**March 10^th^ Future of Coal Conference**

**Participant List**

**Question 4: Transportation: What improvements in existing
transportation or transmission infrastructure are needed to improve the
use of coal for power generation?**

**Participants:**

-   American Association of Railroads

-   Consumers United for Rail Equity

-   Edison Electric Institute

-   Missouri River Energy Services

-   National Rural Electric Cooperative Association

-   Puget Sound Energy

-   Tennessee Valley Authority

**Senate Energy and Natural Resources Committee**

**Coal** **Conference**

**American Association of Railroads**

## Executive Summary

Because coal is consumed in large quantities all over the United States
while production is concentrated in relatively few states, an efficient
coal transportation system is critical to our nation. U.S. freight
railroads provide such a system. According to Energy Information
Administration (EIA) data, 65 percent of U.S. coal shipments in 2003 ---
more than 680 million tons --- were delivered to their final domestic
destinations by rail, far more than any other mode.

Railroads work extremely hard to keep their coal service as responsive
and productive as possible. They meet regularly with coal companies and
electricity producers to help ensure that rail service conforms to
customer needs. They invest billions of dollars each year in their
infrastructure and are constantly upgrading their locomotive and freight
car fleets. These investments, along with technological improvements
that enable them to use their assets more productively, have permitted
railroads to increase their coal-carrying capacity and capability as
coal demand has climbed.

Largely because of the massive investments railroads have made, the U.S.
Class I freight railroad network is in better overall condition today
than ever before and is the envy of freight rail systems worldwide. A
primary challenge for rail management --- and policymakers --- is to
ensure that the high quality of rail infrastructure is maintained and
that new investments are made so that railroads are able to continue to
meet our nation's future coal and other freight transportation needs.

Those needs are certain to grow. The EIA estimates that total U.S. coal
consumption will rise from 1.1 billion tons in 2003 to 1.5 billion tons
in 2025. *Railroads' fully expect to be able to handle the increased
coal transportation demands commensurate with this increased
consumption, as long as their ability to make the necessary investments
in their networks is not constrained*. Compared to other transportation
modes, freight railroads receive no appreciable government financial
assistance for infrastructure construction and upkeep. Consequently,
they must earn enough year after year to finance their huge funding
needs.

Policymakers can take a number of steps to help ensure that needed
investments are made in rail infrastructure to support coal transport.
First, they can reject calls to reregulate railroads. Reregulation would
make it impossible for railroads to earn enough to sustain their
operations and attract the capital necessary for expansion. Second, by
passing multi-emissions and comprehensive energy legislation that, among
other things, creates legislative certainty regarding the level and
timing of required emissions reductions and other coal-related
environmental issues, policymakers can remove roadblocks that currently
hinder both utility investments and rail investments needed to serve
their utility customers. Third, policymakers can do more to encourage
the use of public-private partnerships for rail infrastructure projects
in cases where the fundamental purpose of the project is to provide
public benefits or meet public needs.

Through technological advances, service improvements, competitive rates,
and other factors, railroads have shown their willingness and ability to
provide high value to coal shippers throughout the country, and they
look forward to continuing to do so in the future.

## 

## 

## RAILROADS AND COAL

**STATEMENT OF EDWARD R. HAMBERGER**

**PRESIDENT & CHIEF EXECUTIVE OFFICER**

**ASSOCIATION OF AMERICAN RAILROADS**

**TO THE**

**CONFERENCE ON THE FUTURE OF COAL**

**COMMITTEE ON ENERGY AND NATURAL RESOURCES**

**U.S. SENATE**

**MARCH 10, 2005**

![](media/image1.wmf)

#  Coal is the fuel source for more than 50 percent of U.S. electricity generation, and freight railroads are a major reason for coal's critical role. Railroads know that efficient coal transportation is critical to our nation's economic well being and energy security, and they are committed to working with coal suppliers and consumers to ensure continued safe, cost-effective, and reliable service.

## Railroads Deliver Two-Thirds of U.S. Coal

![](media/image2.wmf){width="2.8097222222222222in"
height="2.8041666666666667in"}Because coal is consumed in large
quantities all over the United States while production is concentrated
in a relatively small number of states, an efficient coal transportation
system is critical to our nation. U.S. freight railroads provide such a
system.

In fact, railroads are the principal mode for transporting coal.
According to Energy Information Admini­stration (EIA) data, 65 percent of
U.S. coal shipments in 2003 were delivered to their final domestic
destinations by rail, far more than any other mode (Figure 1). Because
coal accounts for just over half of U.S. electricity generation, this
means that rail-delivered coal accounts for around one third of all
electricity produced in this country. Over the past decade, rail's share
of coal transportation has trended upward, reflecting the growth of
Western coal that moves by rail as well as the enormous efforts
railroads have made to meet the needs of their coal customers.

Coal has long been the largest single commodity carried by U.S. freight
railroads. In 2003, Class I (the largest) railroads originated more than
7 million carloads (24 percent of total carloads) and 784 million tons
(44 percent of total tonnage) of coal. Coal is also a top-3 commodity
for dozens of smaller regional and local U.S. railroads.

**Railroads' Goal: Increased Efficiency and Reliability in Coal
Transportation**

Railroads work extremely hard to keep their coal service as responsive
and productive as possible.

For example, it takes time to make investments to meet increases in coal
supply and demand, and even to adjust to short-term fluctuations, so
railroads emphasize the need for coordinated, timely planning with coal
customers and suppliers. To this end, railroads meet regularly with coal
companies and electricity producers to help ensure that rail service
conforms to customer needs.

Over time higher capacity cars and more powerful locomotives have
dramatically increased railroads' coal-carrying efficiency. In 2003, the
average carload carried 111.4 tons of coal, up 10 percent from 1993 and
up 19 percent from 1983. Meanwhile, the average horsepower of a
locomotive was 3,415 in 2003 --- up 23 percent from the 1993 level and
up 52 percent from the 1983 level. Railroads have also significantly
improved their ability to utilize this equipment more productively.

![](media/image3.wmf){width="3.609722222222222in"
height="2.6006944444444446in"}Revenue per ton-mile (RPTM) is a useful
surrogate for rail rates. In inflation-adjusted terms, RPTM for coal in
2003 was 63 percent lower than it was in 1981 (equal to a 4.4 percent
average annual decrease) and 28 percent lower than 1990. By contrast,
according to EIA data, the average price of electricity (measured in
revenue per kilowatt hour) fell in inflation-adjusted terms by 25
percent from 1981-2003, much less than the reduction in rail rates
(Figure 2).

Railroads have helped make coal-based electricity generation more
affordable. EIA data show that the delivered (*i.e.*, including
transportation) price of coal to electricity generators has been
relatively stable over the past 15 years (Figure 3). By contrast, the
delivered prices of petroleum and natural gas have fluctuated
considerably and in recent years have risen tremendously, making
electricity derived from those fuels more expensive as well.

