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Rail News Home Shippers

June 2015



Rail News: Shippers

U.S. mines and utilities reinforce rail infrastructure to keep coal flowing to power plants



By Robert J. Derocher

As domestic coal consumption ebbs and flows, the interrelationship between mines, power plants and their rail infrastructure continues to be complex.

Over the past several years, many mines and plants closed while others opened amid soft coal consumption and rail traffic that’s been impacted by cheaper natural gas and other power-plant fuel sources.

Although coal continues to be a dominant energy source for utilities — particularly the clean-burning, lower-sulfur variety from the Powder River Basin (PRB) — the nation’s coal production is on the decline.

For the week ending May 9, coal production totaled 16 million short tons, down 7.7 percent from the previous week’s total and 15.1 percent from the amount mined in the same 2014 week, according to the U.S. Energy Information Administration (EIA).

U.S. railroads’ coal traffic in the same week fell 16.1 percent year over year to 93,691 carloads, while their total traffic through 2015’s first 18 weeks was down 5.7 percent to about 1.9 million units, Association of American Railroads statistics show.

In a word, today’s coal environment is "uncertain," says Ed Kennedy, president of RailWorks Track Services, a rail maintenance and construction contractor that serves mines and utilities.

Despite a steady stream of business from coal and utility customers, mainly in the Northeast and Midwest, it’s apparent that the typically cyclical coal market "is not exactly booming," he says.

Nonetheless, building and maintaining rail infrastructure continues to be a necessary expense for coal miners and utilities, which seek to avoid potentially costlier delays in the supply chain caused by deferred track maintenance or insufficient rail capacity. As a result, more trackwork likely is in the offing for contractors, as well as mines’ and utilities’ own maintenance forces.

Recent coal-market developments have contributed to demand shifts that already have occurred in supply chains. Among them: falling natural gas prices; rapidly declining Appalachian region coal production, coupled with increasing output at Midwestern mines; some utilities’ greater reliance on cleaner-burning PRB coal; and the huge influx of Bakken crude-oil volumes for U.S. Class Is, which has led to coal traffic delays.

A recent EIA analysis shows the amount of electricity generated by natural gas in April and May was expected to be only 3.5 percent less than the projected amount of coal-fired generation. The virtual equality — achieved only once before — was driven by natural gas prices that dropped to a three-year low.

AEP American Electric Power's 13 power plants are served by five Class Is.

American Electric Power (AEP), the nation’s fifth-largest electricity generator, has not been immune to changes in the coal and gas markets. AEP plans to convert its coal-fired Big Sandy power plant in Kentucky — which each year consumes an average of 2.5 million tons of coal — to natural gas, starting in 2016. At the same time, most of its Clinch River plant in Virginia will be converted from coal to gas, with a portion to be decommissioned.

In addition, other coal-fired plants are slated for conversions or closure due to sinking natural gas prices and more stringent federal air-quality requirements that would be costly to meet.

In the meantime, AEP continues to receive more than 10 million tons of coal by rail annually. The utility manages more than 100 miles of track and conducts interchanges with five Class Is at 13 power plants.

Keeping track under inspection

AEP typically places rail infrastructure maintenance and inspections in the hands of its plant managers, who work with regional contractors that regularly perform much of the necessary tasks. The Class Is perform annual reviews at AEP interchanges and handle any inspections and track maintenance work, says Jeff Dial, AEP’s fuel transportation and logistics senior manager.

The utility aims to take good care of its rail lines, says Jack Sjogren, AEP’s materials handling manager.

"We keep up with our maintenance," he says.

With plant conversions and closures taking hold and its coal consumption down, AEP doesn’t need to expand its rail infrastructure, which also likely will need less maintenance in the future, Dial says.

Further evidence of the utility’s consumption change is apparent in the coal cars that AEP owns or leases. After hitting a peak of about 10,000 cars a few years ago, the utility now controls about 5,000 cars — a figure that might drop even lower.

"As the leases come off, we’ll see what the market is like," says Dial.

We Energies upgrades rail

We Energies A one-mile spur built by RailWorks Track Services is a key component of We Energies' new on-site locomotive and rail-car repair facility in Pleasant Prairie, Wis.

Conversely, consumption levels at We Energies — which provides electricity in Wisconsin and Michigan’s Upper Peninsula — have dictated the need for rail infrastructure upgrades and additions over the past year. A new on-site locomotive and rail-car repair facility is nearing completion at the utility’s power plant in Pleasant Prairie, Wis.

