Coal power plants depend on railroads to deliver coal

coal trains

[ The extract of a Senate hearing below is mostly spent on testimony by utilities bashing the railroads for not delivering enough coal due to a disaster in the Powder River Basin, Wyoming area, where coal dust infiltrated the stone ballast due to unusually wet weather, creating drainage problems that ultimately led to derailments which took several months to fix. Railroads deliver 72% of coal to coal power plants.

But it turns out the utilities are equally to blame. They’ve been reducing their coal stockpiles.  According to the EIA: “Coal stockpiles at electric power plants have generally been declining for years: end-of-year stocks declined from 135.9 million tons in 1989 to 101.2 million tons in 2005, down 26%, although coal-fired generation and coal consumption both increased during this period. The long-term us due to power plant operators trying to minimize their coal inventory holding costs.

What’s interesting to me about this hearing is how vulnerable our system is due to this interdependency. If trains can’t deliver coal, then coal plants can’t make electricity, which would make it impossible to refuel trains (pumps are electric).  Climate change is likely to buckled rail (extreme heat), wash away tracks (extreme storms and flooding), leading to even more unreliable coal delivery. Now natural gas and nuclear can still step in to keep the grid up, but as natural gas and uranium ores decrease, and up to half of nuclear power plants retire by 2030 with few new ones built, the electric grid will grow increasingly fragile, until it isn’t always up most of the time.

In 2006 reliance on coal for electricity, and soon COAL-TO-LIQUID (CTL) TRANSPORTATION FUEL, were expected to grow in the future because there wasn’t as much natural gas as hoped for.  And now again, there still isn’t — fracked gas did buy us an extra 10 years or so, but it is about to rapidly decline sometime between now and 2020.   When CTL hearings are heard again (the last ones were held 2005-2007), you’ll know the energy crisis is back with a vengeance.

Alice Friedemann  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report ]

Senate 109-601. May 25, 2006. Coal-based generation reliability. Senate hearing.

PETE V. DOMENICI, U.S. SENATOR FROM NEW MEXICO.  The purpose of today’s oversight hearing is to receive testimony on the reliability of coal-based electric generation in the short term and in the future. According to the EIA, coal has fueled about half of this Nation’s electricity for the past 50 years, and the use of coal is expected to grow. The EIA estimates coal will supply 57% of our electricity needs by the year 2030. That is substantially up. Coal is a resource that this country has in abundance, with 25% of the total world reserves. The United States has been dubbed the Saudi Arabia of coal.  In order to maintain coal as a reliable resource, we must be able to move coal from the mines to the generating plants. More and more, the country is relying on low sulfur coal from the Powder River Basin in Wyoming and Montana to meet Clean Air Act requirements. Rail transportation is responsible for moving the coal for a majority of this load. With last year’s train derailments, the dependence on a reliable transportation system was highlighted. Some utilities were caught with low stocks of supplies and were forced to dramatically curtail generation. This, in turn, led to expensive replacement power, with the cost passed on to the end customer.

CRAIG THOMAS, U.S. SENATOR FROM WYOMING.  Half of our generation for electricity now is done by coal, and about 40% of that comes from the Powder River Basin, much of it from Wyoming. So that is even better. Sixty percent of the price paid for coal is transportation cost, and so we are going to be faced with making some changes and some ideas for getting more transportation available. Are we going to have to do more mine mouth generation and other kinds of things?

HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY.   For the past 50 years coal has fueled roughly half the Nation’s electricity generation. Between 1989 and 2005, net generation from coal increased by 27%, while total coal-fired generation capacity grew by only 3%. The average capacity factor or utilization rate of coal-fired plants increased from 60 percent to 72 percent over this period.

Rail shipments in 2005 accounted for 72% of all coal delivered to electric power plants. National average rail transportation costs, which now represent about 40 percent of delivered coal costs, increased from 51 cents per million Btu in 2004 to about 63 cents per million Btu early this year.  Contract rail transportation represented about 60 percent of the average total cost of rail-delivered Western subbituminous coal, which is primarily produced in the Powder River Basin, and only 25 percent of the average total cost of rail delivered Eastern bituminous coal.

