(The following article by Dustin Bleizeffer was posted on the Casper Star-Tribune website on March 18.)
GILLETTE, Wyo. — Consumers in Wyoming and nationwide who rely on Powder River Basin coal may have to cough up an extra $2 billion to cover their utility bills this year due to a lack of shipping capacity on railroads, according to Basin Electric Power Cooperative.
The irony that many Wyoming consumers may have to pay higher utility bills because they can’t get enough Powder River Basin coal is shared among consumers and utilities alike.
However, some industry experts say Union Pacific and BNSF Railway are working feverishly to expand their Powder River Basin capacity.
“They can’t make up for years of underinvestment within a single year. Now they’re playing catch-up,” said Richard Price, managing director of Westminster Securities Corp. in St. Louis, Mo.
Both railroads are expanding capacity on all Powder River Basin routes, according to the companies. And both have instituted aggressive hiring plans nationwide to run more trains while at the same time making up for a retiring work force.
“They’re putting significant capital in rolling stock and training crews,” Price said.
The problem
Railroad delivery fell 20 million tons short of commitments between Powder River Basin coal producers and the utilities they served in some 35 states in 2005. And although coal production and rail delivery are expected to reach record levels this year, rail delivery is expected to again fall short by 20 million tons.
Rail expansion efforts are simply outpaced by the growing demand for Powder River Basin coal, according to those in the industry.
Price said it’s a dilemma of logistics: Neither the producers nor the utilities want to slow train traffic in order to make way for expansion work.
“There’s no question they are putting money into (expanding) capacity. The challenge is doing maintenance and adding capacity without interrupting the flow,” Price said.
With the shortfall in delivery, utilities have drained their Powder River Basin coal stockpiles to dangerously low levels. Even the Laramie River Station plant just 40 miles from the southern mouth of the Powder River Basin coal fields is running out of coal.
Basin Electric, which operates the 1,650-megawatt plant, recently announced that its 700,000-ton stockpile had dwindled to just 130,000 tons — fewer than six days of fuel supply — forcing the plant to prepare to cut generation when it dips below 125,000 tons.
“We hope we don’t get there,” said Floyd Robb, spokesman for Basin Electric.
Railroad shortfall
Two derailments last spring on UP and BNSF Railway’s jointly operated triple-track line out of the southern Powder River Basin revealed just how close coal sales had come up against rail capacity. The situation spawned a lot of finger-pointing.
Producers and utilities noted that dust from the coal had accumulated on the rail bed, which prevented water from properly draining, while the railroads said it wasn’t their fault the coal produced so much dust.
Price said he believes the railroads are at fault for not investing in maintenance and capacity to keep up with demand. However, they had a relatively good reason. The price of Powder River Basin coal was seriously depressed in the late 1990s through 2002, forcing some producers to sell the coal at or below cost.
“Nobody was real thrilled about putting out more coal, nor were the railroads thrilled about adding capacity,” Price said.
2003 was a relatively volatile year for coal prices, which similarly detracted investment. However, with the sharp rise in oil and natural gas prices in 2005, utilities are banking on the stability of coal, particularly the low-sulfur Powder River Basin product.
Now railroads are beefing up staging areas and investing in lighter cars to in order to link longer coal trains.
They’ve also teamed up with mining companies and the National Coal Transportation Association to improve coal load-out chutes that lower the profile of coal so it doesn’t rise above the car sides and deposit dust on the rail beds.
In statement to customers, Union Pacific’s vice president and general manager of its energy division said it is focused on improvements throughout the Powder River Basin.
“The challenges of 2006 make it more critical than ever for the railroads, the mines and the utilities that use SPRB coal to work together to maximize the throughput of the entire supply chain,” Doug Glass said. “For our part, we continue to invest capital in tracks, signals and locomotives to support the coal business.”
NewsTracker
* Last we knew: A shortfall of railroad delivery capacity depressed stockpiles of Powder River Basin coal at many utilities throughout the nation, including the Laramie River Station in eastern Wyoming.
* The latest: Railroads are investing in maintenance and expansion to catch up with growing demand for Powder River Basin coal.
* What’s next: Maintenance and expansion efforts are ongoing.