**Railroads Are Extremely Capital Intensive**

U.S. freight railroads are far more capital intensive than most other
industries. For example, freight railroads spent an average of 17.0
percent of their revenue on capital investment from 1998 to 2002. The
comparable number for U.S. manufacturing as a whole was just 3.8
percent. Similarly, in 2003 railroad net investment in plant and
equipment per employee was \$569,000 --- more than seven times the
average for all U.S. manufacturing (\$78,000).

In addition to capital expenditures, railroads spend billions of dollars
annually on maintenance expenses for infrastructure and equipment. All
told, after accounting for depreciation, freight railroads typically
spend \$15 billion or more each year --- equal, on average, to some 45
percent of their operating revenue --- to provide the high quality
assets they need to operate safely and efficiently. A significant
percentage of these investments directly increase railroads'
coal-carrying capacity and capability. These investments include new
locomotives and freight cars dedicated to coal service; double-tracking,
triple-tracking, or otherwise significantly upgrading thousands of miles
of track that carry coal trains; enhanced track signaling systems; and
much more.

Largely because of the massive investments railroads have made, the U.S.
Class I freight rail network is in better overall condition today than
ever before, and is the envy of freight rail systems worldwide. A
primary challenge for rail management --- and policymakers --- is to
make sure that the high quality of rail infrastructure is maintained and
that new investments are made so that railroads are able to meet our
nation's future coal and other freight transportation needs.

![](media/image5.wmf){width="3.609722222222222in"
height="2.6006944444444446in"} Those needs are certain to grow for many
years. According to the EIA, total U.S. coal consumption will rise from
1.1 billion tons in 2003 to 1.5 billion tons in 2025, a 38 percent
increase. *Railroads' performance since 1985 strongly suggests that they
will be able to handle the increased coal transportation demands
commensurate with this increased consumption, as long as their ability
to make the necessary investments in their networks is not constrained*.
From 1985 to 2003, U.S. coal consumption rose some 34 percent. During
this same period, rail coal transportation (measured in ton-miles) rose
98 percent and tons originated rose some 41 percent (Figure 4). If this
trend continues, rail coal transportation growth will actually exceed
growth in U.S. coal consumption.

**Railroads Must Have the Means to Continue to Invest**

With only minor exceptions, U.S. freight railroads are privately owned
and operated. Compared to other transportation modes, they receive no
appreciable government financial assistance for infrastructure
construction and upkeep. Consequently, they must earn enough year after
year to finance their massive funding needs.

This challenge has been complicated in recent years by increasing
concern among railroad stockholders with the fact that railroads
consistently fail to earn their cost of capital. Each year, the Surface
Transportation Board determines the "revenue adequacy" of Class I
railroads. A railroad generates adequate revenue --- *i.e.*, it is
earning enough to cover all costs of efficient operation, including a
competitive return on capital --- when its rate of return on net
investment (ROI) equals or exceeds the industry's current cost of
capital (COC). This STB standard for sustainability is widely accepted,
approved by the courts, and similar to that used by public utility
regulators throughout the country. Over the past 20 years, railroads
have narrowed the COC vs. ROI gap (Figure 5), but they still do not earn
their cost of capital.

![](media/image6.wmf){width="3.609722222222222in"
height="2.6006944444444446in"}Over the past year or so, unexpectedly
large increases in traffic have led to capacity pressures on certain
corridors. Railroads have responded by increasing hiring, accelerating
equipment purchases, and other actions. The capacity pressures highlight
the importance of continued investment over the entire rail network.
Even with record traffic levels, though, rail earnings are still
substandard compared with industry averages and major rail customer
groups. According to *Business Week* return on equity (ROE) data for the
12 months ending September 30, 2004, railroad ROE of 7.3 percent is well
below the comparable figure for other industries (Figure 6).

![](media/image7.wmf){width="3.609722222222222in"
height="2.6006944444444446in"} Revenue inadequacy does not mean that
railroads are not making any money, only that they are not making enough
to cover their replacement costs over time. In that light, failing to
earn the cost of capital disappoints investors and makes future
infrastructure expansion more difficult. Eventually, like any other
industry, railroads must close the COC and ROI gap. This is necessary if
railroads are to be able to invest the massive amounts needed to serve
our transportation needs.

In addition to trying to better balance earnings with investment needs,
railroads are taking a number of steps to maintain their ability to
serve their coal customers. For example, they will continue to work
closely with their coal customers to plan for the future. Railroads are
also continuing to aggressively seek productivity and technological
enhancements to improve operations. And railroads will continue to try
to match asset levels (infrastructure, equipment, and employees) with
the service needs of their customers.

For their part, policymakers can take a number of steps to help ensure
the needed investments are made in rail infrastructure to support coal
and other rail freight.

First, policymakers can reject calls to reregulate railroads. By
directly or indirectly capping rail rates at non-compensatory levels,
reregulation would make it impossible for railroads to earn enough to
sustain their operations and attract the capital necessary for
expansion. Under reregulation, investors would be unwilling to commit
funds for investment because they would be unable to capture the
benefits of those investments. Thus, regulation would lead to
disinvestment and reduced rail services --- an outcome completely at
odds with our nation's freight transportation needs.

Second, by passing multi-emissions and comprehensive energy legislation
that, among other things, creates legislative certainty regarding the
level and timing of required emissions reductions and other coal-related
environmental issues, policymakers can remove roadblocks that currently
hinder utility investments. With these roadblocks removed, railroads too
would have much better information with which to plan for --- and secure
financing for --- rail investments needed to serve their utility
customers.[^1]

Third, policymakers can do more to encourage the use of public-private
partner­ships for rail infrastructure projects in cases where the
fundamental purpose of the project is to provide public benefits or meet
public needs. In Kansas City, for example, a recent partnership
involving the State of Missouri and major railroads has led to the
construction of several "flyovers" that separate rail lines carrying
mainly high speed intermodal traffic from lines carrying slower coal
trains. The result is more expedient service for rail customers and
reduced delays and enhanced mobility for motorists.

### Conclusion

The World Bank's former Railways Adviser, one of the world's foremost
authorities on rail operations worldwide, has noted that "Because of a
market-based approach involving minimal government intervention, today's
U.S. freight railroads add up to a network that, comparing the total
cost to shippers and taxpayers, gives the world's most cost-effective
rail freight service." Coal-fired power plants are some of the primary
beneficiaries of the efficiency, quality, and cost-effectiveness of the
service that U.S. freight railroads provide. Through technological
advances, service improvements, competitive rates, and other factors,
railroads have already shown that they are willing and able to provide
consistently high value to coal shippers throughout the country, and
they look forward to continuing to do so in the future.

