. coal shortage could spur summer brownouts Thursday May 3, 2:03 PM EDT

By Timothy Gardner

NEW YORK, May 3 (Reuters) - Adding stress to an already frazzled power market, a nationwide coal shortage could spawn electricity brownouts in northeastern states and in the West this summer, experts said on Thursday.

While coal provides the country with 51 percent of its power, years of industry underinvestment and record prices for competing fuels natural gas and fuel oil this year have pushed utilities' coal stocks to their lowest levels since 1974.

In January, the last month of available government data, stocks at electric plants were 94 million tons, 27 percent less than a year earlier, according to the Energy Information Administration, the Department of Energy's number cruncher.

Thin coal stocks compound a U.S. natural gas shortage that led to rolling brownouts in California last winter. That came after a failed deregulation plan and amid natural gas infrastructure bottlenecks. Natural gas prices have fallen from last summer's all-time highs, but are still nearly twice what they were last year at this time.

"In certain regions we would expect brownouts this summer," said Deck Sloan, spokesman for Arch Coal Inc. (ACI), the nation's second largest coal firm. "In California that seems to be a very high likelihood, especially given the situation with reservoir levels behind the hydro-dams in the West," he said.

Los Angeles has avoided brownouts, largely because it has a coal cache in Utah. L.A.'s power department is the largest participant in the 1,600 megawatt (MW) Intermountain Power Project in Utah. The project supplies L.A. with 14 percent of its power and lesser amounts to nearby cities Anaheim and Pasadena as well as parts of Utah.

One megawatt powers about 1,000 homes.

Mike Nosanov, the operating agent of the 1,600 MW Intermountain project, said the plant now has 700,000 tons of coal, or 60 days supply. "That's more than enough to keep us out of trouble this summer," he said. Still, L.A. mayor Richard Riordan has been meeting with Utah Governor Mike Leavitt to discuss adding another 500 to 1,000 MW to the Utah plant, though it would take years to add the capacity.

OVERLOADED RAILROAD

Another potential problem is stemming from the nation's largest coal producing state, Wyoming, which delivers coal to 24 states.

The two major railroads at Wyoming's Powder River Basin, Union Pacific and Burlington Northern Santa Fe, operate a joint line out of the mines that has reached its capacity of 64 trains per day or more than 300 million tons per year.

"The two lines could probably carry another 10 to 20 million tons (per year) out of Wyoming's Powder River Basin. Beyond that it may take additional investment by the railroads in order to get more production out of the basin," said Sloan.

The Midwest is also thirsty for Wyoming coal. A proposal to build a $1.4 billion coal rail project from Wyoming to power plants in the Midwest is in the works.

Hill and Associates, an independent industry consulting firm, agrees that Wyoming coal trains are at their limits, a problem that will take years to solve. "The question is who is going to make the investment?" asked Hill and Associates Vice President John Hanou. "The mines or the railroads?"

COAL DROUGHT ALL OVER

Northeastern states, where years of production underinvestment has led to thin stocks, are also in danger, said Arch Coal's Sloan. "We could also see the Northeast, if the summer is normal or hotter than normal, suffer brownouts as well," he said.

Adding to the mix, Massey Energy (MEE), the nation's seventh-largest coal company, experienced flooding last month in one of its major mines in Appalachia.

"In this current atmosphere, that is a hell of a big story, said Jim Thompson, general manager of Energy Publishing, a Hill and Associates affiliate.

And the EIA reported utilities so far this year are burning six percent more coal than last year. Prices on the spot market have jumped, though long-term contracts make up 80 percent of coal deals, which mean consumers will mostly be protected from rising prices.

But utilities may find themselves scrambling for coal. "As far as we can tell there is no coal available anywhere," warned a Hill and Associates supply report this spring.

"Brownouts are possible," said Lehman Brothers coal analyst Peter Ward. "Utilities have gotten complacent. Coal has been a buyer's market for about two decades. That has suddenly changed in the past three months, and for many utilities with low inventories, that is a scary situation."

Analysts said high coal prices should eventually spur increased production of the fuel, and new natural gas and coal plants will eventually clear up brownout threats. "But we're not going to see much capacity come on line for at least three years," said Hanou

http://money.iwon.com/jsp/nw/nwdt_rt.jsp?section=news&news_id=reu-n27675175&feed=reu&date=20010503&cat=INDUSTRY

-- Martin Thompson (mthom1927@aol.com), May 03, 2001

Answers

I can't speak for shortages, but I know for a fact that many power plants stocked up on extra coal for y2k. Therefore, its natural that levels of stocked coal this year would be less than last year. Taz

-- Taz (Tassie123@aol.com), May 04, 2001.

