The Columbus, Ohio-based utility company entered the year with expectations of burning 55 to 56 million tons in 2014, comparable to the 55 million tons it consumed last year. But the so-called “polar vortex” in January, which resulted in some of the coldest temperatures in two decades in many Midwestern and Eastern states, rather dramatically altered AEP’s coal supply forecast. AEP pressed into service several of its older coal-burning generating units targeted for retirement in a few years to comply with new federal Environmental Protection Agency (EPA) rules. Indeed, a full 87% of those soon-to-be-shuttered coal units needed to operate to help maintain electric grid reliability when the mercury plummeted across the region.
Fast forward a few months, and the result is good news for coal producers who just a few years ago were supplying the company with more than 70 million tons annually. AEP buys coal from several basins, including Central Appalachia, Northern Appalachia and the Powder River Basin.
Also contributing to the higher coal burn are wholesale power prices that have continued to inch upward after temporarily spiking early this year. Armed with the revised information, AEP has altered its coal burn forecast for 2014.
“At this point, we expect our coal burn in 2014 to be about 10-15% higher than our 2013 burn of 55 million tons,” AEP spokeswoman Tammy Ridout said in June. That projection is expected to hold true especially if power prices remain strong in the latter half of this year, she added.
AEP is one of many electric utilities that released formal requests for proposals this year to purchase more coal and lock in prices for the next year or two. In AEP’s case, it sought bids to buy up to 500,000 tons of Illinois Basin (IB) spot coal starting in July and running through the end of this year, and as much as another 500,000 tons of IB spot coal for calendar year 2015.
In late June, AEP spokeswoman Melissa McHenry confirmed her company had signed contracts to buy most of what it needed from the competitive solicitation. She declined to identify the coal suppliers or reveal their individual contracted amounts.
Also in June, AEP, like other coal-burning utilities, was still evaluating the EPA’s proposed greenhouse gas rule for existing power plants. AEP already has announced plans to retire about 6,600 megawatts (MW) of older coal-fired generation capacity over the next several years to meet the federal agency’s other new rules, in particular its Mercury and Air Toxics Standards rule. More than 2,000 MW of those retirements are scheduled for Ohio, AEP’s home and one of the states hardest hit by the polar vortex.
Altogether, AEP owns approximately 38,000 MW of generation capacity, with coal accounting for about 23,000 MW of that total. In 2012, the company relied on coal for 73% of its electricity.