**Senate Energy and Natural Resources Committee**

**Coal** **Conference**

**Consumers United for Rail Equity**

EXECUTIVE SUMMARY

Currently, over 50% of the nation's electricity is generated by
facilities that use coal as the primary fuel. Given natural gas price
and supply issues and the uncertain future of nuclear power, the nation
is likely to experience an increase in the amount of electricity
generated from the use of coal. In fact, the planned development of a
number of new coal-based generating facilities has been announced by
investor owned, rural electric cooperatives and municipal power
generators.

The norm in the transportation of coal from a mine to a power plant is
that the owner of the power plant purchases the coal at the mine and
arranges for its transportation to the generating facility. Unless a
generating facility is located at or very near a mine or on a water
system that exists between the source of the coal and the power plant,
the transportation of the coal to the power plant is by rail.

The current problem with coal transportation by rail is that a very high
percentage of the movements of coal from mine to generating facility
remain subject to railroad monopoly pricing power. The railroad industry
enjoys an exemption from the nation's antitrust laws. When Congress
deregulated the railroad industry in 1980, it charged the Interstate
Commerce Commission (ICC), now the Surface Transportation Board (STB),
with the responsibility of both implementing deregulation and ensuring
that railroads not charge their "captive" rail customers (those subject
to monopoly pricing power) rates that are unreasonably high.

Both the ICC and now the STB have allowed the railroads to avoid
rail-to-rail competition and have constructed a "rate reasonableness"
process that does not constrain rail rates. The result of this
unrestrained railroad monopoly power is that the transportation cost of
coal is unreasonably high and coal customers often receive very poor
service because, frankly, the railroads can take these customers for
granted. The result is higher electricity costs, lower coal producer
profitability and, all too often, low supplies of coal at power plants.

PROPOSED SOLUTION

Utilities that transport coal for electricity generation must have
access to transportation competition where it exists.

2/16/05

Submitter's Name/Association: Consumers United for Rail Equity
(C.U.R.E.)

Contact: Bob Szabo

E-mail: <rgs@vnf.com>

Phone: (202) 298-1920

QUESTION 4: TRANSPORTATION

THE CURRENT COAL TRANSPORTATION PROBLEM

In 1980, through the Staggers Rail Act, Congress deregulated the
national railroad industry. The deregulation act was unusual in that it
removed the presumption of regulation, while recognizing that some rail
movements would remain "captive" (subject to railroad monopoly power)
and providing authority to the ICC (now STB) to prevent abuse of this
monopoly power. One of the elements of the 1980 deregulation legislation
was that railroads could charge their captive traffic more than their
competitive traffic, a concept called "differential pricing", but the
rates charged captive traffic could not be unreasonably high. A high
percentage of coal movement is "captive" and is, therefore, subject to
"differential pricing". All western coal and some eastern coal is moved
on rail in highly efficient unit trains. In most cases the utilities own
or lease the coal unit trains. These factors make coal transportation
the single largest contributor to railroad profitability.

Since 1980, the national rail infrastructure upon which coal depends for
movement to power plants has been transformed. First, the major
railroads moved their less profitable segments of track into
approximately 500 short line railroads that are often key segments in
the movement of coal to power plants. Second, over the past twenty
years, the major railroads have consolidated to only two railroads that
move coal from the Powder River Basin in the west (Union Pacific and
Burlington Northern) and two railroads that move coal from the mines in
the east (Norfolk Southern and CSX). This consolidation has reduced the
competitive transportation opportunities available to utilities that
move coal.

The ICC/STB has aggravated this situation through two key rulings
regarding competition, both of which must be changed by Congress.

First, through provisions contained in long-term leases of track to
short line railroads, the major railroads maintain their control over
the traffic movements across these short line railroads. Specifically,
many of the long-term track leases to short line railroads require that,
even though the short line could move traffic to several major
railroads, the traffic movements must be to the major railroad that
originally controlled the track. This provision, sometimes called a
"paper barrier", has had the effect of preventing access to rail
transportation competition that otherwise exists. Attached to this
document is a schematic of a captive coal-fired plant in Arkansas whose
captivity is caused by the restrictions in the track lease to a short
line railroad. The restrictive provisions in the lease are also
attached. Because each of these lease agreements was approved either by
the ICC or by the STB, Congress must act to remove the anticompetitive
effects of these lease agreements.

Second, in 1996, the Surface Transportation Board decided three
consolidated coal utility cases called collectively the "bottleneck"
case. In these cases the STB determined that a major railroad that
controls a key segment of a movement of coal from a mine to a power
plant may use the control of that key segment to extend its monopoly
power over the entire coal movement. This ruling has had the effect of
denying the utility the benefit of rail competition where it physically
exists and has resulted in both unreasonably high rates and, often, poor
service.

For example, the City of Lafayette, Louisiana owns a coal fired power
plant that uses Powder River Basin coal. The coal can leave the Powder
River Basin on either the Union Pacific or the Burlington Northern for
the 1500 mile movement to the power plant. The Union Pacific can move
the coal from the Powder River Basin all the way to the coal fired plant
that is located on the western side of the Red River in Louisiana on a
Union Pacific rail line. The Burlington Northern can move the coal to
the Kansas City Southern in Kansas City, which can then move the coal to
a junction point with the UP 20 miles from the power plant. Thus,
competition for the coal movement is physically available for 1480 miles
of the movement; the final 20 mile movement would be captive to the UP.
If the City of Lafayette could have access to the 1480 miles of
competitive movement, the final total coal haulage cost, when blended
with the captive rate across the final 20 miles, likely would be
reasonable.

Unfortunately, the Union Pacific will quote only one rate to the City of
Lafayette for movement of coal from the Powder River Basin: a rate from
the mine to the plant. The BN/KCS combination cannot quote a rate from
the mine to the plant because they do not have access across the last 20
miles of UP track. Thus, instead of being captive for 20 miles to the
UP, the City of Lafayette is captive to the UP for the entire 1500 miles
of the coal movement. The UP can and does charge the City of Lafayette
monopoly rates for this movement of coal.

The "rate reasonableness" process established by the ICC/STB to prevent
unreasonably high rail rates is itself unreasonable and ineffective. The
process does not constrain monopoly rates. The process allows a utility
to seek relief when it is paying a rate roughly twice as high as the
railroad's direct cost of moving the coal; the utility must pay a
\$64,000 filing fee; the utility must prove that it is captive and thus
qualified for the rate relief process; the utility must bear all burdens
of proof regarding the reasonableness of the rate; and the standard for
whether the rate is unreasonably high is whether the utility could build
its own "stand alone" railroad and provide its own transportation more
cheaply than the rate it is paying. Throughout the rate proceeding, the
utility must continue to pay the unreasonably high rate. The Chair of
the STB has testified to Congress that this process takes at least two
years and costs the complainant \$3 to \$5 million. Utilities are not
winning such rate cases at the STB, which has approved as reasonable
rates that are up to 350% of the railroad's direct cost of moving the
coal.