A key component of the facility is a one-mile spur of new track constructed by RailWorks Track Services. The new track and facility will eliminate a 20-mile one-way trip for off-site car and locomotive repairs, says John Oswald, We Energies’ coordinator of unit train operations.

More ambitious plans may be in the works at We Energies’ plant in Oak Creek, Wis. In May, the utility won approval from the Public Service Commission of Wisconsin to transition the plant from burning 100 percent Appalachian coal to consuming at least 60 percent PRB coal. The switch — and a potential 100 percent conversion to PRB coal — would require bringing in larger volumes of coal by rail, which in turn would foster the need for additional storage. No firm rail plans have been set, says Oswald.

In the meantime, RailWorks — which built 54,000 feet of new track and 20 turnouts for We Energies at the Oak Creek plant more than five years ago — will continue to handle maintenance and inspection duties for the all of the utility’s track infrastructure.

That includes inspecting all loops and switches and replacing ties, which could be a problem this year because of more freezing and thawing than usual in winter and early spring, Oswald says.

For utilities and mines in less harsh climates, such as Texas-based Luminant Corp., dealing with weather issues isn’t as taxing. No changes are expected in the company’s rail maintenance program this year, says Brad Watson, a spokesman for Luminant, which operates coal mines and power plants. The program calls for Luminant employees to inspect all track at least once per week, and contractors to perform regular track maintenance work. The company also contracts firms to inspect its rail bridges once per year.

Mine closure for Luminant

But Luminant also is instituting a measure to respond to market changes. Last year, the company announced it would close its Turlington lignite mine in Fairfield, Texas, by 2018 after determining it would be cheaper to bring in PRB coal for its nearby Big Brown power plant.

Production at the Turlington mine will continue to be reduced until reserves are exhausted, which is anticipated to occur in three years.

For the Southern Co., repairing damaged or aging track is an ongoing process, says spokesman Jack Bonnikson. And with more than 200 miles of track at 16 facilities — involving interchanges with five Class Is at 14 power plants — it’s an extensive process.

Like many other utilities, Southern employs a mix of its own personnel and contractors to perform regular quality control inspections and required maintenance. No significant rail expansion projects are on the horizon, Bonnikson says.

If there is one common concern lingering on the horizon for mining companies and utilities of late, it’s rail service.

Last year, many coal shippers experienced delivery delays due to a combination of increased demand in certain areas and higher Class I traffic, which was compounded by record crude-by-rail volumes. But those issues have eased this year, providing utilities more time to tackle other rail issues, such as infrastructure.

"It’s a big network, but overall, coal consumers are in much better shape than they were a year ago," says Betsy Monseu, chief executive officer of the American Coal Council, an advocacy group that counts mining companies, utilities and Class Is among its 165 members. "Coal demand is down now, but we don’t know what the rest of the year will bring."

AEP’s Dial says railroads have responded to service concerns.

"We have really good relationships with the railroads," he says.

In the Dairyland

The thumbs up also extends to smaller rail customers, like Dairyland Power Cooperative, which receives all its coal from the PRB. The co-op provides wholesale electricity to 25 distribution members and 17 municipal utilities in Wisconsin, Minnesota, Iowa and Illinois.

Dairyland uses a single rail loop directly off a BNSF Railway Co. mainline at its John P. Madgett power plant in Alma, Wis., says Brian Treadway, the plant’s manager. The loop allows trains to depart the mainline, travel through a rail-car unloader and move back onto the mainline.

"The deliveries from the BNSF have improved and are now consistent with normal cycle times thus far in 2015," Treadway says.

But that doesn’t mean coal customers aren’t hedging their rail infrastructure bets, says Tim Scheller, the St. Louis-area manager for RailWorks Track Services.

"A lot of newer mines are attempting to build rail access to connect to both Class Is and regional railroads," he says. "That way, they have versatility — and leverage with the Class Is."

And that could be important, particularly in light of recent EIA statistics that show falling coal exports after years of gains. Exports account for about 10 percent of U.S. coal production.

"It’s a changing market," says RailWorks’ Kennedy. "It’s anybody’s guess what will happen next."

Robert J. Derocher is a Loudonville, N.Y.-based freelance writer. Email comments or questions to prograil@tradepress.com.



Keywords

Browse articles on U.S. Energy Information Administration coal Association of American Railroads RailWorks Track Services American Electric Power We Energies Luminant Corp. Southern Co. American Coal Council Dairyland Power Cooperative BNSF

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