Days of burn, a measure of the number of days a plant or group of plants can operate using only on-site inventories for supply, is a way of representing coal stockpiles of power plants in relation to anticipated use. At the national level, days of burn increased from 38 days to 40 days between February 2005 and February 2006. However, the increase has not been uniform. Stocks of bituminous coal increased 23 percent over that period, but inventories of subbituminous coal, again the vast majority of which comes from the PRB, dropped 7 percent over that period.

In addition to a draw down of inventories, the shortfall in shipments over the past year has led to some reduction in utilization at some coal-fired plants. To compensate, electric power companies bought power from other generators or relied more heavily on other plants within their systems. Under recent market conditions, substitution of power generated at natural gas-fired plants in lieu of coal-fired power can be an expensive option

Our Annual Energy Outlook projects that coal-based generation will continue to be the dominant source of the Nation’s electricity supplies through 2030. Reliance on all types of coal is projected to increase over time, but particularly the Powder River Basin coal, suggesting a requirement for increased capacity throughout the Nation’s rail transportation system.

Although coal-fired generation has grown by 27% since 1989, the coal consumption measured in tons increased by 34% (from 782 million tons to 1,051 million tons). Consumption of coal outpaced the growth in generation because of increasing use of subbituminous coal produced in the PRB. This subbituminous western coal has less energy content per ton than eastern and Midwestern bituminous coal, so more tons are needed to produce an equivalent amount of electricity. Western subbituminous coal is generally lower in sulfur and less expensive to produce than bituminous coal, which often makes subbituminous coal a preferred option for environmental and economic reasons despite its lower energy content.

Coal stockpiles at electric power plants have generally been declining for years: end-of-year stocks declined from 135.9 million tons in 1989 to 101.2 million tons in 2005, down 26%, although coal-fired generation and coal consumption both increased during this period. The long-term us due to power plant operators trying to minimize their coal inventory holding costs. Over the past several years, however, operators at times have found it difficult to maintain stockpiles because of intermittent disruptions in coal production and transportation. Concerns over coal deliveries and reduced stockpiles have grown over the past year due to problems with shipments of coal from the PRB.

RAILROAD TRANSPORTATION ISSUES.  In the PRB, a number of disruptions occurred in planned coal shipments during 2005. Structural failures in the rail roadbeds caused two major train derailments on the weekend of May 14. The roadbed failures were triggered by unusually wet weather for the region. Accumulated coal dust infiltrated the road foundations (stone ballast) and created drainage problems which led to the derailments.

This affected all three mainlines in the Joint Line shared by the Burlington Northern Santa Fe Railway (BNSF) and Union Pacific Railroad (UP) used to move coal unit trains in and out of the PRB. Normally, the Joint Line operates 365 days a year, 24 hours per day and moves three loaded coal trains per hour out of the basin.

After the derailments, BNSF and UP replaced more than 100 miles of roadbed, including new concrete railroad ties and new tracks to facilitate trains passing. Rebuilding continued, as scheduled, through November 2005 and was restarted with the spring thaw in 2006. During this entire period, rail traffic in and out of the PRB has been disrupted at times, but it is now moving more fluidly, even though the reconstruction project is not yet quite complete. BNSF and UP have invested heavily over the past 20 years in rail infrastructure and equipment to serve the PRB coal market. Both railroads continue to make additional capital improvements throughout their respective rail systems: adding parallel tracks, upgrading classification yards, alleviating bottlenecks, and generally improving capacity for all types of rail traffic. On May 8, 2006, the UP and BNSF announced that they would spend $100 million over the next 2 years to construct more than 40 miles of third and fourth main line tracks on the PRB Joint Line. This follows the addition of 14 miles of third line track in 2005 and 19 miles currently under construction in 2006. The railroads believe the completion of these projects will raise Joint Line capacity to at least 400 million short tons per year, compared with the record 325 million short tons hauled in 2005.