RECOMMENDATION

The current rail transportation system is unacceptable to coal shippers
because it is resulting in unreasonably high coal transportation costs
and, often, inadequate service. Coal shippers are concerned that this
inadequate rail transportation system will not be able to meet the
anticipated increase in coal haulage at reasonable costs and with
adequate service. In addition, the continued use of coal for electrical
generation in the future is likely to require increased investments of
capital by owners of electrical generating facilities. The owners of
these facilities and the consumers of their electricity will not be able
to pay both the unreasonably high costs of rail transportation and the
anticipated increased capital costs of the use of coal for electrical
generation.

Thus, C.U.R.E. encourages the Senate Energy and Natural Resources
Committee to include in any energy policy legislation reported this year
a provision that will remove the "paper barriers" that prevent the
efficient movement of coal from the mine to the power plants and will
require railroads to provide rates between any two points on their
system when requested by a coal shipper.

Attached is a proposed legislative provision that will make the
recommended changes in current law, schematics on the coal movement
situation confronting the City of Lafayette and the paper barrier being
encountered by the Arkansas power plant and the paper barrier provision
from the short line railroad contract involved in the Arkansas
situation.

COMPETITIVE TRANSPORTATION OF COAL TO POWER PLANTS

Add a new Section \_\_\_\_\_\_\_\_\_\_ as follows:

"Section \_\_\_\_\_\_\_\_\_\_\_\_ - Competitive Transportation of Coal
to Power Plants

Class I railroads, as defined by the rules of the Surface Transportation
Board, that move coal from mines to power plants shall, upon request of
the coal shipper, quote rates for the coal movement between any two
points on its system. Non-Class I railroads shall have the authority to
move coal to or from any Class I railroad regardless of any provision of
a track lease agreement or other agreement with a Class I railroad that
shall have the intent to restrict the movement of coal to the Class I
railroad that is party to the agreement."

![](media/image8.png){width="6.604166666666667in"
height="5.095138888888889in"}

![](media/image9.wmf){width="0.6784722222222223in"
height="9.583333333333334e-2in"}![](media/image10.wmf){width="0.6784722222222223in"
height="9.583333333333334e-2in"}![](media/image11.wmf){width="0.6784722222222223in"
height="9.583333333333334e-2in"}

# Result of these decisions by the ICC/STB: The Class I Railroad, through the Paper Barriers in agreements 

**with Short Lines, can deny the customer access to railroad
competition**

LEASE AGREEMENT BETWEEN\
MISSOURI PACIFIC RAILROAD CO. (NOW UNION PACIFIC)\
AND\
MISSOURI & NORTHERN ARKANSAS RAILROAD CO. (MNA)

***Section 4.01 "In consideration of this Lease, and subject to the
terms and provisions set forth herein, Lessee agrees to pay Lessor rent
for the Leased Premises in the amount of Ninety Million Dollars
(\$90,000,000) per year payable annually in advance on the 1st day of
March; PROVIDED, HOWEVER, that subject to the provisions of Section 4.02
hereof, for each lease year that 95% or more of all traffic originating
or terminating on the Leased Premises is interchanged with Union Pacific
Railroad Company, Missouri Pacific Railroad Company and any affiliated
company, their successors and assigns, Lessor agrees that it will waive
or partially waive the rent for that particular year in accordance with
the schedule set forth in Section 4.03. The 95% level must be achieved
separately and simultaneously on the Pleasant Hill-Bergman (including
connecting branches) and Guion-Diaz Junction segments."***

***Schedule in Section 4.03***

***PERCENTAGE OF THE TOTAL***

***TRAFFIC THAT WAS INTER CHANGED***

***WITH LESSOR RENT DUE LESSOR***

***100 --95% \$-0-***

***94 -- 85% \$10,000,000***

***84 -- 75% \$20,000,000***

***74 -- 65% \$20,000,000***

***64 -- 55% \$30,000,000***

***54 -- 45% \$40,000,000***

***44 -- 35% \$50,000,000***

***34 -- 25% \$60,000,000***

***24 -- 15% \$70,000,000***

***14 - 5% \$80,000,000***

***0 - 4% \$90,000,000***

**Senate Energy and Natural Resources Committee**

**Coal** **Conference**

**Edison Electric Institute**

**[Executive Summary]{.underline}**

The Edison Electric Institute (EEI) is the premier trade association for
U.S. shareholder-owned electric companies. Our U.S. members serve nearly
70 percent of all electric utility ultimate customers in the nation, and
generate more than 70 percent of the electricity produced by U.S.
electric utilities.

Coal and electricity are inextricably linked to the economic health of
the nation. Coal is the fuel for more than half of our country's
electric generation, and electric generation drives economic growth.
Electric demand, coal-fired generation and GDP growth are all projected
to grow at a steady pace to 2025 and beyond.

The projected increase in coal use will be accompanied by continued
improvement in air quality. Overlapping requirements to reduce sulfur
dioxide, nitrogen oxides and mercury from coal-fired plants can be most
effectively addressed in new legislation consistent with the scope and
framework of the Clear Skies Initiative. In order to reduce carbon
dioxide (CO~2~) emissions or carbon intensity, new technologies must be
developed that allow cost-effective capture of CO~2~ emissions, and
reliable and cost-effective methods of permanent storage of carbon must
be demonstrated at a scale necessary to manage billions of tons of power
plant CO~2~ emissions.

A suite of new technologies will be necessary to meet the U.S.'s future
economic growth and national security needs because there are a variety
of coals available in the country, and different technologies may be
best optimized for particular coal types. Among the technological
improvements in coal that are most important to pursue are
super-critical pulverized coal and integrated gasification combined
cycle technology. With regard to financial and tax mechanisms necessary
to bring these technological improvements to market, EEI supports tax
credits, loan guarantees and other measures that would provide
incentives for the development of these technologies. EEI also supports
more rapid amortization of pollution control equipment. As a general
matter, it is essential to have an effective state-federal working
relationship between state regulatory commissions and the Federal Energy
Regulatory Commission on all regulatory matters relating to the
construction and operation of new coal-fired generation facilities to
provide the stability and certainty needed to attract investment in such
facilities.

Public policy should encourage rail infrastructure improvements to
remedy constraints that cause service delays and poor service. It should
facilitate increased rail competition without increasing utility
subsidies for other commodities carried by railroads. In addition,
reliable electric service and regional electricity markets depend on
strong transmission systems to move power instantaneously to where it is
needed.

