Weak natgas pushes Florida utility to sell tons of coal

Fri Feb 10, 2012 10:13am EST

* Gas displacing record amount of coal-fired power

* Lakeland uses gas plant for baseload power, not coal

* Lakeland sells coal to avoid railroad penalties

By Scott DiSavino

Feb 10 (Reuters) - The City of Lakeland in Florida agreed to sell surplus coal not needed to fuel one of its coal-fired power plants to a cement company as weak natural gas prices have made it uneconomic to continue burning the coal.

The 345-megawatt coal-fired Unit 3 at the McIntosh power plant has traditionally provided the city's baseload power.

But recently with gas prices so cheap, the municipal utility is using the newer combined-cycle, natural gas-fired 369-MW McIntosh 5 to provide the city's around-the-clock power needs, Lakeland Electric spokesman Kevin Cook told Reuters.

McIntosh 3 entered service in 1982, while the units at McIntosh 5 entered service in 2001 and 2002.

Natural gas-fired power plants are displacing coal-fired generation in record numbers across the country because gas prices are near a 10-year low due to record production from shale gas, making gas the cheaper fuel.

Cook said the sale of about 69,000 tons of coal from its McIntosh 3 coal plant to a local cement company would help the municipal utility avoid a penalty of more than $1 million.

The utility has a five-year contract with railroad CSX to take 700,000 tons of coal per year but only expects to need about 500,000 tons this year. The railroad transportation contract, which was negotiated when coal was much cheaper than natural gas, runs through the end of 2013.

The contract allows CSX to impose a fine of $12 per ton for every ton below 700,000 that Lakeland takes.

Lakeland is not the only utility dealing with coal transportation issues due to the weak natural gas prices. Energy analysts say power companies up and down the East Coast and in the Midwest are also burning more gas and less coal and dealing with coal transportation contracts.

Lakeland has not paid any fines yet, but said it is running out of space to store the extra coal. So the contract to sell some of the coal to the cement company, American Cement Co, will help the utility meet its minimum coal tonnage obligations with CSX.

American Cement uses the coal to produce cement.

Lakeland buys its coal from the Illinois basin for about $68 a ton and also from the Central Appalachia region for a bit more. The utility also pays about another $35 a ton to CSX for transportation.

Lakeland said on its website it would sell the cement company about 69,000 tons of Illinois basin coal for $90 a ton and expects to generate a one-time revenue of about $100,000.

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