POWER February 2017 - 35

FUELS
2. Robert Murray, CEO of Murray
Energy Corp. Murray mortgaged everything
he owned to buy a single continuous
mining operation in 1988. Today his company
is the largest underground coal mining company
in the U.S. Courtesy: Murray Energy
Corp.
" There are many ways to do it, " Murray
told POWER in an exclusive interview.
" We've been at it now for several years. "
For example, Murray said his company has
worked with several very large power plants
that were not being dispatched consistently.
Murray agreed to reduce the purchase price
for his coal so that the plants would be more
competitive in the market. As part of the deal,
the plants are obligated to share some of their
profits with Murray Energy. Murray said his
company is getting 30% of the earnings from
425 MW that was not committed to the grid
at one plant, while it participates on a sliding
scale at another plant.
" We become partners with the power
company in these contracts, " Murray said.
" They're all different. "
Of course, Murray still offers physical sale
agreements-the more conventional type of
contract-if that's what the buyer wants, but
he said power off-take agreements and price
participation agreements seem to provide
more flexibility for buyers and less potential
for default. Murray doesn't see the situation
changing anytime soon.
the company's high-level initiatives include:
■ Increasing the percentage of spot coal purchases.
■
Targeting seasonal purchases and deliveries
to align with high-demand periods.
■ Raising inventory targets for marginal
coal units.
■ Requiring flexibility in new contracts,
such as the ability to vary volume by
±20% on a quarterly basis.
■ Looking for transactions that tie natural
gas and coal purchases together.
■ Developing an integrated fuel procurement
strategy team with key stakeholders
from various departments.
■ Improving analytical tools that forecast
fuel needs.
Common Struggles
At least some of the mining companies understand
the problem. For the most part, they
feel the same pain that generators do and
have a self-interest in seeing coal-fired plants
succeed.
" We recognize that the landscape has
changed and, in response, we have an open
dialogue with our customers and the entire
supply chain to help all parties meet their objectives, "
a spokesperson for Alpha Natural
Resources, a company with 18 active mines
in Kentucky and West Virginia, said.
Robert Murray (Figure 2), CEO of Murray
Energy Corp., the largest underground
coal mining company in the U.S., said his
company is doing some very unique things
to market its coal.
February 2017 | POWER
" That has to continue going forward. It will
continue going forward, " he said. " I don't look
for the [coal] markets to improve. They'll stay
about where they are at best. " (For more of
Murray's comments on the future of the coal
industry under the new administration, see
" Coal Magnate Tells Trump to Lower His Expectations "
at powermag.com.)
3. Pitt 8. Homer City's ready-to-burn coal
comes from Pittsburgh Seam #8. Courtesy:
CONSOL Energy Inc.
ton annual usage. It said the facility receives
three types of coal: scrubber, raw, and readyto-burn
(RTB). Scrubber coal made up the
majority of 2015 usage (52.4%), with raw
and RTB (Figure 3), split about evenly, making
up the rest. Scrubber coal costs about
30% less than RTB coal, but it emits nearly
twice the SO2
ing) emits the least SO2
/MMBtu. Raw coal (post-wash/MMBtu.
The
facility has numerous transportation
options, which it said creates competition.
Most mines supplying Homer City are within
40 miles of the plant, and a number of them
are inside a 10-mile radius. Consequently,
truck transportation rates are often less than
$3/ton. The Buffalo and Pittsburgh Railroad
provides direct rail service to the plant, while
Norfolk Southern Railroad offers a combination
of rail and truck service, adding even
more flexibility for the station.
" I don't look for the [coal] markets to improve.
They'll stay about where they are at
best. "
-Robert Murray, CEO Murray Energy Corp.
Let's Make a Deal
But even when generators and mining companies
attempt to settle shortfalls agreeably,
things can go awry. Homer City Generating
Station offers a case in point.
Homer City is a three-unit coal-fired power
plant with aggregate net capacity of 1,884
MW, located in Indiana County, Pa., roughly
45 miles northeast of Pittsburgh. The facility
is a PJM capacity resource and primarily
sells its capacity through PJM's annual
capacity auction, but it also has the ability
to sell energy in the New York Independent
System Operator (NYISO) wholesale market.
In
an August 2016 presentation, Homer
City noted that its fuel strategy is to procure
multiple coal types to meet its 4 to 5 million
www.powermag.com
Homer City Generation and its owners,
which include GE Capital, are embroiled in a
court battle with one of the plant's coal suppliers.
CONSOL Pennsylvania Coal Co. filed
a complaint in the Court of Common Pleas
of Allegheny County, Pa., on July 8, 2016,
alleging breach of contract by Homer City.
According to CONSOL, Homer City entered
into a coal sales agreement with the company
on January 6, 2014. The contract was to
run through December 31, 2015. However,
when Homer City fell behind the delivery
schedule prescribed by the contract, an extension
agreement was negotiated, extending the
purchase period for two additional years.
The extension agreement was said to have
mutually agreed upon targets with monthly
delivery schedules running from October 1,
35
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POWER February 2017

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