**[Submitter's Name and Association:]{.underline}** William L. Fang,
Edison Electric Institute

**Transportation and Transmission Improvements:** What improvements in
existing transportation or transmission infrastructure are needed to
improve the use of coal for power generation?

Because of its bulk nature, coal is generally transported from mines to
power plants by rail or over water. Mine-mouth power plants avoid the
need to transport coal, but usually require electricity transmission
lines to deliver electricity to customers. All electric generation
requires a robust transmission grid to assure reliability and liquid
wholesale markets for electricity.

[Rail and Water Infrastructure]{.underline}

Today, most coal moves in unit trains that shuttle continuously between
the mines and the power plants. These 100-120 car utility-owned trains
with 100-120 tons of coal per train efficiently shuttle from the coal
mine to the power plant without ever being uncoupled. Usually, the
service is contracted between the railroad and the power company. Often,
particularly in the West, the utility owns the coal cars used.

At the time that Wyoming's Powder River Basin coal resource was opened,
the electric industry largely financed transportation development there
by entering into long-term, take-or-pay contracts while buying and
owning most of the coal cars used in the movement of Powder River Basin
Coal.

EEI has long been an advocate of more competition between rail carriers,
whether using a build-out from a power plant to a second railroad or the
long-planned Dakota, Minnesota & Eastern Railroad to provide a third
competitor for origination of coal transportation from Wyoming's coal
fields. Competition offers better, more permanent solutions to the
current service and pricing issues between railroads and their customers
than other alternatives. Mergers in the rail industry have left us with
only four major railroads in the nation and fewer in each region,
reducing our competitive alternatives.

Coal is the railroads' largest source of revenue and most profitable
single commodity. The Staggers Rail Act of 1980, passed in a time of
excess railroad capacity, made the explicit public policy decision that
coal shipments would cross subsidize other railroad traffic that may
have greater volumes, but which provides less revenue, and made it
extremely difficult for coal shippers to challenge the reasonableness of
their rates.

Today, railroads are faced with capacity constraints. Several utilities
have experienced deterioration in the timeliness of coal delivery
service. At the same time, utilities, while retaining coal stockpiles,
have increasingly become more of a just-in-time user of rail services,
and are less able to tolerate delays or missed deliveries.

Public policy should encourage rail infrastructure improvements to
remedy constraints that cause service delays and poor service. It should
facilitate increased rail competition without increasing utility
subsidies for other commodities carried by railroads.

Because the inland waterway system provides another important method of
coal transportation, its maintenance and modernization is important to
the future use of coal as well.

[Transmission Infrastructure]{.underline}

Reliable electric service and regional electricity markets depend on
strong transmission systems to move power instantaneously to where it is
needed. Many of the measures needed to achieve this were included in the
conference report version of H.R. 6 in the 108th Congress. This
includes:

1.  A mandatory reliability system, with enforcement mechanisms.

2.  Federal Energy Regulatory Commission (FERC) backstop siting
    authority for transmission lines. This is particularly important for
    coal to assure that coal produced at mine-mouth plants can be
    delivered to distant load centers.

3.  Improved coordination of the federal permitting process for
    transmission lines. This is particularly important in the West where
    the federal government controls a large portion of the lands
    involved, as well as in the East where important transmission
    facilities may have to cross federal lands.

4.  Reform of FERC transmission policies.

5.  Repeal of the Public Utility Holding Company Act to make more
    investment capital available.

6.  Tax code changes to increase investment, including enhanced
    accelerated depreciation (from 20 to 15 years) for electric
    transmission assets, similar to treatment governing other major
    capital assets.

7.  Support for investment in new technologies to help improve the
    control and use of existing transmission lines is critically
    important to promote reliability.

**Senate Energy and Natural Resources Committee**

**Coal** **Conference**

**Missouri River Energy Services**

**Transportation:** What improvements in existing transportation or
transmission infrastructure are needed to improve the use of coal for
power generation?

Missouri River Energy Services (MRES) is a wholesale power supplier to
58 municipal utilities located in South Dakota, North Dakota, Iowa and
Minnesota. MRES owns a 17 percent interest in the coal-fired Laramie
River Station (LRS) located in Wheatland, Wyoming, and is a participant
in the Big Stone II project, as well as an additional effort to build
coal-fired generation in South Dakota.

Coal is an abundant domestic resource of critical value in meeting our
energy needs of the future. Furthermore, there is a growing need for
base-load plants, and coal-fired generation must be a part of the
base-load mix of our nation's future portfolio.

However, the ability to add new base-load generation is dependent on (1)
relief for captive shippers from exorbitant transportation costs, and
(2) adequate transmission, and supporting policies, to assure delivery
of the power from remote generation sites to load centers. Unless these
issues are successfully resolved the future of coal is, regrettably,
bleak.

MRES notes that similar concerns are raised in comments filed with the
Committee by the American Public Power Association (APPA) and
Transmission Access Policy Study Group (TAPS). We would like to
associate ourselves with those comments and amplify this important
message for the Committee through the details related to our current
situation.

**Transportation:** What improvements in existing transportation or
transmission infrastructure are needed to improve the use of coal for
power generation?

Missouri River Energy Services (MRES) is a wholesale power supplier to
58 municipal utilities located in South Dakota, North Dakota, Iowa and
Minnesota. MRES owns a 17 percent interest in the coal-fired Laramie
River Station (LRS) located in Wheatland, Wyoming, and is a participant
in the Big Stone II project, as well as an additional effort to build
coal-fired generation in South Dakota.

Coal is an abundant domestic resource of critical value in meeting our
energy needs of the future. Furthermore, there is a growing need for
baseload plants, and coal-fired generation must be a part of the
baseload mix of our nation's future portfolio.

However, the ability to add new baseload generation is dependent on (1)
relief for captive shippers from exorbitant transportation costs, and
(2) adequate transmission, and supporting policies, to assure delivery
of the power from remote generation sites to load centers. Unless these
issues are successfully resolved the future of coal is, regrettably,
bleak.

MRES notes that similar concerns are raised in comments filed with the
Committee by the American Public Power Association (APPA) and
Transmission Access Policy Study Group (TAPS). We would like to
associate ourselves with those comments and amplify this important
message for the Committee through the details related to our current
situation.

# Captive Shipper Relief

Consolidation within the railroad industry has left many utilities and
other shippers dependent on a single railroad for delivery of coal from
the coalmine to their generation plant. As a result, these "captive
shippers" are increasingly forced to pay exorbitant rates for the only
viable means of transportation.

