(The following story by Dustin Bleizeffer appeared on the Jackson Hole Star-Tribune website on July 3.)
GILLETTE, Wyo. — Like many young men who worked the oil patch in the early 1990s, Mike Simonson searched for a job with more security.
At 25, he went to work for BNSF Railway. For the next 14 years, he ran coal trains up and down the same 178 miles of rail through the Powder River Basin coal mining district in northeast Wyoming.
“I just couldn’t picture myself standing at the brake of an oil rig at the age of 56,” Simonson said. “Railroading has treated my family well.”
Here, coal represents stability. Eighty feet thick and spanning more than 100 square miles, the Powder River Basin coal reserve is quite literally the foundation of modern life here.
Each day, some 75 metallic snakes, each two miles long, slither empty into the basin. They squeeze under silos to take on 18,000 tons of sub-bituminous coal each. Most disperse south and eastward across the nation delivering their payload to power plants. They are the longest, heaviest trains on the U.S. rail system.
The process fuels more than 35 percent of the nation’s electrical generation.
For more than 30 years this whole coal-by-rail energy system has chugged along with enough consistency to pacify thousands of American men and women with comfortable employment and electrical power. In Simonson’s case, he recently transferred to Wisconsin just for a change of scenery.
But just two years ago, this Atlas of American energy shrugged.
The price of Powder River Basin coal waned in the late 1990s, forcing the industry to idle two mines. The district’s two railroads — BNSF Railway and Union Pacific — trimmed capital spending on the Powder River Basin delivery system.
Both railroads claim they’d renewed their commitment to the basin by 2003, when the U.S. Department of Energy forecast a long, profitable future for Powder River Basin coal. That view was based on indications of increasingly volatile oil and natural gas markets, which still holds true today.
But speculation rose when in the spring of 2005, back-to-back derailments on UP and BNSF Railway’s jointly operated triple-track line out of the southern Powder River Basin revealed just how volatile the coal-by-rail system really was.
Dust sifting from coal trains had accumulated on the rail bed, which prevented water from properly draining, weakening the track. While mines and railroads pointed fingers, utilities watched stockpiles shrink on a delivery shortfall of about 40 million tons.
It rippled far into the nation’s economy.
“For 25 years we’ve put capital in this system. One year we put risk into the system,” said BNSF Railway CEO Matt Rose. “What happened was the market was so used to railroads being able to deliver. We want to get back to that.”
Banking on coal
The largest U.S. rail expansion in more than 30 years is aimed at increasing capacity and reliability for Powder River Basin coal. At a time when most railroads are downsizing operations, BNSF Railway and Union Pacific are spending more than $200 million to add third and fourth tracks along the 75-mile joint line.
And they’re spending millions more to increase efficiency and maintain coal routes throughout their systems. BNSF Railway said it will spend $600 million alone this year throughout its coal division.
BNSF hosted a media tour recently to showcase its new nine-track Donkey Creek yard near Gillette and joint line expansion efforts that are still under way. The railroad wants utilities to know that instead of pointing fingers at each other, railroads and coal mines are now cooperating on expansion efforts, delivery reliability and resolving dust issues.
“We want our customers to see the value in what we’re doing,” Rose said. “This country needs this resource.”
The current expansion model will boost coal export capacity from the basin beyond 410 million tons annually. Industry estimates indicate the basin could export more than 500 million tons annually in five years.
Something to prove
The railroad industry is under intense scrutiny by utilities. Delivery shortfalls from the 2005 derailments were one issue. At the same time, several long-term contracts expired throughout the industry. Utilities found that shipping rates had gone up, and railroads were reluctant to lock in prices for five- and 10-year terms as they had in the past.
Basin Electric Power Cooperative sharply criticized BNSF over a rate dispute that arose after a 10-year contract ended for delivery at the Laramie River Station power plant near Wheatland. The 2005 rail delivery shortfalls only aggravated utilities that had plants served by only one rail company.
Even Basin Electric’s Laramie River Station, just 70 miles from the main Powder River Basin line, was affected by the delivery shortfall. Basin Electric joined a chorus of utilities calling for reform in the 2005 “Railroad Competition Act.”
With new Democratic leadership in Congress, reform supporters have renewed efforts to protect “captive” customers from what some perceive as unjustified rates.
Railroads contend that their investment in improving coal delivery has already resolved delivery reliability issues. Today’s shipping rates reflect a reasonable return on that investment and a sustainable rail maintenance program, according to BNSF.
Rose said utilities are absolutely getting the best value on America’s lowest-cost energy resource: Powder River Basin coal. Coal, said Rose, remains the best insurance policy against the utility industry’s only other alternative, the highly volatile natural gas market.
“We are going to see long-term growth (for coal) unless somebody comes up with an entirely different energy source,” Rose said. “If we could raise our rates 7 percent, 8 percent, and still maintain our market, then shame on us. We should have done it years ago.”
Basin Electric spokesman Daryl Hill said the cooperative certainly appreciates efforts to improve reliable coal delivery. But no matter how much rail, how many trains and how much horsepower is added, the Powder River Basin is still missing something.
“Competition. We’d like to see that,” Hill said.
Changing energy world
For more than 10 years, the Dakota, Minnesota & Eastern Railroad has worked toward permitting and funding a third line into the Powder River Basin. Although permitting is on track, financing has eluded the project.
Some utilities say a third rail line into the basin and a third rail company would not only bear more competitive shipping rates, but also better reliability in the system.
BNSF executives contend that building parallel tracks, adding more trains and more efficient operations will meet increasing production in the basin for many years to come.
“The whole idea of building a new railroad is not necessary,” Rose said.
BNSF has put its chips down on Powder River Basin coal, even in the current political environment leaning toward regulating carbon emissions. Rose said the railroad’s investment plan for coal is based on the federal government’s own forecasts for electrical demand and the coal market.
Coal fuels about 52 percent of the nation’s electrical generation, and it is projected to serve even more of the market beyond 2015, according to the U.S. Department of Energy’s Energy Information Administration.
In fact, BNSF executives make no bones that they’ve joined coal producers in marketing their product. Their bullish position on coal in the face of climate change policy is rooted in the belief that advancing technologies will minimize coal’s carbon footprint within the boundaries of future environmental regulation.
“Whether it’s carbon sequestration, originally, or cap-and-trade originally, (policy) will evolve,” Rose said. “And the technology will evolve, more importantly, to where we can still, as a country, mine the coal for national security, as well as lessen our dependence on foreign oil, as well as provide low-cost energy.”
Along with this new era of Powder River Basin coal comes a new generation of miners and railroad engineers. Both Union Pacific and BNSF have recruited and trained hundreds of new workers during the past year.
“There’s a lot of younger guys coming in,” said Mike Simonson, engineer for BNSF. “The number of guys working out of Gillette has probably doubled in the 14 years I’ve been there.”
Simonson recently moved his family to Wisconsin, where he’ll run freight trains through some different country.
“Running a coal train is different than running any other train. They tend to get the best power. They have air conditioning,” Simonson said. “I enjoyed running coal trains, but I’m also enjoying running freight trains out there, because it’s a different world.”