Louisville Gas and Electric and Kentucky Utilities are terminating the company’s contract with coal producer Consol Energy.
This news in and of itself isn’t huge—to put it in perspective, LG&E/KU burns 16 million tons of coal a year, and the company’s contract with Consol was only for 500,000 tons. But it was a good excuse to take a look at how the utility uses coal, and how its usage might change in the future.
LG&E has contracts with coal companies to supply coal, and spokesman Brian Phillips says the company periodically reviews those contracts to make sure they get the best price. The Public Service Commission looks at the contracts, too. If a contract ends, LG&E issues a Request for Proposals, and accepts bids to provide the necessary tonnage.
Phillips says the company spends $850 million every year on the 16 million tons of coal it currently needs for its electricity generation, which works out to about $53 dollars a ton. That’s about what the company’s contract with Consol was for, but based on market conditions, Phillips said LG&E wanted to pay less and Consol wouldn’t budge.
Come 2016, when LG&E retires 800 mW of coal-fired generation (the Cane Run, Tyrone and Green River plants), the company will reduce its coal consumption by 1.5 million tons a year.
Right now, Phillips says the company buys almost all its coal from the Illinois basin, where coal has been selling just under $48 a ton (which doesn’t include transportation). About 35 percent of the coal produced from that area in 2010 was from western Kentucky. The rest of the coal comes from Illinois and Indiana. Consol doesn’t seem to have any mines in the Illinois Basin—the company operates 12 coal mines in Pennsylvania, West Virginia, Virginia and Utah.