Miami (Platts)--12Mar2008

The recent spike in coal exports is draining supply for US utilities, but
improved railroad and barge capacity will make it easier to seek out new coal
supplies, Southern Company Vice President of Fuel Services Jeff Wallace said
Wednesday.
"The good news is that both railroads and barge lines are in much better
shape than they were 18 months ago," he said. "Hopefully, they will have the
capacity to accommodate major shifts in basins."
Wallace said the railroads "have significant influence on the energy industry"
and rail rates have the potential to influence from where utilities will be
sourcing their coal.

In the meantime, the export spike also is causing more volatility in the
coal markets.

"We've been seeing a lot of market movement over the last two months and,
in fact, we have not seen this much volatility since the mid-'70s to early
'80s," Wallace said during a presentation at the American Coal Council's
Spring Coal Forum in Miami.

Wallace said high ocean freight rates are limiting import options for US
utilities, while growing exports "significantly reduced availability of coal"
in the country.

"The changes [in the market] we are seeing are probably not a short-term
phenomenon, but perhaps a major structural change," he said. Wallace said
Southern has had a good viewpoint of the recent changes in the coal markets
since it sources coal from all of the major US basins.

Utilities are developing plans to diversify coal sources as a way of
reducing the impact of high prices, he said. One of their options is
increasing the intake of lower-Btu western coals, he said.

Meanwhile, rail rates may influence siting of new coal-fired plants and
even force some old plants into early retirement, he added. "Railroads should
not overlook the fact that there is price elasticity," he said, warning that
high rail rates may discourage utilities from sourcing coal from more distant
regions.

Wallace said he is encouraged by recent developments at the US Surface
Transportation Board, which is seeking to engage utilities, producers and
railroads about service and capacity issues. He said Southern participates in
STB's Rail Energy Transportation Advisory Committee.

Several other fuel buyers attending the conference also said that they
have sufficient rail and barge capacity, but Wallace noted that delivery
problems may arise when rails reach maximum capacity, especially in the Powder
River Basin.

"There are [only] so many trains they can run on any given day, and when
they are at maximum capacity, they are operating on the assumption that there
will be no weather events," he said.
--Marcin Skomial, marcin_skomial@platts.com