The capacity of natural-gas-fired power plants (including oil-burning plants that can also use natural gas) more than doubled, from 165.9 to 409.2 gigawatts between 1989 and 2005. Most of this capacity is not fully utilized, but using it in lieu of coal-fired power can be an expensive option.

At the average cost of delivered natural gas to the electric power sector in January 2006, a new, efficient natural-gas-fired combined-cycle plant can produce electricity at a fuel cost of roughly 6.4 cents per kilowatthour. The comparable cost for a conventional coal-fired plant at the January 2006 national average delivered price was less than a third as much, about 1.5 cents per kilowatthour.

Because of the complex and (currently) capacity-constrained PRB operations and delivery schedules, it will take some time to rebuild sub-bituminous stocks. With the supply chain for PRB coal as fully committed and finely tuned as it is, any future weather, equipment or infrastructure failure has the potential to reverberate through the entire system.

Hardly a month goes by that delivery of PRB coal somewhere in the supply chain is not interrupted by a derailment, freezing, flooding, or other natural occurrence. In most cases, the events are small compared with the amount of PRB coal delivered each year, and the rail system and inventories are capable of absorbing them, unless the events are particularly severe or occur simultaneously.

The situation in the East is somewhat different. The primary eastern railroads, Norfolk Southern Railway (NS) and CSX Transportation (CSXT), divided and absorbed Conrail’s assets in 1998. Both railroads experienced a number of customer complaints related to slow deliveries in the years following the Conrail acquisition. The impact of population density and geography mean the eastern railroads must contend with more traffic per mile of track, more congested routes and delivery areas, steeper grades and narrower, winding right-of-ways and routes than the western railroads. Recent increases in the export coal market have further congested rail lines in the East. Therefore, deliveries of bituminous coal to eastern power plants may also have been disrupted, to some degree, by hauls to export docks.

It is important to note that railroad capacity constraints nationwide entail more than just the infrastructure improvements at important coal origins and destinations. Other parts of the rail system are also increasingly constrained in their capacity to handle all rail traffic, not just coal. Nationwide rail capacity is constrained in part because of growth in demand in other freight sectors, including agricultural products, consumer goods, and especially, intermodal shipments (trailers or containers on flat cars). Use of these has been growing as an alternative to long-haul trucking which has been impacted by a shortage of drivers and higher diesel fuel costs. Future economic growth and the possibility that railroads will reacquire market share for shipments previously lost to truck and barge will continue to challenge the railroads to provide sufficient capacity.

THE FUTURE OUTLOOK FOR COAL.   Over the next 25 years, EIA expects significant growth in the use of coal for the generation of electricity and the rail transportation system will need to be expanded to accommodate it. Over the same time period, coal use in the industrial sector is expected to grow as coal is used to produce liquid fuels together with electricity.

The wide-spread availability and relatively low cost of coal make it very economical for electricity generation. As a result, in the reference case in EIA’s Annual Energy Outlook 2006 (AE02006), total coal consumption is projected to increase from 1.1 billion short tons in 2004 to 1.3 billion short tons in 2015 and 1.8 billion short tons in 2030.

The increase in coal use over the next 5 to 10 years is driven primarily by greater use of existing coal plants, while in the longer term, a large number of new plants are expected to be added. The current average utilization rate of approximately 72% is projected to increase to 80% by 2013. In addition, over the 2004 to 2030 time period, 174 gigawatts of new coal-fired electricity generation capacity, including 19 gigawatts of coal-to-liquids capacity, are projected to be added. Most of the projected new coal plants, 126 gigawatts, are expected to be added after 2020, and a little over half of them are expected to be integrated gasification combined-cycle (IGCC) plants.