As noted above, MRES is a co-owner of the Laramie River Station
coal-fired power plant near Wheatland, Wyoming. Burlington Northern and
Santa Fe Railway Company (BNSF) currently transport some 8.3 million
tons of coal approximately 175 miles from coal mines in Wyoming's Powder
River Basin to the Laramie River Station. A long-standing contract for
that service recently expired and BNSF published new "common carrier"
rates for the same service. BNSF's new common carrier rate for Laramie
River Station deliveries would begin at 43 mills per revenue ton-mile.
This rate is four times

# Missouri River Energy Services

**Thomas J. Heller, PE MBA**

# 

the railroad's system average coal rate and would *more than double the
prior transportation rate*. Under this new rate, the cost of shipping
the coal over 175 miles of

track would exceed the cost of the coal. The BNSF rate to serve the
Laramie River Station is projected to increase over the next 20 years to
over 80 mills per revenue mile-- which will cost the co-owners of the
Laramie River Station more than \$1 billion.

MRES, our coal supplier (Western Fuels) and our plant co-owners
(including Basin Electric) believe that BNSF is unlawfully exerting its
monopoly power over Laramie River Station coal deliveries by imposing
unreasonably high rates. While Western Fuels and Basin Electric have
filed a complaint with the Surface Transportation Board (STB) to set
aside the rate increases proposed by BNSF, we have little expectation
for meaningful relief. Under its "Coal Rate Guidelines," the STB would
set coal rates *no lower than*

*150 percent of the railroads costs -- and usually sets rates even
higher.*

Unfortunately, our situation is neither unique nor isolated. Owners of
the Big Stone project in South Dakota, the location for a new power
plant -- Big Stone II \-- in which we will participate, have a similar
complaint at the STB, and we have heard of similar problems in Florida,
Texas, and Louisiana. *The potential inability to secure cost-effective
coal transportation to Big Stone II is one factor that will weigh
heavily in our consideration of whether to move forward with the
project.*

As the Committee is aware, legislation to provide captive shipper relief
through reforming the mission and policies of the STB has been
introduced in the last several Congresses. As long-standing contracts
expire, the plight of captive shippers will increase. ***It is our hope
that this fact, coupled with the impact of captive shipper rates on
construction of new coal-fired facilities, will prompt Congress to
provide legislative relief for captive shippers.***

# Transmission Needs for Baseload Power Plants

Given the operational requirements of coal-fired power plants (e.g.,
near a fuel source with adequate land and water), these plants are, by
necessity, primarily located distant from load centers. Adequate
transmission, and supporting transmission policies, is essential to
assure delivery of this power to consumers. Regrettably, as observed in
a recent report by Moody's, **needed transmission is not being built and
current transmission policies don't promote construction** or provide
the long-term transmission certainty required to build needed
generation. The problem is bad and getting worse: one study predicts
\$56 billion of new investment in transmission will be required over the
next seven years *simply to maintain* the system at its year 2000
capacity. More will be needed to achieve a truly adequate national grid.

MRES urges congressional action to (1) facilitate transmission siting,
(2) ensure the availability of long-term, firm transmission rights, and
(3) promote regionalization of the costs of high voltage network
transmission facilities.

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# Missouri River Energy Services

**Thomas J. Heller, PE MBA**

# 

1.  **Transmission Sighting**

Additional transmission will be needed to deliver power from new
coal-fired power plants -- as well as to improve system reliability and
facilitate a more robust wholesale power market. In our region the State
of Wyoming has formed a state authority to facilitate construction of
new transmission facilities. South Dakota, North Dakota and Montana are
considering formation of similar organizations.

MRES is pleased by these positive state actions. However, there are
still numerous examples of states in the region that have frustrated the
construction of needed transmission. Conflicting needs and siting
requirements of adjoining states frequently hamstring interstate
transmission line construction. In those instances where critical
transmission line additions are often blocked, a federal "backstop"
authority should exist to ensure siting. ***MRES supports the federal
backstop transmission siting authority contained in the energy bill from
last Congress.***

2.  **Long-Term, Firm Transmission Rights**

Traditionally, utilities secured long-term transmission rights -- either
through ownership or contracts -- to ensure delivery of power from
generation to the communities served ***for the entire life of the
generating facility***. Absent these long-term rights, utilities will be
reluctant to make the considerable investment needed to build baseload
plants, and Wall Street will be unwilling to finance these plants
(whether for merchant generators or traditional utilities).
Unfortunately, the Midwest Independent System Operator (MISO) and other
Regional Transmission Organizations have developed and implemented
transmission capacity allocation systems that fail to provide needed
long-term transmission rights. Without long-term transmission rights the
cost of service cannot be accurately forecasted and utilities will be
reluctant to build and operate new generation needed to meet the
electricity needs of consumers. ***MRES urges Congress to take
appropriate steps to require Regional Transmission Organizations (RTOs)
to provide needed long-term transmission rights.\
***

3.  **Network Transmission Costs**

Transmission pricing policies must facilitate, not frustrate,
construction. Regrettably, several provisions in last year's energy bill
on transmission pricing policies would, in our opinion, fail to spur
construction -- and would actually make the situation worse. One problem
is the "incentive rate" provision allowing above-market returns on
transmission. MRES believes these "incentives" merely increase
transmission rates without spurring new investment. Similarly, so-called
"participant funding" will stymie needed transmission construction by
making construction cost-prohibitive and make the approval process
overly complex.

Investments in the transmission network provide broadly distributed
benefits -- increased reliability, opportunities to access competitive
power supplies, and delivering power needed for population and load
growth -- and these benefits shift over time. Given the

# Missouri River Energy Services

**Thomas J. Heller, PE MBA**

# 

broad regional nature of these investments, ***MRES urges the use of
"postage stamp rates" that broadly spread the cost of these network
investments in high-voltage "backbone" transmission lines. Alternately,
MRES would urge Congress to resist efforts to dictate rigid transmission
pricing policies and leave the matter to FERC***.

# Conclusion

MRES commends the Committee for undertaking this inquiry. We are greatly
encouraged by the recognition that policy changes are needed to
facilitate the development of new coal-fired baseload generation.

We look forward to working with the Committee to include captive shipper
relief legislation and appropriate transmission policies in the energy
bill under development.

**Senate Energy and Natural Resources Committee**

**Coal** **Conference**

**National Rural Electric Cooperative Association**

**Executive Summary**

Coal will continue as a major fuel for electricity generation in the
foreseeable future, particularly for the rural electric cooperatives.
Cooperative electricity generation is 75 percent coal-based making
cooperatives more dependent on coal than any other segment of the
electric power industry. While cooperatives use a mix of fuels---hydro,
nuclear, natural gas, oil and renewables---cost, availability, and
siting limit their use. Coal is plentiful and inexpensive, helping to
offset the high cost of energy in rural areas where distribution lines
are long and customers per mile of line few.

