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Rail Transportation of Coal to Power Plants: Reliability Issues

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Rail Transportation of Coal to Power Plants: Reliability Issues Rail Transportation of Coal to Power Plants: Reliability Issues /name redacted/ Specialist in Energy and Environmental Policy September 26, 2007 Congressional Research Service 7-.... www.crs.gov RL34186 CRS Report for Congress Prepared for Members and Committees of Congress Rail Transportation of Coal to Power Plants: Reliability Issues Summary Half the nation’s electricity comes from coal, and most of that coal is delivered to power plants by railroads. The reliable supply of coal by rail is therefore important to the electric power system. Concern over reliable deliveries of coal and other commodities, limited rail system capacity, and related issues such as rail rates, sparked several congressional hearings in 2006. This report provides background information and analysis on coal transportation by rail to power plants. The report discusses: • Problems since 1990 with the rail delivery of coal. • Implications of rail capacity limits on service reliability. • The role of coal inventories as a backstop to reliable coal deliveries. • Proposed legislation intended, in part, to improve the quality of rail service to coal-fired plants and other shippers. The report also identifies data and analysis gaps that complicate measuring the scope of rail service and capacity issues, determining the need for federal action, and evaluating the possible efficacy of proposed legislation. Freight rail transportation and electric power generation are mutually dependent network industries. Railroads accounted for over 70% of coal shipments to power plants in 2005, and due to economic and physical limitations on other modes (truck, barge, and conveyor) the heavy dependency of the power industry on rail transportation is likely to continue into the future. From the standpoint of the rail industry, coal transportation is an important business, accounting in recent years for about 20% of freight revenues for the major railroads. The mutual dependency between the rail and power industries creates a complex business relationship. There are connections and to some degree tradeoffs between such factors as railroad investments in capacity and service enhancement, and power company tolerance for transportation risk and willingness to carry the cost of larger coal stockpiles. A central point is that increasing the reliability of coal deliveries to power plants costs money, as does coping with disruptions. A central issue between power companies and railroads is how these costs should be shared. Proposed legislation before the 110th Congress discussed in this report includes the Freight Rail Infrastructure Capacity Expansion Act of 2007 (S. 1125 and H.R. 2116), the Railroad Competition and Service Improvement Act of 2007 (S. 953 and H.R. 2125), and the Railroad Antitrust Enforcement Act of 2007 (S. 772 and H.R. 1650). This report will be updated as developments warrant. Congressional Research Service Rail Transportation of Coal to Power Plants: Reliability Issues Contents Introduction and Review of Findings...........................................................................................1 Review of Findings...............................................................................................................1 Background: Coal and Rail in the U.S. Power System .................................................................5 Role of Coal and Rail in Power Production ...........................................................................5 Critical Role of the Powder River Basin................................................................................6 Background: the Railroad Industry............................................................................................13 Composition of the Industry................................................................................................13 Period Before Passage of the Staggers Rail Act ...................................................................16 The Staggers Act.................................................................................................................19 Railroad Productivity and Efficiency Trends........................................................................21 Railroad Capacity .....................................................................................................................24 Rail System Capacity and Service .......................................................................................24 Means of Increasing and Allocating Rail System Capacity...................................................25 Railroad Capital Spending...................................................................................................27 Rail Capacity Metrics..........................................................................................................32 Future Rail Capacity and Investment Needs ........................................................................35 Coal Stocks as a Complement to Rail Capacity Expansion...................................................36 Railroad Service and Disruptions in Coal Transportation...........................................................40 Service Quality Since Staggers............................................................................................40 Rail Service Metrics and Disruptions ..................................................................................43 Consequences for Power Generation of Coal Transportation Disruptions.............................45 Rail Rate Trends .......................................................................................................................47 Analysis of Legislative Proposals: Tax Incentives......................................................................52 Description of Legislative Proposals ...................................................................................52 Discussion ..........................................................................................................................54 Control .........................................................................................................................54 Expected Outcomes ......................................................................................................57 Information...................................................................................................................58 Tax Incentives: Considerations and Options ..................................................................59 Analysis of Legislative Proposals: Regulatory Restructuring .....................................................59 Description of Legislative Proposals: Comprehensive Restructuring....................................59 National Rail Transportation Policy...............................................................................60 Bottlenecks and Competitive Rail Access......................................................................60 Interchange Commitments/Paper Barriers .....................................................................61 Rail Service ..................................................................................................................61 Rate Appeals.................................................................................................................62 Authority to Investigate and Suspend ............................................................................63 Description of Legislative Proposals: Antitrust....................................................................63 Discussion ..........................................................................................................................65 Rail Industry Competition and Service ..........................................................................66 Revenue Adequacy........................................................................................................68 Regulatory Restructuring: Considerations and Options..................................................76 Congressional Research Service Rail Transportation of Coal to Power Plants: Reliability Issues Figures Figure 1. Coal Fields and Regions of the United States................................................................8 Figure 2. Powder River Basin Coal Field and Railroads...............................................................9 Figure 3. Burlington Northern Santa Fe Rail System (Trackage Rights Not Shown)...................10 Figure 4. Union Pacific Rail System (Trackage Rights Not Shown)........................................... 11 Figure 5. Proposed Combination of the Canadian Pacific and Dakota, Minnesota, & Eastern Rail Systems..............................................................................................................12 Figure 6. Norfolk Southern Rail System (Trackage Rights Not Shown) .....................................15 Figure 7. CSX Rail System (Trackage Rights Not Shown).........................................................16 Figure 8. Rail Share of Domestic Surface Freight Market ..........................................................18 Figure 9. Class I Railroad Productivity Trends...........................................................................22 Figure 10. Trends in Rail Operating Cost and Revenue Margin Efficiency.................................23 Figure 11. Capital Expenditures by Class I Railroads, 1983-2005, in Nominal and Constant 2000 Dollars............................................................................................................29
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