contracts have accounted for 60 to 90 percent of Consumers Energy’s annual coal requirements over the last 10 years, Holyfield said.

Serving 1.7 million electric customers statewide, including more than 440,000 in Kent, Ottawa, Muskegon and Allegan counties, Consumers Energy’s generating base consists of coal, natural gas, hydro and nuclear power plants.

While coal-fired plants account for the largest portion of the company’s 6,400-megawatt generating capacity, 55 percent, Holyfield said the firm’s generating diversity is a hedge against coal price volatility.

“That way we’re not over-relying on one fuel,” he said. “If you use one source of fuel for your generating needs, that makes you susceptible to price increases in that commodity.”

Still, Holyfield said, rising coal prices are a factor in a recent rate plan that Consumer Energy filed with the Michigan Public Service Commission that seeks a $0.0035 increase in electric rates.     

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