GLG News by Mr. Thomas Shewski, Owner
GLG News is now G+ Insights
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G+ is a community for professionals, academics and entrepreneurs to connect through online discussions and in-person meetings. You will continue to see G+ Insights (formerly GLG News) here as well as on the G+ website, where you can share and discuss the G+ Insights you read.
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July 26, 2006
Texas Becomes Top U.S. Producer of Wind Energy | houston.bizjournals.com
The article points out that Texas has just edged out California as the U.S. leader in wind power. The article, unfortunately, does not describe how and why wind development activity will continue at a torrid pace. Nor does it describe the Government economic incentives and associated schedule for these incentives.
The Commentary section below explains why wind power development will be strong in the U.S. and will be a boom to developers and manufacturers. The commentary section also explains the Government economic incentives available to these wind projects.
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Will Congress Provide Some Rail Rate Relief for Some Grain, Chemical, and Coal Shippers?
July 25, 2006
Burns Changes Tactics in Battle Between Railways, Shippers | www.greatfallstribune.com
Senator Conrad Burns of Montana is from a significant grain and, to a lesser extent, coal shipping state. Senator Burns has undergone many efforts to bring down rail rates for shippers, proposing many relief efforts in Congress.
His recent amendment attempts to get the Surface Transportation Board (STB) to reconsider a key decision regarding a railroad’s requirement to interchange deliveries to another railroad when it instead can serve the entire shipment from origin to destination. The amendment also attempts to streamline the rate appeals process at the STB.
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June 30, 2006
ADA-ES Signs Letter of Intent with NexGen to Form Refined Coal JV | www.tmcnet.com
ADA-ES and NexGen announced this joint venture to produce refined coal to the market. This is another player in the beneficiated coal space.
The commentary section below states how this product qualifies for the Section 45 Tax Credit in order to clarify some of the misinformation. Also, the commentary section discusses how this product appears to be a “me-too” product to KFx’s K-Fuel that is soon to undergo additional test-burns.
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Considerations for Natural Gas-Fired Generation Displacing Coal-Fired Generation at These Prices
June 28, 2006
As Natural Gas Glut Looms, Producers Eye the Weather | www.washingtonpost.com
The attached article in the Washington Post correctly points out that the price of natural gas over the next several weeks will be influenced by the weather. The article touches on the subject that with low natural gas prices, natural gas-fired electric generating plants will displace some coal-fired electric generating plants.
This fuel-switching from coal to natural gas would affect the demand and price for each commodity. The commentary below discusses what issues are part of the analysis of a utility or merchant fuel buyer on whether to switch fuel sources to fuel power plants.
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June 28, 2006
Coal Use Hinges on CO2 Rules | www.madison.com
This report cited in this news article from the Department of Natural Resources and the Public Service Commission of Wisconsin states that Integrated Gasification Combined Cycle (IGCC) plants are $5 to $7 more per MW than a conventional coal plant under a regime with no CO2 limitations. In a CO2 constrained regime (“Carbon Tax”) with an IGCC having the controls installed to capture the CO2, an IGCC plant is about $10 less per MW than a conventional coal plant with controls installed to capture the CO2.
Similar numbers are utilized by the Electric Power Research Institute (EPRI), Department of Energy (DOE), and others.
The commentary section below discusses this cost difference, remaining issues, and how these issues will diminish for an IGCC unit.
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Railroads’ Rates Need to Factor in Cost Savings and Recent Rates are Substantially Higher
June 28, 2006
Railroads’ Prices Decline Since 1985, GAO Reports; Rates Not Fair for Chemical Shippers, ACC Says | www.progressiverailroading.com
The attached article in Progressive Railroading cites a recent Government Accounting Office (GAO) report that rail rates have decreased—rather than the widely claimed increased—over the last 20 years in real terms (inflation adjusted).
The individual railroads and the railroad industry group, the Association of American Railroads, used this GAO data in their defense at the recent Congressional Hearings on service and rates.
This is somewhat misleading and is discussed in the Commentary section.
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Costs Cut Into Coal Companies Profits and May Eventually Affect Marginal Mines
June 27, 2006
Miners Hard to Find for Coal Industry | www.normantranscript.com
The coal industry has been in a well documented demand and price boom for the last few years. The existing mining and support labor for this industry is aging with retirements outstripping younger replacement workers. Younger workers are not attracted to the difficult mine work of their father’s generation.
The lack of availability of mine workers, more-expensive-to-mine reserves, fuel-related costs, and the recently enhanced safety-related requirements eventually work their way into the coal price.
The attached article touches on the availability of mine workers. The commentary section below discusses the other variable costs and how its cost affects profits and may eventually affect the smaller, marginal coal mines.