Giant awakens: Coal industry starts to come alive By: BILL ARCHER of the Daily Telegraph staff May 02, 2001 BLUEFIELD - Like a sleeping giant, old King Coal has been aroused after about a quarter century in the sack, and the signs of the coal industry's re-awakening are starting to show. "We've seen the price of coal move up and it's had a positive impact on out high-vol coals," Daniel "Danny" Smith, president of Norfolk Southern Development, said. "There's a lot of activity out there right now in the coal industry and what's good for the coal industry also benefits the rail industry."

Smith admitted that the dramatic turn-around in the coal business came as a surprise. "I didn't plan for it and neither did anyone else," he said. "I call it the California Complex. We're paying now for a lack of a national energy plan for the past several years. (President Bill) Clinton was just lucky that the energy infrastructure lasted as long as it did."

During a briefing with coal industry officials in Washington last week, President George W. Bush said the nation needs "an energy policy that plans for the future, but meets the needs of today. I believe that we can develop our natural resources and protect our environment. We are paying a steep price for seven and a half years without an energy policy."

Smith was among the group of coal industry leaders who met with Bush's energy secretary Spencer Abraham. The coal leaders were told clearly, "Coal is our number one source of affordable energy," during the briefing. "Complacency about our national energy policy must yield to action and we must make it an urgent priority."

With or without executive involvement, price has been driving the steam coal spot market since the first of the year. During the height of the West Coast energy crisis, some coal brokers were getting as much as $50 a ton of compliance steam coal on the spot market with at least one report of compliance steam coal selling for as much as $60 per ton.

Industry insiders indicate that the average price has adjusted back to about $38.50, but that's still a good deal more than the $23-$24 compliance steam coal was bringing a year ago. That price is still well below what coal was bringing in the early 1970s. Many coal companies were locked into contracts at last year's prices, and thus, have been unable to take advantage of the boom.

Bill Raney, president of the West Virginia Coal Association, said the reversal in fortune in the industry has caused some unexpected developments. "Some (union) signatory companies are calling back coal miners who have been out of the mines for 15 to 20 years," Raney said.

"The bigger problem we have is going to be recruiting the next generation of coal miners," he said. Raney also attended last week's energy briefing. "The average age for people in the coal industry is between 52 and 53 years old. In another eight years, a lot of those people are going to be retiring. We're facing a severe labor shortage."

Raney said the short term solution will be to provide the same level of excellent training in 40 and 80-hour courses, but added that as the nature of mine machinery becomes more technically challenging, coal miners of the future will need advanced training.

"We've been talking with folks at Southern West Virginia Community College, and we need to expand discussions throughout the coalfields," Raney said. "These guys (coal operators) who have been working through the hard times should play a major role as things improve."

Smith said the general public still doesn't realize that coal has always played a vital part in the nation's energy policy. "People don't know that coal makes up 56 percent of the nation's energy," Smith said. "It's not just that we need coal in the mix. Coal has always been there. We need greater national awareness of coal's importance."

Along with his job with NS Development, Smith is president of Bluefield-based Pocahontas Land Corp., NS's wholly-owned natural resources company. Smith said that while there has been some lease activities, "much of the coal we have around here is low-vol, and that only moves in small amounts into the utility markets." He added that the export coal market remains "flat."

Smith said low-vol coal can be blended successfully with non- compliant steam coals to make a cleaner-burning product, but by itself "low-vol coal expands and tends to push the sides of the boilers."

Still, he expressed optimism that various clean coal technologies can be developed to take advantage of the region's clean-burning coal. That clean coal technology has been central to Bush's energy plan.

"The president has a very balanced approach to meeting the nation's energy needs," said Dr. William J. Bennett, former secretary of education under Reagan. "He's going to do what's right for the environment. He's going to have a rational energy policy."

©Bluefield Daily Telegraph 2001

http://www.zwire.com/site/news.cfm? newsid=1754222&BRD=2088&PAG=461&dept_id=346229&rfi=6

-- Martin Thompson (mthom1927@aol.com), May 04, 2001.