Rail Deliveries Impact U.S. Power Plants' Coal Stockpiles for Winter

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Researched by Industrial Info Resources (Sugar Land, Texas)--Northern U.S. railroads are still facing performance issues in the wake of last winter's freight slowdowns and backlogs, and some power producers now say that the railroads aren't delivering enough coal for their plants.

Industrial Info is tracking 377 U.S. rail-related projects worth nearly $23 billion, including 269 freight rail upgrade/maintenance projects worth more than $13 billion.

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U.S. and Canadian farmers logged record grain crops during the 2013-14 harvest season, but then saw lengthy rail shipment delays. Railway companies said they were coping with a large increase in demand, accompanied by logistics problems caused by an unusually severe winter.

According to news media accounts, some power generators now say that they can't stockpile enough coal for the coming winter as a result of slow rail deliveries.

Minnesota Power (Duluth), a subsidiary of Allete Incorporated (NYSE:ALE) (Duluth, Minnesota), said this month that it was forced to idle four coal-fired generating units totaling 250 megawatts (MW) for three months as a result of inadequate coal stockpiles, according to Platts and other news organizations. A spokesperson for the power utility was quoted as saying coal deliveries by BNSF Railway (Forth Worth, Texas), a subsidiary of Berkshire Hathaway (NYSE:BRK.A) (Omaha, Nebraska), were much slower than usual.

Senator John Thune (Republican, South Dakota) said officials with South Dakota's Big Stone Power Plant, which is owned by Otter Tail Power Company (Fergus Falls, Minnesota), indicated the facility was running under capacity because it could not get enough coal.

"Coal stockpiles are alarmingly low, and rail service simply hasn't provided adequate supplies," Thune said as part of a hearing by the Senate Committee on Commerce, Science and Transportation, where he is a ranking member.

National Public Radio (NPR) also reported that power plants were having trouble building their winter coal stockpiles as a result of slow rail shipments. According to power plant officials, railway services have been stretched thin, partly by the need to haul bumper grain crops, and by shale oil shipments.

The Senate Committee on Commerce, Science and Transportation held a hearing this month regarding last winter's rail grain shipment delays and ways to improve the situation.

Jerry Cope, president of the South Dakota Grain and Feed Association, testified that progress has been made toward cutting the rail order backlog, but added it was still "a very serious situation. Needing a train every five days in order to clean out the backlog and get ready for fall harvest but getting one every 10 [days] prohibits accomplishing either of those objectives."

U.S. Department of Agriculture Deputy Administrator Arthur Neal testified his agency is concerned railroad service to grain shippers may not recover in time for the harvest of the 2014 crops.

"Should this happen, grain elevators could run out of storage capacity, grain stored on the ground would run the risk of spoiling, and the costs of inadequate rail service would continue to accrue," Neal said.

Edward Hamberger, president and chief executive of the Association of American Railroads (AAR), told the committee that the industry has been challenged by a rise in overall demand. He said U.S. railroads are "moving a tremendous amount of freight. In fact, average weekly U.S. rail volume, defined by carloads plus intermodal containers and trailers, was higher in August 2014 than any month since October 2007."

Some agriculture groups have charged that their shipments were delayed because of the growing amount of shale-oil shipments from the upper Midwest, but Hamberger said shipments of crude oil were only a small portion of total recent traffic increases.

"Class I railroads originated a total of 645,704 more units in the first half of 2014 than in the first half of 2013," Hamberger said. "The 24,058 additional carloads of crude oil are just 3.7% of the total net first-half increase."

He added: "This is not to say that crude oil transport is not having an effect on the transport of other commodities, especially in certain geographic areas where crude oil volumes are much more concentrated than elsewhere. But rather than saying that crude oil is crowding out other traffic, it is more accurate to say that, right now, on some railroads, on some lines, rail capacity is a scarce resource."

The rail industry is expected to spend at least $26 billion this year for infrastructure improvements and maintenance. Among other things, the industry is working to improve capacity issues in and around the Chicago area, through which a fourth of the nation's freight rail traffic passes.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.