(The Omaha World-Herald posted the following article by Nancy Gaarder on its website on July 16.)
OMAHA — In a significant decision in terms of fuel and expense, the Omaha Public Power District is planning to switch rail and coal companies for its next five-year contract.
In January, for the first time since 1984, Union Pacific Railroad is expected to haul coal to OPPD’s power plants. Bids analyzed recently indicate that a coal-rail package using Union Pacific is about 6 percent lower, or $15 million less, than one using the Burlington Northern and Santa Fe Railway.
Burlington Northern has been transporting coal to OPPD’s north Omaha plant since 1984 and to the utility’s Nebraska City plant since 1978.
The OPPD board will vote Thursday on the Union Pacific coal-rail bid package, which is valued at $245.7 million. The Burlington Northern package is $260.5 million.
Coal is OPPD’s main source of fuel, supplying about two-thirds of the utility’s fuel last year.
Dale Widoe, vice president at OPPD, said the cost of the new contract package is about 3 percent above an inflation-adjusted value of the current contract. Describing that as a “very modest” increase, Widoe said the contract is an important part of keeping electric rates low.
“With U.S. energy costs going up rapidly,” Widoe said, “the coal contracts introduce real stability into our rate-making.”
Widoe said the fuel package should have a “negligible” effect on electric rates. OPPD’s 3.1 percent increase in rates that goes into effect in January is due not to the coal contract, Widoe said, but to the utility’s need to spend about $1 billion retooling and expanding its electric plants.
Given that Union Pacific has its headquarters in Omaha, board member John Green was happy to see the rail portion of the contract come home.
“This is ‘buy Omaha’ at its best,” Green said.
Burlington Northern is based in Fort Worth, Texas.
OPPD has been working on the contracts since the fall and has been briefing the board since February. Board member Kirk Brumbaugh Tuesday praised the board for its careful work.
“This was done objectively with no political influence or favoritism shown on the part of the board or management,” he said.
Putting together each bid package was a bit like a jigsaw puzzle. Eleven companies bid on the coal contracts, 15 on short-line rail operations, five on rail-line maintenance and two, Union Pacific and Burlington Northern, on long-distance transportation.
In compiling the packages, OPPD had to weigh coal costs against transportation and other costs.
For example, Burlington Northern has access to all the coal mines in Wyoming, which meant that if OPPD had selected Burlington Northern, it could have picked from a larger number of coal bids. Union Pacific can reach only the southern mines.
On the other hand, Union Pacific has direct access to OPPD’s two coal plants, which can favorably affect the amount it can charge. To reach OPPD’s north Omaha plant, Burlington Northern would have to travel along a five-mile piece of Union Pacific tracks, something that Union Pacific charges for. To reach the Nebraska City plant, Burlington Northern would have to use OPPD’s tracks from Lincoln and pay a short-line hauler to move the coal.
Coal and transportation each account for about half the total package, Widoe said, with a small slice going to rail maintenance.
The coal comes from some 670 miles away in Wyoming’s Powder River Basin. Because the coal has a low sulfur content, Widoe said, it generates fewer problems in terms of air emissions
.The coal contract includes a combination of fixed and market prices, Widoe said. Because Union Pacific can’t reach all the coal mines, OPPD will have less flexibility in responding to fluctuating coal prices. That “loss of opportunity” was factored into the bid analysis, Widoe said.
The winning coal bid came from Kennecott Energy Company. The current coal contract is with Arch Coal. CANAC Yard Services will provide railway maintenance.
Representatives from Union Pacific and Burlington Northern had no comment on the bids.