To meet the growing demand for coal, most coal supply regions, particularly those in the West, are projected to increase their annual production volumes. The exceptions to this are the Central and Southern Appalachia regions where mining difficulties and reserve depletion are projected to contribute to lower production levels in 2030 compared to 2004. In contrast, the PRB has large, productive surface mines that are able to produce coal at a comparatively low cost. In 2030, the PRB is projected to produce 719 million short tons, 298 million tons higher than in 2004, accounting for 52 percent of the total increase in annual coal production between 2004 and 2030.

As with all long-term projections, there are significant uncertainties. With respect to coal markets, key areas of uncertainty include future economic growth, long-term productivity improvements that influence coal prices, competing natural gas prices, the development of competing technologies such as nuclear, and the possibility of new policies to curb the growth in CO2 emissions.

The EIA has projected that by 2030 Powder River will produce 719 short tons of coal. This year’s Annual Outlook was first to include a significant amount of coal to liquid production.  The amount of the coal used for coal to liquids production would be about 150 million tons out of the 719. So it is pretty substantial by 2030.

Senator BURNS. In some areas, we got reports of coal being imported from offshore when they had those big drawdowns, and that sort of concerns me. I would hate to get as dependent on foreign coal as we do on oil. Should we be concerned, from a domestic energy production standpoint, about some increased need of imported coal due to delivery system breakdowns?

Dr. GRUENSPECHT. We import and export coal. We export a lot of metallurgical coal and we import some coal mostly for power production, as you pointed out. Both the imports and the exports are pretty small in relation to our domestic production and consumption, on the order of 3 to 4%. And the imports and exports balance out. My understanding is that a lot of the imports come into Eastern and Southern ports. I think Colombia is our biggest source of coal imports, and we import some from Canada as well.  I do not think we are headed toward a situation in coal like the situation we have in oil.

Robert ‘‘Mac’’ McLennan, vice president of external affairs, for the Tri-State Generation and Transmission Association.   As a 24% owner in Laramie River Station in Wheatland Wyoming, we have a significant interest in what has happened there, as members have to date faced both increased rates and reduced coal shipments. In order to maintain efficiency, coal-based plants like Laramie River Station, or LRS, are run almost continuously. Maintaining full generation requires a train and a half a day. In addition to the train and a half a day, we try to maintain a 30-day supply of coal in the stockpile. Earlier this year we actually got to 6 days. If the stockpile had depleted any further, we would have been forced to curtail generation at a significant cost to our members. We would have had to either use natural gas, which as a fuel source is five to seven times more expensive than the underlying coal, or purchase off the purchase power market, if available, at much higher prices.

STEVEN JACKSON, DIRECTOR, POWER SUPPLY, MUNICIPAL ELECTRIC AUTHORITY OF GEORGIA, ATLANTA, GA.   MEAG Power’s primary purpose is to generate and transmit reliable and economic wholesale power to 49 Georgia communities—including approximately 600,000 citizens and many large and small businesses. BNSF provides the initial portion of the PRB haul under separate contract. The plant is approximately 2,000 miles (4,000 miles roundtrip) from the Powder River Basin and coal is delivered by thirty-seven sets of privately owned 124 car unit trains. These train sets are constantly in motion cycling from the PRB to our plants and back.

DAVID WILKS, PRESIDENT OF ENERGY SUPPLY, XCEL EN- ERGY, MINNEAPOLIS, MN, ON BEHALF OF THE EDISON ELECTRIC INSTITUTE AND CONSUMERS UNITED FOR RAIL EQUITY.   Xcel Energy is a major electric and natural gas company, with annual revenues of $10 billion. Xcel Energy generates 78.6 GWhs of electricity annually, 72% from coal-fired generation, 100% of the coal is supplied by rail.

Today, most coal moves in unit trains between the mines and the power plants. These trains typically consist of 100-130 cars owned or provided by the utility, with 100-120+ tons of coal per car, which shuttle continuously from the coal mine to the power plant without ever being uncoupled.

