Coal Supply Cuts Signal Challenging Winter for Utilities

NRG Energy Inc., the largest publicly traded U.S. independent power producer, faces challenges supplying grids with electricity this winter because of reduced stockpiles at its coal plants, Chief Executive Officer David Crane said.

Last winter’s arctic blast known as the polar vortex has already put generators on alert. Now, as rail operators are focused on oil deliveries amid the U.S. shale boom, it has been difficult for Princeton, New Jersey-based NRG to move coal to plants, Crane said in an interview at Bloomberg News headquarters in New York. That may mean tight supply again during the cold months for the grids NRG serves from California to the Northeast.

“Coal piles around the country have gotten to levels that don’t make us 100 percent comfortable,” Crane said.

Coal stocks fell 28 percent to 103.7 million tons in July from a year earlier, reducing the number of days of fuel supply to 39 from 57, according to the most recent U.S. Energy Information Administration data available. Some coal-fired power producers were forced to take deliveries by truck and reduce or idle output as they competed for rail space with petroleum products and a record grain harvest, the government said.

Coal Prices

Coal from the Powder River Basin in Wyoming has risen 5.8 percent to $10.90 a ton in the past year, over-the-counter data compiled by Bloomberg show. Price gains have been limited on concern by utilities about entering new contracts and not being confident that they can receive the rail shipments, analysts from Morgan Stanley said in an Oct. 7 conference call with investors.

NRG has about 53,000 megawatts of power production capacity. It supplies all of the major U.S. grids, including PJM Interconnection LLC, New York Independent System Operator Inc., ISO New England Inc., Electric Reliability Council of Texas Inc. and California Independent System Operator Corp.

NRG is moving quickly to make preparations for the winter to limit any disruptions as much as possible. Crane said the company’s dual-fuel plants in the Northeast are “fully loaded” with alternative fuel, including oil. He said the company was “scared to death” by the polar vortex and is hoping there’s no repeat.

Natural gas flows to power plants were interrupted to generators in the Northeast during last winter’s vortex, prompting the NYISO to ask NRG to run its oil-fired plant in Oswego, New York, on a weekend, Crane said. The Oswego power plant had operated only five days in the past 10 years and can only receive oil barge shipments before winter when the St. Lawrence Seaway is shut, Crane said.

Growth Outlook

On-peak electricity for delivery to New York City in January was valued at $128.05 a megawatt-hour at 11:57 a.m. today, up 75 percent from a year earlier, according to Bloomberg Fair Value prices.

NRG, which makes money by selling electricity in wholesale markets and directly through retail customers, also has growth on its mind.

The economics of an NRG project to capture heat-trapping carbon dioxide from a coal plant and use it to stimulate production from old oil fields in eastern Texas “work until oil is sort of in the $60 to $70 range,” Crane said.

The $1 billion project, called Petra Nova, is a retrofit of an NRG coal plant that will pump carbon dioxide from the complex deep into a nearby oil field that it partially owns along with JX Nippon Oil & Gas Exploration Corp. and Hilcorp Energy Co. NRG has invested $300 million in the effort.

“This an area where I’m extremely bullish on disruptive technologies being deployed,” Crane said.

Crane said he believes “close to all” U.S. coal plants will be gone by 2050 because of regulatory and economic pressure. That is another reason the company has been trying to diversify.

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