Over the last ten or more years cooperatives have managed demand and
built almost exclusively peaking, natural gas-fired power plants when
necessary. Now base-load plants are needed. To support the public's and
the economy's growing energy needs, and address environmental concerns,
continued investment in coal to make our next-generation coal-fueled
power plants cleaner, more fuel-efficient, and affordable is vital.
NRECA recommends:

-   Adoption of multi-emission legislation such as Clear Skies (S. 131)
    that harmonizes environmental regulations and balances economic,
    energy, and environmental goals;

-   Enhanced funding for coal research and development, and financial
    incentives for new power plant applications for all segments of the
    electric power industry, including not-for-profit electric
    cooperatives;

-   Establishment of a regulatory environment to mitigate captive
    shipper problems that are contributing to exorbitant transportation
    costs; and

-   Prudent adjustments to regulatory policies to address the inadequate
    electric transmission system.

**4. Transportation:** What improvements in existing transportation or
transmission infrastructure are needed to improve the use of coal for
power generation?

"Bottlenecks" is the best way to summarize the critical issues electric
cooperatives face on issues of transportation and transmission
infrastructure.

**Rail bottlenecks**

One issue that must be addressed is railroad competition to ensure
affordable access to rail transportation for utilities with coal-based
generation facilities. About 51 percent of the nation's electric
utilities use coal as a fuel for the generation of power, and 75 percent
of electric cooperative generation plants use coal for fuel. Electric
cooperatives generate 45 percent of their needed power and purchase the
rest at the market. Rail is the only viable mode of transportation for
coal, and often there is no choice among rail carriers. Because
transportation costs are a major component of the overall cost of
coal-based generation, keeping these costs reasonable is critical to
overall competitiveness. This issue is particularly significant at a
time when the rail industry is undergoing dramatic consolidation, in
which a small number of large, transcontinental railroads hold immense
market dominance and market power.

The major railroads are monopolies that place electric utilities in the
position of being "captive shippers," resulting in high transportation
prices and poor service. Legislation was considered in the 108th
Congress to ensure that federal policies promote true competition for
rail shippers and eliminate barriers that currently drive up rail rates
and affect all consumers. This legislation needs to pass in the 109^th^
Congress, because rail shippers have been harmed by a 1996 Surface
Transportation Board (STB) ruling that released railroads from a
requirement to furnish separately challengeable rates over "bottleneck"
segments of a route. The STB is not shipper friendly and has offered
little assistance to captive shippers. Without competition, some
railroads have experienced poor management resulting in a shortage of
employees, cars and locomotives, at a time of increasing coal use.
Railroads have not been able to keep up with deliveries, resulting in
shortages of coal at some power plants. Most transportation customers
can respond to situations of poor service and exorbitant prices by
finding another commercial provider. However, under the current
regulatory rules, there is no way for electric utilities that are
"captive rail shippers" on bottleneck segments to find affordable and
reliable service. Where there is competition, shipping rates have been
reasonable in the past. This situation is now changing rapidly to the
detriment of rural electric consumers. Those utilities that have no
choice and no regulatory relief face exorbitant rates.

The solution is enactment of legislation to address the problem:

-   Require railroads to make public and quote rates to their customers
    between any two points on a rail system;

-   Provide the Surface Transportation Board with the proper authority
    to perform their duties as they relate to the protection of captive
    shippers

-   Provide arbitration of certain rail rate and service disputes and
    other claims

-   Allows the STB, on petition of a state, to declare all or part of a
    state to be an area of inadequate rail competition. Special rail
    customer remedies would apply in such areas;

-   Make filing fees in STB rate cases involving the "coal rate
    guidelines" (currently more than \$61,000) equal to those in federal
    district court filings (approximately \$150).

-   Include provisions that will remove the so-called "paper barriers,"
    or long term leases that prevent access to rail transportation
    competition that otherwise exists.

-   Remove the exemptions from the nation's anti-trust laws that the
    railroads currently enjoy.

**Transmission bottlenecks**

NRECA believes the existing bulk electric transmission system is
inadequate to handle the number of transactions that occur to meet the
national demands for electricity. Many of the issues arising from
transmission bottlenecks could be addressed through legislation like the
energy bill (H.R. 6) conference report that nearly passed in the 108^th^
Congress, a measure that could result in additions to the transmission
system and increase grid reliability. Any revisions to this legislation
should include three adjustments regarding transmission.

**Participant Funding.** The Federal Energy Regulatory Commission (FERC)
should not be mandated to impose participant funding as designed in
Section 1242 of the H.R. 6 conference report. At the very least, project
costs should be assigned in a way that reflects all who benefit. FERC
currently has the flexibility to do that and FERC's authority should be
maintained. FERC should not be mandated to assign incentive rates for
transmission. FERC currently has the flexibility to use incentive rates,
as well as other choices to tailor the proper rewards. FERC should
maintain that flexibility.

It is troubling to electric cooperatives that FERC would be required
under Section 1242 of the H.R. 6 conference report to approve a
transmission pricing plan based upon one version of participant funding.
This specific provision would allow public utilities that own
transmission to single out one electric utility, including a
cooperative, to pay the significant costs associated with an upgrade of
the transmission infrastructure even though all of the electric
utilities as part of the regional network would share the benefits of
such an upgrade.

This version of participant funding will very likely result in the
assignment of project

costs for competitive advantage and without connecting the costs to all
of the

beneficiaries and benefits. It will also provide an economic development
advantage to

high population density urban areas over low density rural areas. Except
for extraordinary

cases, transmission will not get built.

A more suitable version of participant funding would allocate
transmission costs consistent with all who benefit. Under this version
of participant funding, those transmission facilities that would be
required only for the operation of new generating facilities built to
export power outside of the region where they are sited, those
participants would bear the costs of the transmission required. That
approach protects native load consumers in one region from paying for
additional transmission facilities that provide them no benefit. If the
new transmission facilities benefit a generator, or consumers in another
region, the generator or the consumers in the other region should pay
the costs of the transmission facilities.

Currently, FERC has the flexibility to determine the cost allocation
approach that should

be used. As a result, the cost allocation is generally aligned with the
benefits that accrue

from the transmission system upgrades.

**Incentive Rates.** FERC should continue to have the flexibility to
either use or deny the

use of incentive rates for transmission. NRECA believes higher rates of
return should be

a last resort, not a first resort. While the rate of return is
important, the level of return

required to attract capital investment is a product of the level of risk
faced by investors:

the lower the risk of ownership, the lower the rate of return required
to attract investment.

As noted previously, NRECA believes that FERC can best encourage the
construction of

new transmission facilities by providing investors with certainty that
they will recover

their costs. At the very least, FERC should be able to choose between
higher rates of

return or reduced risk of ownership or some combination of both as an
incentive package

for construction of new transmission.

