J. Hord Armstrong III, chairman and CEO of the St. Louis-based company, said some electric utilities may be rethinking retirement plans for smaller — 500 megawatts or less — coal-burning generating units in the wake of the winter of 2013-2014, which produced the coldest temperatures in much of the Midwest and eastern U.S. in two decades.
Armstrong did not identify the utilities in question during a March 25 conference call with analysts to discuss the company’s 2013 earnings. Last year, more than 75% of Armstrong Coal’s sales were derived from two customers, Louisville Gas & Electric Co. and the Tennessee Valley Authority.
“On balance,” Armstrong said, “a number of our customers are rethinking their plans to close 500 megawatt or less plants, related to the price and availability of [natural] gas.” Many utilities switched back to coal from gas during the winter as gas prices soared, in some cases more than doubling the price of coal. Gas prices are predicted to remain above $4/mmBtu for the balance of this year.
The price Armstrong Coal received for its coal in 2013 averaged $44.82/ton, about flat compared to its average price of $44.84/ton in 2012. For 2014, however, the company already has 9.6 million tons of production committed at an average price of $46.79/ton, according to Armstrong. In all, Armstrong Coal anticipates sales this year of 9.8 million tons, leaving it with an open position of only 200,000 tons at the end of March.
“We’re virtually sold out for 2014,” noted company President Martin Wilson. “We expect pricing to be better this year due to some new deals we signed and some restructuring we completed last year.”
In response to a question, Armstrong said the company is not particularly concerned about TVA’s plans to retire two of the 2,201-megawatt Paradise steam plant units near Drakesboro in Muhlenberg County to comply with new federal Environmental Protection Agency rules. The plant’s largest unit, which generates more than 1,100 megawatts, will remain in operation.
“We have two contracts with TVA, one of which is in reopener discussions right now,” he said. “We obviously have a very good position related to Paradise at all of our mines compared to their other suppliers. We’ll find out more as we negotiate our contract for the future. We feel pretty good about it, relative to that plant, even if they do shut down those two units.” All of Armstrong Coal’s existing mines are within 30 to 40 miles from Paradise.