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June 27, 2006
Oregon Agency Says It Will Cut Mercury Emissions from Power Plant | www.oregonlive.com
Oregon is just another state that is acting to implement more aggressive mercury emissions reductions than the Federal regulations. These more aggressive mercury reductions may include lower emissions levels, less credits allocated to the affected coal plants, or restrictions on trading of the mercury credits.
These aggressive mercury emissions reductions by the states—while a burden to the owners of the coal plants—are an opportunity for those in the mercury emissions controls technology space.
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Shuttered Mohave Coal-Fired Generating Station Is Worth Studying
June 27, 2006
Phoenix Utility May Look to Re-Open Shuttered Mohave Generating Station | www.mohavedailynews.com
The 1,580 MW Mohave Generating Station was closed at the end of 2005 because of the need to install costly environmental retrofit technology, lingering coal supply issues, and water issues.
The plant’s proximity to the energy demand intensive areas of Phoenix, Las Vegas, and Southern California makes it a valuable asset to consider. The reasons for the shutdown and items for consideration in an analysis for a prospective purchaser are discussed in the commentary section below.
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June 27, 2006
New DM&E Track Could Give Regional Farmers the Competitive Advantage | www.farmandranchguide.com
The Dakota Minnesota & Eastern (DM&E) is an existing railroad that proposes to upgrade its existing 600 miles of track and build 260 miles of new track. This expansion is to take this railroad into the coal-rich fields of Wyoming’s Southern Powder River Basin.
This article points out that corn farmers and ethanol producers could benefit from an expansion. Although not discussed in the article, the project could benefit Upper Midwest coal-fired plants that could transport coal on the DM&E rather than the current Union Pacific or BNSF Railroads.
After 10 years of discussion and analysis, the project finds itself with plenty of reasons to be supported. Now it is up to the Federal Railroad Administration (FRA) to provide approval of $2.5 billion of Railroad Rehabilitation and Improvement Financing (RRIF) for the project to proceed.
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June 26, 2006
Industries Feeling Pinch of Railroad Rates, Critcs Say | www.greatfallstribune.com
The two Class I Railroads serving the coal-rich Powder River Basin of Wyoming and Montana are charging increasingly higher rail rates. These higher rates are being charged to customers as the old, long-term, legacy contracts expire. A fuel surcharge is added to these rates to “recover” the Railroads’ higher cost of diesel.
What is not covered in this article is the threat to the Powder River Basin coal prices or even the placement of this coal compared to the alternative coal producing basins to coal-fired plants in the Midwest and Southeast. The commentary discusses these economics and coal placement.
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The Value of High-Heat Content, High-Sulfur Coal from the Northern Appalachian Basin
June 26, 2006
Consol Energy Signs New Long-Term Sales Agreement with First Energy | finanzen.net
This long-term arrangement between First Energy and Consol extends an existing long-term coal supply agreement between the two companies and adds an additional 2 million tons per year. This is a high-heat content, high-sulfur content Northern Appalachian coal that currently sells at a discount to the similar high-heat content, but low- or mid-sulfur content coal from the Central Appalachian region.
The key implication is the deal further demonstrates the value to the coal industry of high-heat content, high-sulfur coal once coal plants complete the required scrubber retrofits to come in compliance with the Clean Air Interstate Rule. The value of this coal under this Rule is explored in the commentary section.
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Larger Scale Test Burn of KFx's K-Fuel and Some Questions Remain
June 15, 2006
KFx Inc. Signs Agreements for 1st Unit Train Shipment and Transportation Assistance | finanzen.net
KFx Incorporated has been working for years to beneficiate coal (K-Fuel) to increase its heat content and reduce power plant emissions of sulfur dioxide, nitrous oxide, and mercury. This process applies heat and pressure to low-rank coal from the Powder River Basin of Wyoming.
They recently completed a test-burn of approximately 2,000 tons of the coal at Black Hill Power’s Neil Simpson Power Plant near Gillette, Wyoming. This was a very small-scale test burn quantity in a small coal plant (Neil Simpson Plant in Wyoming).
The issue with this K-Fuel—including after this small Neil Simpson test burn—has been the handling, safety, and performance characteristics. This announcement and actual test burn to First Energy may address these outstanding concerns of coal buyers, coal plant operators, and investors. There are still issues remaining that remain an open concern.
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CO2 Emissions-Reduction: Politics, Framework, and Economic Analysis of the Proposed Program
June 9, 2006
Fear of CO2 Regime Helps Spur US Coal Rush | today.reuters.com
If the United States passes legislation regulating carbon dioxide (CO2) through a carbon trading credit program, it will clearly change the overall dispatch economics of existing coal plants as well as affect decisions of new power plant development.
The politics, framework, and economics of a CO2 credit scheme needs to be analyzed for existing and potential coal plants.
