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Tennessee: Low-Sulfur Coal Price Doubles, following Gas & Oil

The Tennessee Valley Authority will pay nearly twice as much as it did five years ago to stoke some of its power plants with low-sulfur coal. But TVA officials said Tuesday they still believe they are pursuing the lowest cost approach to reducing pollution from its power plants to meet stricter clean air standards.

"Right now, we believe our strategy for low-sulfur coal at some facilities and controls at others represents the best value to TVA," said Jackie Preslar, general manager for fuel supplies at TVA. "But we are continually evaluating our approach because the market and the laws are continually changing."

Mr. Preslar said prices for some of the premium, low-sulfur coal bought from Appalachian states is up $30 a ton from its level five years ago. But TVA officials said the utility has negotiated favorable prices for coal that should be below the market through the remainder of the decade.

During their monthly board meeting here, TVA directors approved $669.4 million in contracts to buy or ship low-sulfur coal from both Appalachian states and the Wyoming basin through 2010. The coal contracts will supply the Kingston, Bull Run and John Sevier coal plants in East Tennessee. TVA has yet to install scrubbers at the three plants.

TVA Director Skila Harris said the price of coal, which powers 60 percent of TVA's electricity generation, has doubled since the late 1990s. TVA is having to buy coal from mines in Wyoming or more expensive coal from Appalachia to limit its sulfur content to meet federal pollution standards.

"I don't think any of us five years ago realized that coal was going to go up as high or as fast as it has during this period," Ms. Harris said.

TVA is also spending record amounts to install pollution controls on its fleet of 59 coal-fired units. The federal utility is in the midst of a $5.6 billion program to install scrubbers to limit sulfur dioxide emissions and selective catalytic reduction devices to limit nitrogen oxide emissions. Such pollutants are key elements of smog.

TVA expects by 2010 that the lower sulfur coal and the addition of five more scrubbers at its coal plants will reduce sulfur dioxide emissions by more than 200,000 tons per year. From the peak in the 1970s, sulfur dioxide emissions are projected to be down by 85 percent by the end of the decade.

"Most of our business decisions in the generation area at TVA are driven by the requirements of the Clean Air Act," TVA Director Bill Baxter said. "I'm proud of the efforts TVA is making to clean up the air, but it does not come without a cost. It costs us more to buy low-sulfur coal; it cost us more to ship coal farther, and it costs us more to install pollution controls."

The coal contracts approved Tuesday by TVA include:

--$252 million for six-year contracts with Arch Coal Sales Co. Inc. of St. Louis, Mo., for up to 5.5 million tons of low-sulfur coal.

--$245 million for a five-year contract with Massey Utility Sales Co. of Richmond, Va., for 5 million tons of low-sulfur coal.

--$133.2 million for a six-year contract with Thunder Basin Coal Co. LLC, a subsidiary of Massey, for up to 18 million tons of coal from the Powder River Basin in Wyoming.

--$39.2 million for a three-year contract with Burlington Northern & Santa Fe Railway to ship coal from Wyoming to the Kingston Fossil Plant in Tennessee, via the Norfolk Southern Railway connection in Memphis.

Editorial Notes: Original headline 'TVA officials defend purchase of higher-priced, low-sulfur coal' -AF

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