Will Winter Disrupt PRB Coal Deliveries Again?

Last winter saw extreme weather – remember the “polar vortex”? – severely disrupt coal supplies to power plants in the upper Midwest (particularly Minnesota) that burn Powder River Basin coal. Plants had to reduce output, coal piles dwindled to the point they were single digit days away from exhaustion, and the BNSF Railway, the major link between the PRB and the Midwest, was suffering slow deliveries, shorting customer deliveries, and making difficult decisions about whom to serve and when.

Will that repeat this winter? Probably not, according to a panel discussion at today’s Federal Energy Regulatory Commission monthly meeting. The panel included FERC staff, the Surface Transportation Board, Minnesota Power, the Midcontinent Independent System Operator, and BNSF.

The FERC staff was cautiously optimistic, noting that the “regions involved” in the coal supply disruptions “appear to be preparing adequately for winter, even if it is colder than forecast.” The staff’s Alan Haymes noted, “Certain affected generators who use PRB coal delivered by BNSF have taken steps, such as reducing output and using trucks, to conserve coal and build inventories. The relatively mild summer also helped to mitigate the deficiencies going into this winter.”

Minnesota Power’s Dave McMillan said that inventories at the utility’s large coal plants are now “acceptable” as winter arrives. He added that although his utilities’ coal supplies were extremely dicey during parts of last winter, the system still was able to meet its load, thanks to the ability to get power from MISO. That was the good news. The bad news was that it cost the company $27 million to buy power, which flowed to customer rates.

BNSF’s Stevan Bobb concurred with the assessment that this winter will be different, noting that the railroad was caught by surprise last winter. “We have invested record amounts in capital and maintenance to add capacity to handle all of the traffic,” he said. “Our measures to add capacity and improve fluidity are having an effect. We will be rebuilding coal stockpiles all through 2015 and into 2016.”

But weather remains a wild card. FERC’s Haymes said, “If the coming winter presents challenges similar to last year’s experience, the coal inventory problems could result in significant market impacts. However, staff would expect to see a somewhat measured reduction and more conservation actions. By itself, coal inventory deficiencies should not produce significant power market dislocation. However, the inventory deficiencies could result in more significant impacts when combined with other events such as a high level of unplanned outages or natural gas disruptions.”