On Mon, 9 Jun 2008 16:26:37 +0000 (UTC), Jonathan Grobe
wrote:

On Sun, 08 Jun 2008 20:27:18 -0300, Paul M. Eldridge
wrote:

Thermal coal prices in some parts of the country have just about
tripled in the past year which, in combination with natural gas, will
send electricity prices upward.


Don't power companies buy coal via long-term contracts--not on
the spot market?

Hi Jonathan,

As dpb pointed out, supply contracts allow utilities to purchase coal
at a fixed price -- or at a periodically reset price if they contain
escalator clauses -- but when they expire the new negotiated price
will reflect current market conditions; hedges or multiple contracts
that expire at different times will help soften the blow, but they
can't put off the inevitable. Higher transportation costs are another
contributing factor.

A year ago, my utility was purchasing thermal coal at $60 per metric
tonne; today, that has risen to $130 per tonne and the general
expectation is that it will be heading higher. They've applied for a
12.1 per cent increase and are negotiating with the PUC to establish a
separate fuel rider, which tends to suggests they expect greater
long-term price volatility.

Cheers,
Paul