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Issue: 1094 Date: 8/11/2011
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Ameren, Peabody Energy ink their largest coal deal ever
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| The North Antelope Rochelle Mine in Wyoming is one of the largest and most productive mines in the nation. |
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Two St. Louis giants, Ameren and Peabody Energy said Thursday they entered into the largest contract ever between the two companies. It calls for Peabody to provide 91 million tons of low sulfur coal to serve multiple electricity generating plants in Missouri through 2017.
Ameren said the deal will allow the utility to avoid customer electric rate increases of 15 percent to 20 percent by 2017. In July, Missouri regulators approved a $172 million electric rate increase for Ameren Missouri.
Ameren said the deal with Peabody complies with a new stringent federal rule that requires significant reductions in sulfur dioxide (SO2) emissions. The new federal regulation, the Cross State Air Pollution Rule, will require reductions of SO2 emissions by 73 percent and nitrogen oxide emissions by 54 percent from 2005 levels.
Ameren Missouri President and CEO Warner Baxter said the deal will allow Ameren to avoid $1 billion in costs for various technologies needed to comply with the new environmental standards and defer another $650 million to $850 million in costs for plant "scrubbers," or air filtration equipment. Ameren has already spent $600 million to install scrubbers, which eliminate nearly 100 percent of all sulfur dioxide emissions, at its Sioux Plant.
Buying regular coal, instead of the "ultra low sulfur coal" would have required Ameren to buy more of the expensive emission-fighting technology sooner, Baxter said. In any given year, Ameren typically burns about 20 million to 22 million tons of coal.
This contract will allow us to avoid significant levels of environmental expenditures by 2014 as well as defer the installation of costly clean air filtration equipment well beyond 2017 to meet the federal government’s new stringent standards for sulfur dioxide emissions reductions,?Baxter said. “This strategy will avoid rate increases that would have been necessary just to meet the SO2 reduction requirements. Those would have been in the range of 15 to 20 percent by 2017 for our customers.?
While there are savings with this new deal, Baxter said Ameren anticipates that environmental and compliance costs will continue to rise. Couple that with Missouri's regulatory lag for approving rate increases after Ameren has already invested in its infrastructure, and the company will be forced to continue to seek periodic rate increases. Those hikes just won't be as large as they would have been without the deal with Peabody, according to Baxter.
Peabody said it will source coal from its Powder River Basin operations in Wyoming to serve its contract with Ameren, which will last at least six years, with opportunities for extension.
The companies declined to disclose the financial terms of the deal.
This contract represents a major commitment between the largest Powder River Basin producer and the largest Powder River Basin customer? Peabody Chairman and Chief Executive Gregory Boyce said. St. Louis-based Peabody Energy (NYSE: BTU) is the world largest private-sector coal company with nearly $7 billion in revenue.
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