Southern’s new coal retirements a blow for Alabama and … Colombia?

Decisions by Southern Co. subsidiaries Alabama Power Co. and Mississippi Power Co. to retire coal units and convert others to gas will have a muted impact on U.S. coal producers due to the amount of imported coal the plants burned, according to an SNL Energy analysis of coal delivery data to the plants.

In a settlement with the Sierra Club, Mississippi Power on Aug. 4 agreed to stop burning coal at units at its Jack Watson plant in Mississippi and Greene County plant in Alabama. Alabama Power, the co-owner of the Greene County plant, already announced Aug. 1 that it planned to convert Greene County to burn natural gas starting in 2016.

Alabama Power also will be retiring units 6 and 7 at the Gorgas plant, each at 125 MW of nameplate capacity, according to SNL Energy data. Two units at Barry, each 153.1 MW, will be modified to run on gas instead of coal. The 272-MW unit 3 at Barry also will be converted to gas.

Barry exclusively burned Colombian coal supplied by the Drummond International LLC unit of Alabama-based Drummond Coal Co. in 2013 and 2014, part of a surge in imports in the U.S. as foreign coal becomes more competitive with Central Appalachian coal. Gorgas and Greene County also took Colombian coal in 2014 as Southern increased its purchases from the South American country by nearly 500,000 tons in the first half of the year, a spokeswoman for the utility said.

Through April 2014, Colombia supplied about 13.4% of the coal delivered to the Southern plants with units slated to retire or be converted. Alabama thermal coal mines, part of Southern Appalachia, were hit hardest by the retirements based on 2014 deliveries.

Gorgas took coal during the first five months of 2014 from the Fleetwood No. 1 surface mine in Tuscaloosa County, Ala., operated by Black Warrior Minerals Inc. A Black Warrior official did not respond to a request for comment. According to SNL Energy data, Gorgas was the only plant served by the Fleetwood No. 1 mine.

Greene County took coal from a group of Alabama mines, an official with Alabama Power said, not Walter Energy Inc.‘s non-producing East Brookwood mine, as it is listed in EIA-923 fuel delivery data. Peabody Energy Corp.‘s massive North Antelope Rochelle mine in the Powder River Basin served the plant in 2013.

The Jack Watson plant took coal from Foresight Energy LP‘s Mach No. 1 mine in Illinois in 2014, according to the data. The plant took more than 1 million tons from Mach No. 1 in 2013, making its impending retirement a rare blow for the company founded by billionaire Chris Cline.

Still, during a second-quarter earnings call, Foresight President and CEO Michael Beyer touted Southern’s fleet of coal plants as a driver of the shift in demand from Central Appalachian coal to Illinois Basin coal. Foresight’s MC No. 1 mine, for example, serves Southern subsidiary Georgia Power Co.‘s large Bowen power plant in Georgia, according to SNL Energy data.

“To the extent that we are selling our coal into the Southeast into the Southern Company system, for example, we are displacing Central App to a large degree,” Beyer said. “A lot of the Southern Company plants have become scrubbed the past two years and there were still a lot of legacy Central App suppliers going into that under legacy contracts. I think some of those are rolling off, and we are perhaps displacing some of that.”

Southern has said it plans to all but stop burning Central Appalachian coal by 2016. Beyer said the influx of Foresight coal moving south is not necessarily displacing other Illinois Basin coal.

“We are displacing others. But Foresight itself is not really displacing coal in the Illinois Basin. The basin itself is continuing to grow,” he said. “I think the majority of the producers in the Illinois Basin are doing well. I think we are capturing market at the expense of Central App for the most part.”

24 0