Unfortunately, it has become increasingly difficult to maintain adequate coal stockpiles, especially over the last couple of years.  Because of recent rail delays and other rail service problems, many utilities have been forced to reduce outputs from coal-fired generating plants—requiring greater reliance on natural gas-fired generation and some have even resorted to importing coal from overseas sources as far away as Indonesia, in order to meet the demand for electricity.

Like most utilities in the West and Midwest, Xcel receives most of its coal by rail from the Powder River Basin (PRB) coal seam of Wyoming and Montana. The PRB is the most significant coal producing region in the United States, with approximately 40% of all U.S. coal production mined there. PRB coal has been particularly attractive to electric utilities because of its relatively lower price and low sulfur content.

Two railroads, the Burlington Northern Santa Fe (BNSF) and the Union Pacific (UP), move all of the coal out of the PRB, much of it over a Joint Line they operate together. In the spring of 2005, two derailments occurred on the Joint Line, significantly reducing rail deliveries of coal by 15 to 20 percent. While significant repairs have been underway for months and are scheduled to be completed by the end of the year, train speeds remain reduced to avoid further derailments. Delivery levels have not yet recovered, and some utility coal stockpiles remain significantly lower than desired levels. In the case of Xcel, we have several plants that are struggling to maintain even 10 days of coal on the ground. At a minimum, the situation appears to bring into serious question whether the carriers are meeting their common carrier obligation to provide service to the public.

The significant additional costs resulting from rail service failures have put additional upward pressure on consumers’ electricity rates. In order to replace an estimated 20 million ton shortfall in PRB coal deliveries in 2006, electric generators may be forced to use approximately 340 billion cubic feet of natural gas, costing at least $2 billion more than the coal that will not be delivered this year.

In some cases, the situation has become so bad that utilities have found it necessary to sue the railroads for damages resulting from delivery shortfalls. For instance, Entergy Arkansas is involved in litigation against the Union Pacific over the failure of the rail carrier to meet its coal delivery obligations last year. The utility had to cut back production from two coal-fired plants, forcing it to increase its power purchases in the wholesale market. Also, Entergy is one of a handful of utilities that have taken the extraordinary step of importing foreign coal—in this case from Colombia—due to the inability of the railroads to move adequate amounts of domestic coal in a timely manner.

ROBERT K. SAHR, CHAIRMAN, SOUTH DAKOTA PUBLIC UTILITIES COMMISSION, PIERRE, SD, ON BEHALF OF THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS.   In 2005, coal plant operators experienced reduced coal deliveries under firm contract by an estimated 10 to 25%. Coal reserve levels at plants in the upper Midwest dropped below 10 days at times, as we heard earlier, where typically 30 days is considered prudent.  This crisis is endangering our energy security. Dangerously low reserves make plants more vulnerable to weather, rail accident, terrorist attacks, and other disruptions.

GAS VS. COAL-GENERATED ELECTRICITY.   Recently, the nation has experienced record high prices for natural gas, which has dramatically increased the cost of both natural gas and electricity service to the millions of business and residential customers in this country. Currently, the fuel cost component of producing electricity at gas-fired power plants can be as much as five times higher than the fuel component of producing electricity at a coal-fired power plant. As a prudent business practice, one would expect that, given existing gas prices, electricity producers would be seeking to utilize existing coal-fired electric generation as much as possible in lieu of gas-fired generation in order to produce electricity more economically and to avoid upward pressure on natural gas prices.

In March, the Big Stone Power Plant stockpile dwindled to a 10-day supply while the plant waited for their rail service provider to deliver the needed coal, Some of the coal at the bottom of the stockpile has been stored on open ground, exposed to the elements for 20 years in some cases, and can only be used as a last resort. According to Basin Electric Power Cooperative, a co-owner of Laramie River Station, using this coal also brings other issues of concern. The coal at the bottom of the Laramie River Station stockpile has significantly reduced BTU value and includes rocks that are being run through the plant’s turbines. Plant staff members are now cleaning the pulverizers on a daily basis, where in normal operation it is done every two to three weeks.