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Fuel Surcharges on Rail Shipments
May 12, 2006
Ralroad Customers Bristle at Fuel Surcharges | today.reuters.com
The revenue-based fuel surcharges in rail transportation agreements have been an item of contention for a few years between the carriers and the shippers. The two Western Class I carriers, BNSF (NYSE: BNI) and Union Pacific (NYSE: UPN) are collecting an additional 16.5% and 18.5%, respectively, on coal transportation shipments in May 2006.
Using a $20/ton rail rate for a UP coal transportation movement, this adds an additional $3.70/ton for each ton of coal moved in the unit train. Using a typical 135-car trainset of coal from the Powder River Basin of Wyoming, this adds over $60,000 per shipment; or over $9,000,000 per year to a typical 600 MW coal plant’s transportation costs.
These revenue-based fuel surcharges will go to 19.0% (BNI) and 20.75% (UPN) in June.
These fuel surcharges are a “profit-center” for the railroads. In some shipper estimates, it is an over-collect by a factor of two for the railroads. This will be discussed at the May 11, 2006 Surface Transportation Board (STB) hearing by both sides of this issue; the railroads and the shippers. The railroads have an extensive stake in this as their new rail transportation agreements that replace the expiring legacy contracts all have fuel surcharges on top of the (much higher) base rates.
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2006 PRB Coal Deliveries and Potential 25% Tax Credit for New Rail Investment
May 12, 2006
Burlington, Union Pacific Still See 10% 2006 Coal Growth | www.marketwatch.com
The Union Pacific (NYSE: UNP) and BNSF (NYSE: BNI) are on track to load and deliver approximately 350 million tons of coal off the Powder River Basin (PRB) Joint Line this year. This compares to the 2005 actual of 323 million tons last year. Demand was significantly higher than that in 2005, but the coal dust accumulation issue on the PRB Joint Line tracks combined with the wet weather caused derailments (May 2005), as well as the need to begin cleaning and repairing the track ballast. This effort caused deliveries to utility customers to be only at approximately 85% of the demand for the balance of the year, which further strained already tight utility inventories.
The Railroad Industry is also seeking capacity expansion tax credits for capital investment in a new freight rail infrastructure.
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Pacific Ethanol to Build a Plant in Boardman, Oregon to Produce Ethanol from Midwest Corn
May 11, 2006
Ethanol plant to be built in Boardman | www.bizjournals.com
This is the first ethanol plant in Oregon.
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More Corn Can Go to Ethanol Production
May 11, 2006
U.S. farm economy revs up ethanol-fueled engines | www.kneb.com
Additional corn will be needed to produce ethanol. The issue is how do we get the additional corn.
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Rail Expansion in the Powder River Basin Another Signal of the Future Strength of PRB Coal
May 10, 2006
UP, BNSF Announce Souther Powder River Basin Joint Line $100 Million Capacity Expansion Plan | biz.yahoo.com
Union Pacific and BNSF announced they will add 40 miles of third and fourth mainline tracks on the Joint Line in the Powder River Basin (PRB) at a cost of approximately $100 million dollars. These track additions are designed to meet current and future coal demand from the PRB. These additions are to add an additional (third) track at the north entrance of the PRB and to add a fourth main line over Logan Hill at the south entrance of the PRB.
This is in addition to the 14 miles of track added in spring 2005 and the 18 miles being added currently that will be fully in service in service in September 2006. The projects are also about $100 million.
These capital projects are in response to the CNAC recommendations to respond to the anticipated future growth in the Joint Line PRB coal demand.
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Another Suit Against the Union Pacific for Failure to Deliver Coal
May 1, 2006
We Energies files suit against Union Pacific | www.railserve.com
Wisconsin Energy (WE) is suing the Union Pacific (UP) for its alleged failure to deliver Colorado coal and the associated costs WE had in 2003 to 2005. Also, the suit alleges that UP failed to honor a back-haul rail arrangement.
First, this lawsuit alleges that the UP did not provide requested service under terms of the agreement from 2003 to 2005. This resulted in WE’s purchase of more expensive alternate coals and the loss of off-system power sales (i.e. sales to neighboring utilities).
Second, this lawsuit alleges that the UP did not honor a lower rail rate for back haul movements and instead charged a higher rate for non-back haul movements. The back haul rate was for movements of iron ore pellets from a steel plant in Utah to the lake terminals. The UP notified WE in April 2004 that because the steel plant was closing, it would no longer be moving iron ore pellets and, thus, no longer honor the back haul rates. The UP declared a force majeure on the movements and started charging the non-back haul rates. WE believes that the closing of the steel mill is not a provision that allows the charging of the back haul rates.
In total, WE lawsuit seeks approximately $23 million in damages against the UP for the alleged service performance shortfall and the charging of non-back haul rates.
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