Coal

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US power plants could run short of coal
Mon Jun 20, 2005 06:08 PM ET

By Steve James
NEW YORK (Reuters) - Some U.S. power stations could run out of coal if a long hot summer pushes up demand at plants with already low stockpiles, the chief executive of the No. 2 U.S. coal producer said on Monday.

"I don't think there'll be blackouts but I think there's a possibility in a hot summer that somebody could go very, very low on coal," Arch Coal Inc. (ACI.N: Quote, Profile, Research) Chief Executive Steven Leer told the Reuters Energy Summit. Arch fuels approximately 7 percent of the electricity generated in the United States.

Coal inventories at many power stations are historically low, he said, and rail disruptions have delayed shipments of coal at a time when demand is soaring from higher oil prices.

"It is a concern and if there is a hot summer and supply disruptions at mines, or with transport, they could run out," said Leer.

But he dismissed the possibility of coal-related blackouts, saying utilities typically operate several power plants and would be able to supply those in danger of running out of coal from other plants.

Earlier, executives of power company Dominion Resources (D.N: Quote, Profile, Research) were asked during the Energy Summit at Reuters New York offices about the possibility of summer blackouts.

"I don't think anybody's too concerned about it right now," said Thomas Farrell, Dominion's chief operating officer. CEO Thomas Capps said there was a need for federal reliability standards "with some teeth in them."

Leer, the head of St. Louis-based Arch Coal, said rail disruptions were a major headache. "The railroads keep me up at night," he said.

He said the rail problems had returned after easing in the first quarter after major disruptions last year related to major track repairs and crew shortages.

"In February, March and even into April they were operating well, and then there were two major derailments in the Powder River Basin," Leer said. Heavy rains buckled tracks in the area in northeast Wyoming and southern Montana, and repairs could take weeks or months.

Also eastern railroads hauling coal from the Appalachian coalfields were struggling to handle the added capacity.

"The rail system is wound so tightly right now that when there's a significant derailment it backs the system up so much they're still unwinding.

"I don't think we have seen the performance we would like to see out of any of the four Class 1 railroads," said Leer, who also serves on the board of the Norfolk Southern Corp. (NSC.N: Quote, Profile, Research) , the No. 4 U.S. railroad.

"In general, they seemed to be getting better," said Leer. "Do we expect them to be full capacity in the second quarter? Well here we are at the end of June and my answer is no."

Earlier this month, the two largest U.S. railroads, Union Pacific Corp. (UNP.N: Quote, Profile, Research) and Burlington Northern Santa Fe Corp. (BNI.N: Quote, Profile, Research) , said the two Powder River Basin derailments and bad weather would hurt financial results in the current quarter.

Union Pacific Chief Financial Officer Robert Knight said the problems could cost more than 7 cents a share in profit this quarter while Burlington Northern Chief Executive Matthew Rose reiterated the railroad's full-year earnings and cash flow forecasts but did not address the second-quarter outlook.

Arch Coal's Leer declined to comment on how rail disruptions would affect earnings. (News from the Reuters Energy Summit will be delivered throughout the day Monday through Thursday to Reuters terminals and to the Reuters.com Web site, http://reuters.com.)
http://www.reuters.com/newsArticle.jhtml?type=electionsNews&storyID=8843561