EDWARD R. HAMBERGER, PRESIDENT AND CEO, ASSOCIATION OF AMERICAN RAILROADS.  I am very pleased that the hearing is being held today and not last May. Last May, our ability to ensure reliability on coal shipments was certainly being challenged. That happened for several reasons. First and foremost, in May of last year, a heavy rainfall in Wyoming, combined with an accumulation of coal dust on the roadbed and a spring snowstorm put moisture into the track structure, causing instability and resulting in two derailments on a heavily used Powder River Basin rail line. The derailments and the subsequent repairs disrupted coal shipments out of the PRB for months afterward.

Later in the year, as Senator Landrieu knows, hurricanes Katrina and Rita created backups and congestion that affected the entire rail network. For example, much of Midwestern and Northern Plains grain had to move by rail rather than by barge down the Mississippi. Finally, in October, a deluge dumped a foot of rain in Kansas City, disrupting rail service on several major coal-carrying routes for about 2 weeks.

Second, demand for rail transportation in general was much higher in 2005 than in previous years, creating capacity constraints on important parts of the U.S. rail network. It is not just the Powder River Basin lines that are important here. It is the entire rail network, as these coal trains move 1,500-2,000 miles across country. Third—and this is a key point, Mr. Chairman—this entire supply chain is not just railroads. It is the production capability of the mines. It is our ability to move it. It is barge ability to move it, and it is what happens at the utility end, at the delivery end. As the EIA testimony indicates, between 1980 and 2000, utilities consciously reduced their inventories, their stockpiles by two-thirds, thereby cutting the zone of what they could rely on. Some would argue that they cut that stockpile much too fast, much too far. Fourth, the system was exacerbated by a dramatic increase in the price of natural gas, leading to an unprecedented increase in demand for coal-fired electricity generation. Now, this was a reversal of what had been happening. As you can see by the chart, during the previous 5 years, electric utilities brought nearly 200,000 megawatts of new natural gas generation capacity on line compared with almost null, about 1,200 new megawatts of coal generating capacity, and this continued the trend of the previous years. Utilities had shown their preference for natural gas and that that was the fuel of choice, and railroads and, undoubtedly, the mining companies as well developed their capital plans accordingly.

The vast majority of coal in the United States is used to generate electricity, with smaller amounts used in industrial applications like fueling cement kilns or producing coke. Coal accounted for 50 percent of U.S. electricity generation in 2005, far more than any other fuel.

The amount of electricity generated by coal in the United States rose from 1.6 billion megawatthours in 1990 to 2.0 billion megawatthours in 2005—an increase of 420 million, or 26%. But because overall U.S. electricity generation rose 33% during this period, coal’s share of total generation actually fell, from 52.5% in 1990 to 49.9% in 2005.

By contrast, natural gas’s share of U.S. electricity generation rose from 12.6% in 1990 to 19% in 2005. In fact, during the 1990s and into the first half of this decade, virtually no new coal-fired electricity generation capacity and no new nuclear facilities were built, but huge amounts of gas-fired capacity were added.

Natural gas was the fuel of choice for new capacity for several reasons. Gas plants could be constructed relatively quickly and enjoyed an easier permitting process, and thus were less expensive to build. They were also considered to be ‘‘environmentally friendly.’’ Perhaps most importantly, though, it was assumed that natural gas would remain cheap and plentiful.

This, of course, did not happen. Over the past few years, the price of natural gas to utilities has skyrocketed, making gas-fired generation less competitive and sparking increased demand for electricity generated from other fuels, including steam coal. In contrast to the delivered price of natural gas, the delivered price of coal to utilities has remained basically flat, and on a per-Btu basis is far below the comparable figure for natural gas. In addition, demand for metallurgical coal rose sharply because of a boom in steelmaking worldwide.

