Tennessee Valley Authority to Approve Plans to Buy Kentucky Coal for Plants

- The Tennessee Valley Authority will award a record $2.4 billion of contracts today to supply its second biggest plant with coal from its own service territory over the next 20 years.

TVA directors are expected today to approve plans to buy high- sulfur coal primarily from Western Kentucky to fuel its Paradise Fossil Plant. The federal utility is installing another scrubber and selective catalytic reduction devices at the Drakesboro, Ky., plant over the next three years to allow it to burn coal from the Illinois basin region of Western Kentucky and southern Indiana and Illinois.

Currently, TVA burns a mixture of high-sulfur Kentucky coal in the two units at Paradise which already have scrubbers with low- sulfur coal hauled from Wyoming in the other unit.

"We're making major investments in pollution control equipment at Paradise, which will allow us to burn the cheaper, high-sulfur coal from the region," said Richard Rea, TVA's manager of fossil fuel acquisitions.

"We agreed to put these contracts out for a longer period to help some of these coal suppliers to get the assurances to open new mines or reactivate old mines. These are the best prices available in the market for this type of arrangement."

The contracts with Alliance Coal LLC, Resource Sales Inc. and SCB Coal stretch out until 2024 at a maximum cost of $2.4 billion. The contracts are the longest negotiated by TVA in over 20 years. But TVA officials said the longer contract terms are needed to help spur investments in coal mining activities in the Illinois basin.

"We have been urging TVA to do this for years and this is a very positive move forward for our Western Kentucky suppliers," said William J. Grable, executive director of the Kentucky Coal Council. "There has been a lot of consolidation and closings of mines in Western Kentucky, but this should help give enough time and volume to sustain and revive some of these operations."

Mr. Grable said coal production in Kentucky has dropped over the past few years. The Blue Grass state, once the nation's biggest coal producing state and one of seven states served by TVA, now trails Wyoming and West Virginia in total coal production. TVA built the Paradise plant from 1959 to 1970 in the midst of the Western Kentucky coal fields.

"This is the type of coal this plant was designed to burn," Mr. Grable said. "These contracts are important in underscoring the fact that coal is going to remain a dominant source of energy in our country for many, many years."

Mr. Grable said the United States has a 250-year supply of coal at current consumption rates.

With a capacity of 2,273 megawatts, Paradise in second only to the Cumberland Fossil Plant in electricity generation among TVA power plants.

TVA installed two scrubbers at Paradise in the 1990s and is installing a third scrubber by 2006 under a $1.5 billion scrubber program at four TVA plants by Advatech LLC. The scrubber project under way at Paradise is the first of five additional scrubbing devices planned over the next decade by TVA.

"By the end of the decade, TVA will have invested more than $5 billion since the 1970s to achieve a 75 percent reduction of nitrogen oxides during the summer ozone season and a 85 percent annual reduction of sulfur dioxide emissions," TVA spokeswoman Barbara Martocci said.

Paradise burns about 7 million tons of coal a year, TVA spokesman Gil Francis said.

Stephen Smith, executive director of the Knoxville-based environmental group known as the Southern Alliance for Clean Energy, said his group recognizes that TVA will likely continue to rely upon coal-fired electricity generation for several more decades.

"TVA is making the investments to install best control technology at Paradise, which we think should have been done long ago," he said. "But it's probably a safe bet that this plant is going to be needed by TVA for at least the next 20 years."

Dr. Smith said environmental groups would like TVA to develop a new integrated power plan for the future before making additional long-term commitments for particular power sources without public debate.

"But this is not a project we are necessarily going to fight," he said.



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