Railroad under fire for costly decrease in coal shipments

Union Pacific Railway, one of two railroad companies that haul coal out of the Powder River Basin, is under fire for curtailing shipments to customers, including power plants. The failure to meet customer coal demand has resulted in less coal-fired power generation and higher costs to ratepayers for natural gas purchases to replace coal power.

Coal-fueled power plants nationwide have responded by "curtailing operations for parts of the year in order to conserve fuel for peak seasons," National Coal Transportation Association Executive Director John Ward told WyoFile. "The winter of 2021 saw a historic drawdown in coal stockpiles as a result of rising natural gas prices and bad weather. Continuing poor railroad service has prevented rebuilding those stockpiles."

Xcel Energy in Colorado, for example, says it's incurred more than $123 million in fuel replacement costs due to reduced coal-by-rail shipments - an unanticipated expense that it proposes to pass on to its Colorado customers.

"In order to maintain coal inventories at levels needed for reliability, [Xcel has] implemented, and is implementing, measures to reduce coal use at its coal-fired power plants," the company stated in a rate-adjustment filing to the Colorado Public Utilities Commission.

Thirty-eight of 45 utilities responding to a survey this fall reported they had to reduce coal-fired power generation due to shortfalls in coal-by-rail deliveries this year, according to the Surface Transportation Board's Rail Energy Transportation Advisory Committee. So far, it's unclear whether any coal-fired power plants in Wyoming are impacted, according to the Wyoming Office of Consumer Advocate.

"That's not to say that it couldn't potentially play out," WOCA Administrator Anthony Ornelas said. "But no utility that I'm frequently in contact with has raised a similar issue yet in the state of Wyoming."

Most coal-fired power plants in the state do not rely on rail for coal deliveries and instead get their supply delivered by conveyor or trucks from small mines located at or near the operations. Two coal plants in the state do, however, rely on coal-by-rail deliveries: Laramie River Power Station east of Wheatland and Dave Johnston at Glenrock. 

PacifiCorp, which operates the Dave Johnston plant, said it doesn't disclose information about fuel supply deliveries and electrical generation output in real time because it is confidential information that is economically sensitive for its customers. Basin Electric Power Cooperative, which operates Laramie River Station, didn't respond to WyoFile's inquiries.

Wyoming coal producers, however, are feeling the pinch of compromised rail service, as are Wyoming taxpayers. After several years of decline, producers have seen an uptick in demand and pricing for Powder River Basin coal - more demand than railroads have been able to meet, according to Wyoming Mining Association Executive Director Travis Deti. Lagging rail service has choked coal production by about 30 million tons this year, Deti estimated. That equates to about 12.5% of Wyoming's annual coal production and an estimated loss of $60 million in revenue to the state, according to Deti.

"The coal is in demand and we just can't get it there," Deti said. "If the trains were running the way they should be running, we'd be having a very, very good production year in the Powder River Basin. It's very frustrating." 

Union Pacific was called to testify before the federal Surface Transportation Board this week. The board - which oversees railroad shipping rates and service issues, among other aspects of the industry - asked Union Pacific executives to explain the railroad's dramatic increase in delivery "embargoes" on coal, grain and other commodities and how it intends to improve service. 

The Association of American Railroads' embargo program allows railroads to temporarily - for up to one year - curtail requested or agreed-upon shipping volumes between freight and commodity suppliers and their buyers. Union Pacific began using embargoes in 2018. It imposed temporary shipping limits on customers about 600 times in 2021 and more than 1,100 times this year - more than all other railroads combined, according to the Surface Transportation Board. Here's a list of Union Pacific's current embargoes.

The company blames hiring challenges and system "bottlenecks" for the need to impose curtailed shipments, yet it is taking rail cars and locomotives out of service. Those parked railcars and locomotives, however, are contributing to congestion at railyards throughout Union Pacific's system, according to testimony.

Surface Transportation Board Chairman Martin J. Oberman noted that even as Union Pacific imposes more embargoes, its rail delivery performance continues to decline.

"So what can we expect next year?" Oberman asked Union Pacific's Vice President of Customer Care and Support Bradley Moore. "Your [embargoes] keep going up and you're not improving your fluidity. Where are we going, because I am stumped."

Moore denied a direct correlation and said Union Pacific plans to increase its workforce, continue adding automation technologies and better match its train inventory with customer demand to improve service. The company needs to continue its rail delivery embargo program to meet system challenges, he said. 

Meanwhile, there are several vacancies on the Surface Transportation Board's Rail Energy Transportation Advisory Committee and there's no current representation for coal producers. Gov. Mark Gordon and U.S. Sens. John Barrasso and Cynthia Lummis implored the board to fill the vacancies and include coal-industry representation.

"Lack of rail service is keeping coal from being shipped to utilities under service contracts and is even reducing the amount of mined coal," Gordon wrote to Oberman in November. "The recent [Rail Energy Transportation Advisory Committee] meeting heard comments that failure to deliver coal under existing service contracts is the fault of the coal production industry being unable to have the product to load rail cars. However, I have heard from coal producers throughout Wyoming, many of which have coal waiting to be put on trains."

Oberman responded and agreed to fill vacancies and include coal-production representation by March.