Coal Supply Problems Cause Costly Unit Cycling for PRB Coal Users

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Coal rail transportation disruptions, mainly due to train derailments and extended rail maintenance, are causing problems for Powder River Basin (PRB) coal users already running coal-fired power plants with low coal stockpiles. Reduced coal shipments from PRB mines to coal-fired generation plants have caused some power plant operators to conserve coal by curtailing unit operating rates or, in some cases, by completely shutting down units on a daily or multi-daily rate. The process of curtailing/shutting down and starting back up a unit is known as cycling in the industry.

While cycling sounds harmless, it actually causes a slew of maintenance and operational related problems for the owners of coal-fired boilers. Baseload power boilers are designed to run continuously, they simply aren't designed to be cycled. If the cycling period is prolonged, the boiler internals begin showing signs of material fatigue and stress, leading to increased boiler tube leaks, boiler feed water pump failures, and material fatigue/cracking. Costly maintenance repairs and extended down time are required for some units that have been worn by cycling. Because of cycling, boiler material life expectancy is cut significantly, by 25-50% in some cases. OEM's are studying the life cycle of boiler materials in order to solve the problems brought about by cycling. Coal supply disruptions are not the sole reason for cycling. Power generation units are cycled due to market and energy demand issues, as well.

The Fort Martin Power Station, owned by Allegheny Energy (NYSE:AYE) in Maidsville, West Virginia is one of the plants that have experienced significant maintenance problems due to cycling. The plant is cycling up and down several times during the day.

Another power plant feeling the effects of reduced PRB coal supply is the Wabash River Power Station in West Terre Haute, Indiana, owned by PSI Energy Incorporated, a subsidiary of Cinergy Corporation (NYSE:CIN) (Cincinnati, Ohio), which burns 100% PRB coal.

The coal supply problems couldn't have come at a worse time with surging U.S. energy demand and consumers fighting historically high coal and natural gas prices. The spot prices for PRB coal have risen 70% since the beginning of 2005. Power generators aren't the only ones feeling the pinch. PRB coal miners have to scale back production until the rail issues are resolved. This is affecting their bottom lines. Arch Coal recently announced lower quarterly earnings due to coal supply issues mainly from its Black Thunder PRB mine in Wyoming, where shipments were reduced by 3.8 million tons during the second quarter.

Coal supply problems should stretch into the first quarter of 2006. Union Pacific has announced that maintenance work on the Joint Line rail systems shared with Burlington Northern Santa Fe, and which services PRB mines, will continue throughout the rest of the year, causing significant reduction in shipping capacity. The company has also announced an embargo on all new business coming out of the PRB until the situation is rectified.

PRB coal, which is mined only in Wyoming and Montana from a handful of mines, is the fuel for about 25% of the nation's power production. PRB coal is railed to power plants all across the U.S., as far away as Florida. U.S. rail services like Union Pacific and Burlington Northern Santa Fe have the mammoth responsibility of transporting PRB coal from the mines to the power plants. Additional rail infrastructure will be needed to improve reliability and to expand capacity of the nation's railroads.

Industrialinfo.com is tracking more than 500 coal-fired power plants in the U.S. For details, check out our Installed Generation Database, or call Member Center at 1-800-762-3361.

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