This unexpectedly strong increase in the demand for coal, which occurred at the same time that demand for rail transportation overall was rising sharply (discussed further below), has in some cases exceeded the capability of coal producers to supply the coal and coal transporters to haul it. That’s not surprising, especially since utilities, by their actions, had long been disfavoring coal in favor of natural gas, and neither coal suppliers nor coal transporters have unlimited spare capacity on hand ‘‘just in case.’’

Coal-fired power plants have been reducing their coal stockpiles since the early 1980s. A typical electric utility held nearly two months of full-load burn in the early 1980s; by the late 1990s, this had fallen to near one month.  According to EIA data, coal stocks at electric power producers as a percentage of coal consumption fell from more than 30% in 1980 to 10% by 2000. The decision to reduce stockpiles was part of a deliberate utility effort to shift to just-in-time inventory practices to limit capital tied up in fuel stocks. With inventory reduced to this degree, utilities eliminated a traditional buffer to withstand supply disruptions (like the May 2005 PRB derailments noted below).

Going forward, one of the root causes of the weather-related problems of 2005—coal dust ‘‘blow off’’—must be aggressively addressed. Just as with other coal delivery chain issues, the mines, utilities, and railroads must collectively identify, agree upon, and implement the best method to combat ‘‘blow off’’ so that the premature wear of rail infrastructure in the PRB can be eliminated.

OUTLOOK FOR COAL.  U.S. coal production and consumption will almost certainly continue to grow. In its Annual Energy Outlook 2006, released in December 2005, the EIA projects that U.S. coal production in 2015 will total 1.27 billion tons, a 140-million ton increase (12%) over the 1.13 billion produced in 2005. The EIA expects U.S. coal consumption to increase from 1.13 billion tons in 2005 to 1.28 billion tons in 2015, a 147-million ton increase. DOE’s National Energy Technology Laboratory reports that 140 coal-fired generating plants in 41 states representing 85 gigawatts have been announced or are in development. If ultimately built, this new generation would increase annual U.S. coal requirements by some 300 million tons.

Coal is by far the highest-volume single commodity carried by rail, and railroads are moving more coal today than at any time during their history. In 2005, Class I carriers originated 7.20 million carloads of coal (23 percent of total carloads), equal to 804 million tons (42 percent of total tonnage). Coal has long been a major source of rail revenue as well. Class I gross revenue from coal in 2005 was $9.4 billion, or 20 percent of total gross revenue. Coal is also carried by dozens of non-Class I railroads.

In light of current capacity and service issues, some shippers and others have inappropriately blamed railroads for not having enough infrastructure, workers, or equipment in place to handle the surge in traffic. Perhaps railroads and their customers could have done a better job of forecasting and preparing for the sharply higher traffic volumes of recent years. But to contend that railroads can afford to have significant amounts of spare capacity on hand ‘just in case’—or that shippers would be willing to pay for it, or capital providers willing to finance it—is completely unrealistic. Like other companies, railroads try to build and staff for the business at hand or expected to soon be at hand. ‘‘Build it and they will come’’ is not a winning strategy for freight railroads.

In part, this is because long-lived rail infrastructure installed long ago was often designed for types and quantities of traffic, and origin and destination locations, that are dramatically different than those that exist today. For example, only within the last two decades has Powder River Basin coal taken on

Similarly, the explosive growth of rail intermodal traffic is mainly a phenomenon of the past 20 years.

When business is unexpectedly strong, railroads cannot expand capacity as quickly as they might like. Locomotives, for example, can take a year or more to be delivered following their order; new entry-level employees take six months or more to become hired, trained, and qualified; and it can take a year or more to plan and build, say, a new siding. And, of course, before investments in these types of capacity enhancements are made, railroads must be confident that traffic and revenue will remain high enough to justify the enhancements for the long term, and that the investment will produce benefits greater than the scores of alternative possible investment projects.

STEVEN JACKSON. Our experience suggests that the supply chain is very fragile and any event weather related or otherwise that disrupts this supply line could quickly cause a major reduction in supply and inventory levels during the time of greatest needs and highest replacement costs.

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