Utilities say coal stockpiles near 'dire' levels

Nov 17 - St. Louis Post-Dispatch (MO)

Ameren Missouri and other utilities dependent on Western coal are fed up with BNSF railroad's delivery problems, and they're asking federal rail regulators to step in and force the company to improve service.

A trade group known as the Western Coal Traffic League filed a petition with the Surface Transportation Board late last month asking the regulators to force BNSF to speed up coal deliveries -- using fines if necessary.

The regulatory tussle follows a year of railroad delivery issues that have hurt coal company earnings and kept utilities from replenishing stockpiles burned during the abnormal cold last winter. A record harvest, general economic growth and increases in oil shipments from the country's booming oil fracking industry in North Dakota and elsewhere have all strained the rail network.

The Surface Transportation Board has been examining the issue since April, and it recently began requiring railroads to submit weekly reports with delivery data. But with the winter approaching, utilities worry more needs to be done to reduce the risk to the nation's electric grid.

It was only a year ago that utility executives and propane customers saw prices for natural gas products skyrocket as the country's pipeline system failed to meet demand during the polar cold snap. Coal plants dispatched more to power electric heat and make up for natural gas shortages at power plants.

St. Louis -based Ameren is particularly dependent on low-sulfur, Western coal to comply with emission rules. While it doesn't use much natural gas generation, most of St. Louis' electricity comes from Powder River Basin coal in Wyoming and Montana , where railroad issues have been most pronounced.

Utility groups have thrown their support behind the Western Coal group's petition, but Ameren is the largest individual utility so far to urge a specific coal recovery plan for BNSF.

Ameren says 32 percent of its power comes from power plants supplied by Western coal from BNSF, and it hasn't had issues at its other plants supplied by Union Pacific railroad.

"Ameren Missouri has not been provided with adequate assurances that service levels will improve and a coal delivery plan is needed," Ameren deputy general counsel James Sobule wrote in a letter to the transportation board. "As a result of low inventory levels caused by reduced deliveries during this timeframe, Ameren Missouri now requires additional deliveries to replenish inventory levels to normal levels."

In an email, Ameren said it doesn't disclose how much coal it has stockpiled, for competitive reasons. But it said it has adjusted when and how it fires up its power plants to make sure it has enough coal on hand this winter.

One of coal's big advantages is that power plant operators can keep huge stockpiles on site that can last for months or more. The U.S. Energy Information Administration , however, says the percentage of coal-fired generation with less than 60 days of supply rose to 63 percent in August, up from 43 percent a year earlier. About 23 percent of coal-fired generation had less than 30 days' supply.

The upper Midwest has been hit hardest by coal shortages. Some utilities have curtailed power plants to conserve fuel.The governor of Minnesota and some members of its congressional delegation have also urged the transportation board to take action against BNSF. Agricultural trade groups there have accused it of favoring new shipping business from domestic crude drillers.

The major trade groups representing investor-owned, municipal and rural cooperative utilities also submitted a letter supporting the Coal Transport League's request, as did the National Association of Regulatory Utility Commissioners .

"We believe the situation with coal service has already reached dangerous levels and is on the verge of become (sic) dire, not only imposing additional costs on consumers generally, but also posing a threat to the reliable operation of the power grid this winter," the groups wrote to the board.

In a response to the Coal Transport League petition, BNSF said it makes sure customers with less than 10 days worth of coal don't run out. But it also argued that most of its coal delivery contracts do not fall under the Transportation Commission's authority.

The railroad said it is already working to improve service and the Surface Transportation Board is already "carefully monitoring BNSF and other carriers' efforts to improve service." A coal-specific plan could open the door for other commodity trade groups to request special treatment and would be "unnecessary, inappropriate and counterproductive," BNSF vice president of law and corporate affairs Roger Nober wrote.

BNSF spokeswoman Roxanne Butler said the railroad will invest $5.5 billion in infrastructure this year and at least as much next year. As for giving preference to oil over coal and crops, she said the railroad doesn't prioritize one commodity over another and crude makes up only 4 percent of the railroad's shipments.

"Now that the economy is getting much better, there's a lot more demand," Butler said. "All commodities are starting to see an increase for rail."

Two St. Louis -based coal companies, which were hurt by railroad problems all year, expect gradual improvement. Creve Coeur -based Arch Coal , in an emailed statement, said deliveries are still short of customer demand and "there is more progress to be made."

On a call with investors last month, Peabody Energy CEO Greg Boyce said 2015 should be a "much stronger year."

"We would have liked to have seen more improvement by now than we have seen, although we have seen some incremental improvement," Boyce said then.

There doesn't seem to be a clear understanding of when the railroad problem will be resolved, said Kris Inton , a financial analyst with Chicago -based Morningstar who follows the coal industry.

"They're happy that there's progress being made, but it's been below expectations," he said.

Jacob Barker is a business reporter at the Post-Dispatch . Follow him on Twitter @jacobbarker and the Business section @postdispatchbiz.

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