Utilities, railroads guardedly optimistic about coal deliveries

WASHINGTON – Representatives of the power and rail industries expressed guarded optimism Thursday about coal deliveries needed to generate electricity for Minnesota this winter.

Speaking to the Federal Energy Regulatory Commission (FERC), officials from BNSF Railway, Minnesota Power and the Midcontinent Independent Systems Operator agreed that stockpiles of coal, which had been critically low at many electricity generating plants, have grown recently.

But they warned that unexpected bad weather or unanticipated shipping problems on the state's overcrowded rail system could change that.

"We've got a stockpile that gets us into the coldest months of the winter," Dave McMillan, Minnesota Power's vice president of external affairs, told the Star Tribune after his FERC testimony. "But we need assurances that it doesn't start dropping when Feb. 1 gets here."

McMillan had described to the FERC board how his utility got down to a four-day supply of coal at one point in the past year and had to use trucks to carry in emergency supplies.

McMillan also told the board that recent coal delivery problems forced Minnesota Power to take the "unprecedented step" of shuttering four production facilities. He said the utility is looking for a government-monitored coal delivery recovery plan from BNSF — a plan the railroad has resisted.

"Lack of a recovery plan does not give us confidence that the supply will continue," McMillan explained to the FERC board.

But Ramey said coal delivery problems sometimes forced consumers to pay more for the power they used. The cost of electricity was up 9 percent in the fall of 2014 compared to fall of 2013, he noted.

Current coal deliveries in Minnesota and other states have been sufficient in recent weeks to help build up reserves, Ramey told the Star Tribune. At current delivery rates, it would take "an extended period of severe weather like a polar vortex" to run stockpiles to zero and threaten transmission of electricity to customers.

Still, the issue is far from resolved. Coal shortages have forced roughly a third of the utilities with whom Midcontinent works to adopt conservation measures in the past six months, Ramey said.

Even as he described investments in track improvements and a weather forecast that makes BNSF feel "more prepared this year than last," Stevan Bobb, the railroad's chief marketing officer, made a point of apologizing publicly to McMillan and other customers for delivery problems.

Those problems were brought on by sharp spikes in shipments of crude oil from the Bakken Fields in North Dakota, bumper crops of grain in the U.S. and Canada and increases in transport of manufactured goods as the country's manufacturing sector recovers from the Great Recession.

By the end of 2014, Bobb said, BNSF will fall about 5 percent short of the 286 million tons of coal its utility customers expected the railroad to ship. But he noted a "trend " of improving stockpiles.

FERC commissioner Tony Clark asked Bobb whether trains hauling Bakken crude get priority on BNSF's limited track space because they bring in more revenue, an allegation frequently voiced by frustrated farmers who can't get their products to market.

Bobb said train movements were determined by "volume."

"Our transportation team, which makes the daily decision about which trains to move … doesn't have visibility into the rates or economics," he explained.

One sticking point in the coal delivery system appears to be the definition of a critical shortage that could get special attention from the railroad. BNSF picked 20 days as the threshold for critically low coal supplies that cause the railroad to "focus attention," Bobb said.

"We would like a coal supply never to fall below 30 days," McMillan said. "Maybe in this day and age that's not possible."