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The Economics and Politics of Western Coal

Fortnightly Magazine - April 1 1996

eliminate the use of Western coal in Indiana generating plants with an eye toward promoting instead the use of high-sulfur coal, preferably that mined in Indiana. This is exactly the type of statute the dormant Commerce Clause prohibits. Therefore, the challenged portions of the ECPA fail to pass constitutional muster." Alliance for Clean Coal v. Bayh, 888 F.Supp. 924 (S.D.Ind.1995); see also General Motors Corp. v. Indianapolis P&L Co., 654 N.E.2d 750 (Ind.App.1995).

Facing the Future

Utility managements that have not yet decided on Western low-sulfur coal may yet take advantage of certain creative opportunities.

One option would see the utility participate in a "tolling" arrangement with another utility that already relies on PRB coal. This approach would allow a first company to take advantage of PRB coal-generated electricity while still maintaining control over fuel purchases and transportation. Some western coal producers and railroads have indicated they are willing to explore these kinds of arrangements.

Another approach that may prove advantageous involves

conversion of boilers to burn

low-sulfur coal (em a move that is less costly than some might believe. Utilities such as Mississippi Power and Alabama Power have found the conversion economics very attractive. Moreover, a large body of experience built up by utilities and boiler manufacturers can be applied to most boilers in the country. One PRB coal- production company executive recently summed up the future for Western coal this way:

"Electricity customers of those utilities that have a capability to switch to PRB low-sulfur coal are the lucky ones. ... But if their utility tries ... avoiding a switch to low-sulfur coal, our job is to find another way to get the choice of PRB coal-generated electricity to them."

In the future, electric utilities should assume that Western railroads and coal producers will be looking for opportunities to move low-sulfur coal to the maximum number of customers. And as access to the nation's power grid expands, more utility customers will see the value of PRB coal. The calendar favors Western coal. Conversions will grow inevitably over the next decade. Ratepayers, utilities, and shareholders should emerge as winners. t

John Anderson and Jerry Bartlett work for Burlington Northern Santa Fe's Coal, Metals and Minerals Business Unit as executive vice president and director of market and economic analysis, respectively.

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