PR Coaltrains

[MP173]

Just curious. Passing thru Gary, In. today I saw EB Powder River coal train with UP engines and the electric utility's cars. I also saw on the CSX a WB coal train with CSX hoppers.

Why is it that PR coal trains' cars are almost ALWAYS owned or leased by the utility, while the trains from CSX or NS are almost always in the railroad's cars?

There are probably some exceptions to this, but for the most part I believe this is to be true.

ed

[Anonymous]

I read in Train magazine that when the PRB was being developed in the 70s, BN did not have the resources to buy the car themselves, so the power companies bought their own cars for the coal. I do not really remember exactly was said about it. Anyone who has more info, I would appreciate it myself.

[MP173]

Somehow Mark, I figured you would jump on this one. Thanks for the explanation. On this cold and windy night, I am very glad NIPSCO, GE Capital, UP, and Powder River Basin coal exist.

Any idea of the difference in freight rates between customer provided rail cars and railroad supplied?

Mark, I read your article on Colorado Commodities back this summer and somehow concluded (I dont remember how) that a coal train from PRB essentially generated about $150/mile of operation. When divided by 2 (to account for empty return of the cars) that is obviously $75/mile. That number sticks in my mind. Does that seem correct?

I would assume the rate would apply for the round trip....in other words, someone has to pay for the backhaul of the empties.

Now, what about railroad owned empties? When I see the NS running an empty hopper train back to West Virginia who pays? I know we all PAY, but is the cost of the returns built into the head haul rate, or does the shipper pay for the return of the empties?

ed

[dldance]

LCRA's LaGrange TX power plant illustrates many points. This plant literally sits on top of a lignite seam - but there is neither sufficient quantity or quality of the local coal to meet LCRA's projected needs. Thus LaGrange burns PRB. Not only did LCRA buy (actually a FURX lease) the coal cars, they also built a maintenance shop for the cars in Smithville. That is long-term thinking.

dd

[Anonymous]

Great writing Mark: complete, but not too complex, long (for an e-mail), but NOT boring. Lawrence.

[jeaton]

MP173

I'll take your question. There may be some exceptions, but rail rates are based on the net weight of the commodity shipped. The rate on coal from PRB to some utility will X bucks per ton, all transportation services provided including the return of the empties.

I don't know if there is anything like a standard differential on rates in carrier owned vs shipper owned. Railroads have pretty good costing systems and can break out car costs for any move. So you could assume most if not all of that cost would be taken out of the "in railroad owned cars" rate to make the shipper car rate.

I would add one more reason for utility owned cars. In the typical electric utility scheme for regulation, the amount of profit built into electric rates was based on giving the utility a specified percent return on their investment. The cost of the freight cars could be included in the investment, thus allowing a higher total profit.

Jay

[Anonymous]

Back in a previous lifetime, I did a lot of work in the coal shipment business, particularly in the rate/transportation cost area. This was back when the PRB was getting opened up and the rates were still regulated. This involved lots of market studies, analyses, etc., and I participated in several big studies associated with the development of western coal and Texas lignite.

While Mark is generally right in what he says, it bears pointing out that the utilities buying western coal also got one whale of a rate break for shipping the coal in their own equipment. Not to mention that they got to maintain it with their own union shop crews, and not the railroads' (big difference--have you priced railroad labor lately??), at considerable savings to the utility. Considerable enough that many (not just LCRA) built their own maintenance operations.

BTW, LCRA's Fayette project at Lagrange TX that Dldance mentions is partially owned by the City of Austin and does sit near a seam of lignite, and in fact Fayette unit 3 was designed and built to burn it. In about 1980 LCRA opened the Powell Bend lignite mine at Bastrop, about 40 miles from the plant, and the Katy made them one heck of a deal on a short haul (the mine is about 1/4 mile off the Katy main line to the plant and on to Houston) which operated for a number of years. The operation got killed when the price of gas went through the floor and demand dropped at the same time, forcing the economics to essentially reverse. At one point during this period, Fayette was actually swinging some load as opposed to being operated completely base loaded as intended. The mine and loading equipment are still there, but shut down.

For those of you not familiar with the animal, Texas lignite is a young coal with about half the heating value and several times the amount of ash as typical western bituminous. So it's sort of like burning enriched dirt. But it's close to the surface; is cheap to strip mine; located on flat land; has cheap, easy, successful and proven reclamation to pasture (which it what it generally was before); is generally low sulfur; and it's so dirty in terms of particulates that the emissions are very easy to clean out (that sounds incongruous, but it isn't--consider using a vacuum cleaner on a lot of big dirt chunks versus a little very fine dust-which is easier to clean up and leaves less dust in the air). But it takes a biiiiiiig boiler with a biiiiiiig appetite for the same power output.[dinner][dinner][dinner][dinner][dinner]

[bobwilcox]

Jeaton - "I'll take your question. There may be some exceptions, but rail rates are based on the net weight of the commodity shipped. The rate on coal from PRB to some utility will X bucks per ton, all transportation services provided including the return of the empties."

I may be putting to fine a point on this but coal rates are based on x bucks per million btu. The heat value is one of the main things the utility cares about when the buy coal.

[jeaton]

Bob

I'm not sure I understand. I know that BTU's could be a factor in establishing the level of the rail rate for a given move. I was speaking of how a railroad will come up with a charge for a given train. Am I wrong?

Jay

[dldance]

drephpe - with natural gas prices now swinging through the ceiling - what are the odds that the Bastrop lignite mining and rail operation will restart?

dd

[bobwilcox]

Dave - When a utility goes to buy coal they know from industry data what the spec is on the coal from a particular mine. Lets say they find 5 mines that meet the specs for sulphur, ash, etc. Then they will look at the lowest cost per btu fob their power plant. The lowest cost per btu will be the winner from the 5 mines that meet the specs. The railroads and mines also know this information and will base their bids accordingly. When the contracts are drawn then the cost per btu numbers get converted into a rate in $/ton, $/cl or $/train as an administrative issue for the acconting departments.

[daveklepper]

What a wonderful education!

[kevarc]

BTU is not the sole consideration in coal prices. I was talking to our GM about our new coal contract for PRB coal. While btu is a major part, there are qualifiers that will change the price. Sulfur content is the main one. The lower the sulphur content, the higher the price and vice versa. Ash also is figured into the cost. Moisture is not a major qualifier. This is because on a 1000 haul, you will loose 5-10% of WEIGHT due to moisture evapration and dudt getting clown out.. And remember, you pay fob at the minehead and that is also the weight you pay for transportation.

We are looking at doing some more test burning of other mines in the near future. At this time, mines are not looking for long term contracts. They want 1-2 year ones. With the high prices for coal, they want to hold back and play the spot market. The railroads are the same way. We recieved a letter from UP, our RR, that here is the published price, live with it. I understand that BNSF is also doing that. NOTE: We are captive to UP.