Run-Up in Coal Prices Benefit Those Utilities with Coal Assets

Implications:     Bituminous coal prices have soared over 100% in the last year.  This is obviously bad news to electric consumers dependent upon utilities with a large exposure to coal-fired generation.  The run-up in coal prices could be a benefit to some utilities.

Analysis:     A utility can (and often does) have regulated and unregulated business lines.  Energy provided to customers is regulated with the utility given an allowed rate of return from the Public Utility Commission.  The unregulated are not governed in that manner; rather are “market”. 

     The price run-up on coal can benefit those utilities with unregulated coal assets.  Ironically, one of those utilities with unregulated coal assets is Vectren Corporation that was written about in the linked article.  There was no mention in the article that Vectren Corporation had coal assets; let alone unregulated coal assets. 

     Vectren’s coal mining group mines and sells coal to the company’s utility operations and to third parties through its wholly owned subsidiary Vectren Fuels, Inc (Fuels).  Vectren Fuels, Inc. may sell to the utility’s coal plants at the current high market numbers and such costs of the coal would be passed along to customers through rates as long as the utility demonstrated prudency and it was conducted in an arms-length transaction manner.  This could be demonstrated by the regulated utility formally bidding the coal to objectively demonstrate the market price of the coal and to show it did not pay above market for the coal.