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Coal price volatility to increase in coming years: Ameren Missouri

Louisville, Kentucky — While the market price of coal remains volatile, Ameren Missouri expects even more price uncertainty in several years as the amount of its coal that is price hedged declines significantly, according to a new regulatory filing.

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Andrew Meyer, director of asset management & trading for the subsidiary of St. Louis-based Ameren Corp., told the Missouri Public Service Commission Friday the utility has experienced major changes in its coal costs and volumes in recent years.

Between 2011 and 2015, Ameren Missouri burned between 17.6 million and 22.1 million st/year of low-sulfur Powder River Basin coal in its four baseload coal plants: 2,372 MW Labadie, 1,180 MW Rush Island, 970 MW Sioux and 831 MW Meramec.

During that five-year period, "we can see very large differences" in total energy output and coal costs, he said.

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"The megawatt-hour change from 2011 to 2012 alone was 14%, while 2015 also saw a 9% decrease from 2014," Meyer said. "Coal costs from 2012 to 2013 increased 11%, while they decreased 8% in 2015 from 2014."

Over the period, Meyer said the utility saw annual coal-cost reductions of as much as about $61 million and increases as high as about $67 million. For instance, the forward price of 2016, 8,800 Btu/lb PRB coal fell almost $50% ($9/st) over four years.

Meyer said the dispatch of Ameren Missouri's coal plants is based on the spot price of coal, and fluctuations in the coal price affect its unit dispatch "which affects the volume of coal that is burned. The spot price of coal is not driven solely by domestic market factors, including environmental regulations and increased energy efficiency, but it is also driven in large part by external factors, such as ... demand from other nations."

Although it is true that Ameren Missouri has relatively greater price certainty for its delivered coal costs in the near term than for its other commodities, he said, "the volume of coal that is price-hedged declines significantly in the next few years. Consequently, the company has increasingly less certainty regarding the price of its coal in the future."

In addition, the utility also faces "price uncertainty related to rail surcharge costs," he added.

Rail transportation costs typically are a function of supply and demand for rail services, but while reduced coal demand nationwide may place pressure on rail prices, "competing rail uses may more than offset this," he said.

Meyer's testimony came in Ameren Missouri's newly filed request for a $206 million/year electric rate increase. The PSC is not expected to issue a final order until sometime in 2017.

--Bob Matyi, newsdesk@platts.com
--Edited by Valarie Jackson, valarie.jackson@spglobal.com