Winter is coming. Will utilities have coal shortages?
The National Oceanic and Atmospheric Administration predicts this winter will be 12% warmer than the last, but that doesn’t mean utilities are looking forward to the coming snow.
From the East Coast to the Midwest, power plant operators are still dealing with the consequences of last winter’s severe weather, leaving them wary that another unpredicted storm like the polar vortex could cause major reliability problems on the grid.
Since last January’s freezing temperatures, utilities have complained of reduced coal deliveries by rail, with some even resorting to burning natural gas—even when it is more expensive—in order to conserve coal for the months ahead.
Buffett's BNSF 'struggling' to deliver coal
Minneapolis-based utility Xcel Energy, which serves more than 3.3 million and operates 12 coal plants, is one power provider with stockpile issues. Most of these issues have to do with a certain rail company owned by Warren Buffett’s Berkshire Hathaway, according to Craig Romer, Xcel's director of fuel supply operations.
“The BNSF is struggling with increased volumes,” Romer told Utility Dive in an interview. “The Union Pacific [lines] struggled a bit when the weather turned cold at the beginning of 2014. Some of those issues have persisted for BNSF throughout the year. The [Union Pacific] has pretty much turned around most of their issues … The BNSF-served facilities are below the optimal level that we would like to see at this time of year.”
Just last week, a group of coal shippers filed a “strongly worded petition” with the U.S. Surface Transportation Board requesting an order requiring BNSF railways to submit a coal service recovery plan due to delayed shipments.
To understand the coal shortfalls, Romer said, you need a “whole year perspective.” In the third quarter of 2013, grain harvests came in higher than anticipated, and that, along with an uptick in customer demand on railways, meant the lines fell behind. Then in January the first round of frigid weather hit—the snow and ice in the Midwest and East Coast “really affected [BNSF’s] ability to serve its customers,” he added.
As the nation dug out from winter in the second quarter of 2014, snowmelt and flooding, along with increased volume, further delayed many shipments. After a slight catchup period in the late spring, Romer said, BNSF’s maintenance and track repair programs created even more severe delays than the weather.
“We really see maintenance activity has impacted the railroad far worse than the polar vortex,” he said.
And it's not just BNSF. Earlier this month, the rail company Kansas City Southern reported that eight of the nine coal plants it serves had low stockpiles.
Oil and gas crowding coal out on the rails
Weather and repair work notwithstanding, some experts point to other energy resources as a major contributor to low coal stockpiles.
“Basically you can trace [the problem] back to the beginning of the oil and gas boom in the U.S.,” Richard Martin, editorial director and coal expert at consulting firm Navigant, told Utility Dive.
Martin pointed to a recent Government Accountability Office study that shows the number of crude oil rail cars increased from fewer than 50,000 per year in 2010 to more than 250,000 in 2012, only to continue upward. In all, 23 states saw the number of crude oil cars increase by at least 10,000 from 2007 to 2012.
Those numbers may seem insignificant to a rail system that deals with tens of millions of cars each year, but the location matters more than the quantity, according to Xcel's Romer.
Although he did not have exact numbers, Romer said that in 2009 the number of crude oil rail cars was “very, very, very small in comparison to what it is today.” Back in 2009, about 2% of BNSF’s business was in liquid energy resources, including crude, he said. Today, that number is about 6%.
“Now that doesn’t seem like a lot," Romer said. "However, it’s very geographically located in the route that our coal trains from Minnesota travel upon … When you take that increase in volume and limit it to a very small area, the impact is significant.”
Even so, Romer cautioned that the oil and gas boom has not been the largest factor in Xcel’s coal shortfalls. “I wouldn’t say it’s the smoking gun that’s caused all of the problems, but it’s a contributing factor.”
The road—or rail—forward
For Martin, the entire coal shortage issue is a red herring. He sees rail congestion as a more serious concern, with its effects on coal being less consequential than other impacts.
“I can tell you that any time you hear a utility start crying about coal shortages, it’s good to take that with a grain of salt,” he said. “Having said that, I think the immediate congestion problems are real and deliveries are being held up.”
“I think there is this sort of a larger problem of rail congestion in the U.S., which we can talk about,” he continued, citing safety issues involved with transporting crude and natural gas by rail, “but I’m not really that concerned that power plants are going to shut down this winter because of the shortage of coal.”
Indeed, there are signs that some utilities are turning the corner on coal stockpiles. American Electric Power (AEP) sent Utility Dive a statement saying they were no longer concerned about not having enough fuel for winter.
“We don’t have any current coal shortages,” Melissa McHenry, director of external communications, wrote in an email. “There had been some rail delivery issues in past months but we have worked through them.”
BNSF, for its part, said coal deliveries are improving steadily and that it increased deliveries by 5% last week over the week before.
“For the week ending October 21, 2014, we delivered an average daily amount of 790,000 tons of coal, which is up from 753,000 tons delivered on average for the week ending October 14, 2014,” Roxanne Butler, director of media relations, wrote to Utility Dive. “Additionally, we had an average of 1,936 trains on the system for the week ending October 21, which is up from 1,923 the prior week.”
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