**Native Load.** As the electricity market continues to evolve,
long-term transmission rights has emerged as an issue that affects many
aspects of industry operations, including the diversity of fuel sources
used for electric generation. Up until recently, the long-term
transmission rights required to support new generation were a standard
feature of all FERC tariffs. On the basis of those long-term rights,
load-serving entities could and did make and finance long-term
generation commitments with reasonable long-term delivered price
certainty. Now in the transition to Regional Transmission Organizations
(RTOs), no such rights are available because all of the focus at RTOs is
on short-term spot markets. Simply put, spot markets will not get high
fixed cost, power plants, with long construction lead times, built,
particularly if no long-term transmission service is available.

None of the Regional Transmission Organizations (RTOs) approved by FERC
to date have any mechanism in place to allow utilities to secure
long-term transmission rights for new power plants or power contracts.
As a result, there is no way to obtain reasonable

delivered price certainty. This is making construction of clean coal
plants and wind

generation by load-serving entities very risky, since the fixed costs of
these plants are

high and the savings is in lower energy costs over the life of the
plant. What matters is

the delivered energy cost to consumers. Without a long-term transmission
right at

reasonably certain rates, our consumer-owners face high risk that the
delivered cost may

be much higher than expected.

Long-term transmission rights assuring deliverability to load with
reasonable price

certainty is an essential ingredient to achieving fuel diversification.
Like coal-fired

generation, the other major fuel diversification alternatives---wind
power and,

potentially, new nuclear plants---need long-term transmission rights
because they also are

high fixed cost, low energy cost resources and will likely have to be
located at a distance

from population centers and so are very dependent on transmission.

**Senate Energy and Natural Resources Committee**

**Coal** **Conference**

**Puget Sound Energy**

Dear Chairman Domenici:

Thank you for the opportunity to present comments related to the future
use of coal for electricity generation. On behalf of the nearly one
million electric customers and approximately 650,000 natural gas
customers of Puget Sound Energy, I offer the following comments.

Puget Sound Energy supports increasing the use of coal for electricity
production with continuing improvements in emission controls for both
new and existing units. Coal is America's most abundant fuel resource
and must contribute to bridging the gap until our nation can rely more
completely on renewable resources for our energy needs. For this to
happen, the nation needs a clearly articulated energy policy that
includes continued use of coal as a means for production of electricity
in an environmentally sensitive manner.

As with any cost intensive, long-term investment, the future use of coal
for power production requires clarity of regulations and a long-term
energy policy. Financial incentives and regulatory certainty are also
needed to ensure necessary transmission facilities are planned and
built.

Again, we appreciate the opportunity to share these thoughts with you.
Please feel free to contact me at (425) 462-3595.

Sincerely,

![](media/image12.png){width="1.4368055555555554in"
height="0.4951388888888889in"}

Eric M. Markell

Senior Vice President Energy Resources

**Comments of Eric Markell**

**Puget Sound Energy**

**November 13, 2023**

**4. Transportation: -** What improvements in existing transportation or
transmission infrastructure are needed to improve the use of coal for
power generation?

Regional planning and cooperation will be a key to improving existing
transportation and transmission infrastructure. PSE and other utilities
in the western United States, where population centers and generating
plant sites may be separated by hundreds of miles, are challenged by the
need to permit and build the transmission lines, which may run through
several states, to connect generating resources to our customers.
Utilities presently face a myriad of regulations and laws from multiple
jurisdictions that add significant costs and time constraints to new
transmission projects needed to serve our growing service territory.
Environmental regulations and laws are unfortunately used too often as
an offensive tactic to delay or derail a new transmission or generation
facility for the simple reason that a local interest, not representative
of the regional majority, does not want the expansion or improvement of
electricity infrastructure. This creates a growing risk that the
overriding needs of the regional economy will be undermined by the use
of environmental or other laws and regulations to achieve purposes never
intended by underlying standards that these laws and regulations were
designed to uphold.

The lack of effective competition for rail transportation services can
also affect the cost and availability of low cost electricity. Effective
mechanisms are needed to ensure that rail rates for coal hauling are
fair and do not subsidize the hauling of other commodities.

Financial incentives and regulatory certainty are also needed to ensure
necessary transmission facilities are planned and built. The permitting
and construction of electric transmission facilities can easily exceed
the time needed to permit and construct a new power plant. The
development of both is essential to a useful expansion of electric
capacity and their need must be weighed jointly and in the regional
context.

**Senate Energy and Natural Resources Committee**

**Coal** **Conference**

**Tennessee Valley Authority**

Tennessee Valley Authority

Summary and Response to Question 4:

**What improvements in existing transportation or transmission
infrastructure are needed to improve the use of coal for power
generation?**

It may be cheaper to invest in coal transportation rather than EHV
transmission lines.  What is sometimes overlooked in the coal-by-wire
discussion is that redundant paths are needed for transmission lines or
to move major blocks of power from coal rich areas to population
centers. Existing lines can be upgraded and technology improvements such
as superconducting transmission lines would have a major impact, but
will probably not be widely available for 20 plus years.

However, there are some problems in the coal transportation area also.
The continued growth in demand for coal has pushed all the major
railroads beyond their current ability to provide timely and cost
effective delivery of coal to utilities.  This problem has impacted both
eastern and western rail deliveries.  For coal fired power generation to
increase in future years, railroads must have the capacity in-place to
meet increased customer demand.  Rail capacity can be increased to meet
growing customer demand for future power generation by:

-   Major increases in capital investment to improve track
    infrastructure, volume capacity and improve average movement
    velocities.

-   Major increases in new engines and car sets to meet growing customer
    demand.

-   Hiring and training of more crews to safely maintain and operate
    rail systems.

 

Many barge companies have not made adequate and timely investments in
maintaining and increasing barge fleet sizes to meet the growing demand
for coal in the USA.  The companies must increase their investment to
match the demand for barges and boats, especially during peak demand
seasons.

 

Barge transportation requires a reliable and well maintained system of
locks and dams to safely navigate the nation's waterways.  Funding for
repairs, improvements and upgrades for the river systems has been
inadequate in years past.  Funding for the lock and dam systems must be
increased to maintain the system as a reliable and safe delivery mode so
as to improve the future use of coal for power generation.

It would seem a balanced approach of improving both the coal
transportation and power transmission systems would make the most
sense.  Investments in technology and capacity improvements in power
transmission, rail lines and the barge/lock system will all be required
to maintain and encourage greater use of coal for power generation in
the future.

[^1]: Railroads also support in energy legislation a provision that
    would create a partnership involving railroads, rail suppliers, and
    the federal government to enhance locomotive fuel efficiency and
    emissions control. A similar partnership for heavy-duty trucks is
    already in place.