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### ANALYSI S O F TH E RESPONS E O F COAL PRICE S T O LOWE R OI L PRICE S

Prepare d for : Energ y & Environmenta

l Analysis , Inc . Arlington , Virgini a

an d U.S . Environmenta

l Protectio n Agenc

y Offic e o f Ai rQualit y Planning an

d Standard s Durham, Nort

h Carolina

198 6

FIELDSTO N COMPAN Y113 3 15l h Stree t N.W. , Suit

e 1000 , Washington , D.C . 20005 1202 ) 775-024 0Sectio n

I . II . III . IV. V . VI . VII . TABLEO FCONTENT S

Titl e Executiv e Summary Purpos e Scop e Methodology , Assumption s an dCaveat s New Englan dMarke t

Analysi s SouthAtlanti c Marke t

Analysi s Gul f Coas t Marke t Analysi s Pae e 1 2 3 3 1 4 2 0 2 8P. 4

I . Executiv e Summary Thi s stud y test s th e hypothesi s tha t delivere dcoa l cost s canno t declin e sufficientl y i n th e 1990-199 5 tim e fram e t o mak e coal competitiv e wit hoi l o r natura l ga s i n ne w industria l boilers . Th e hypothesi s wa s examine di nthre e sampl e market s wher e interfue l competitio nha s bee na t leas t partiall y responsibl e fo r reduction s i n delivere dcoa l prices . Thes e thre e market s wer e Ne w England , th e SouthAtlantic , an dth e Gul f Coast . Sinc e dat ao n delivere dfue l price s t o utilitie s ar e availabl e throug h governmen t

filing s whil e industria l price s ar e generall y not , muc hof thi s analysi s addresse s change s i n delivere dcoal price s t o utilitie s i nth e selecte dmarkets . Thes e result s ar e the n discusse drelativ e t o possibl e change s i nindustria l coal prices . Th e analysi s i s no t mean t t o cove r

al l region s an dcoal types . I t i s simpl y intende da s aquic k test , usin g cas e studies , of th e prove ndownwar d flexibilit y o f

coa l price s i n recen t

month s i nrespondin g t o interfue l competition . Conclusion : Despit e th e recen t declin e i ndelivere dcoal prices , i t doe s not appea r tha t i n th e market s examined , th e delivere dpric e of industria l coa l i n198 5 dollar s woul dfal l $3/MMBt u o r more belo w th e delivere dprice s of 1.6 % resi do r natura l ga s (base dupo n EEA pric e prediction s show nbelow ) i nth e 1990-199 5 tim e frame . Consequently , i nthes e markets , i t i s unlikel y tha t

th e mode l bein g use d t o predic t

th e fue l choic e fo r

ne w industria l boiler s wil l selec t coal . Th e result s of thi s analysi s canno t

necessaril y b e extende dt o industrie s whic hbecaus e of thei r proximit y t o th e coal field s wil l experienc e lowe r delivere dcoal prices . I n fact , coal wil l probabl y b e selecte da s aboile r fue l i ncertai nof

thes e sit e specifi c cases .

198 5 4.4 6 4.3 7 198 7

3.5 0 3.42 2.2 8 Hig hOi l Pric e Scenari o

Delivere dPric e 198 5 $/MMBt

u 199 0 4.1 4 4.0 6 3.4 4 199 ? 4.67 4.5 9 4.4 3 200 0

5.29 5.2 1 5.06 MARKET (Region ) FUE L Ne w England(l ) 1.6

% Resi d SouthAtlantic(4 ) 1.6

% Resi d Southwest(6 ) Natura l Ga s Findings : I n 1985-1986 , man y delivere dutilit y coal price s i nth e market s teste d hav e decline dsubstantiall y (20-25% ) fro mpeak level s reache di nth e earl y 1980's . Whil e thes e pric e decline s ar e no t universal , the y d o appea r t o b e widesprea dan d t o affec t th e price s of

coal s delivere deithe r i nth e spo t

marke t o r unde r contract s whic hbecaus e of thei r duratio no r

term s ar e responsiv e t o marke t prices . Thes e pric e decline s ar e not du e solel y t o interfue l competition , althoug h tha t competitio n ha s affecte dprices . Th e mai n caus e of

depresse dcoal price s ha s bee namarke t imbalanc e wher e coa l supplie s hav e greatl y exceede ddemand . Thi s ha s force dcoal price s down ,P. 5

resultin g i n highe r

cos t mine s an dproducers , not protecte db y lon g ter m contracts , bein g force dout of th e marke t

place , an di nsome coal s bein g sol da t price s whic hd o no t

reflec t thei r ful l cost s of

production . I naddition , coa l transportatio n price s hav e generall y bee nreduce dwher e competitio nha s bee na facto r an dwher e transportatio n contract s hav e bee nsigned . Wit hth e recen t

declin e of

oi l price s int o th e $10-$12/barre l range , some utilitie s whic heithe r

directl y o r

throug hpowe r

poolin g arrangement s hav e competin g coal , oi l o r

gas-fire dgeneration , hav e dispatche doi l an dgas-fire dunit s ahea dof coal-fire dones . Coal producer s an dtransporter s hav e bee nabl e t o respon dt o thi s interfue l competitio nthroug hfurthe r reduction s i ndelivere dcoal price s wit hmixe dsuccess . Som e of thes e competitiv e market s hav e experience d th e mos t dramati c decline s i n coal prices . Becaus e th e tim e perio dove r whic hthi s recen t

interfue l competitio nha s bee n activ e i s brief, an dbecaus e of th e multitud e of

factor s whic hcause dcoal price s t o decline , i t

i s difficul t

t o predic t

whethe r reduce ddelivere dcoal price s ca nb e sustaine dove r

a n extende dtim e period . Whil e exces s productio ncapacit y certainl y acte da s adepressan t o ncoal prices , structura l change s i nth e coal industr y an ddramati c improvement s i nproductivit y i nrecen t year s impl y tha t some lowe r

leve l of coa l price s i s sustainable . I t i s unlikel y tha t

coal price s wil l increas e t o follo w th e predicte dris e i noi l an dnatura l ga s prices . Thes e market s ar e drive nb y ver y differen t factors . Whil e coal mus t compet e wit hoi l an dga s i n existin g facilitie s i n a"depressed " marke t fo r oi l an dgas , th e sam e relationshi p nee dno t hol di n amarke t

wher e oi l an dga s price s substantiall y excee dcoa l prices . Industria l coa l price s wil l generall y b e highe r tha nutilit y coa l price s i npar t becaus e of

coa l qualit y requirements . Coal fo r industria l stoker-fire dboiler s require s additiona l sizin g an dpreparation . I naddition , apremiu mi s generall y demande dfo r

th e smalle r

transactio nsizes . Transportatio ncost s ar e als o generall y highe r

fo r industria l coal users becaus e the y ar e unabl e t o tak e advantag e of

reduce drate s fo r

uni t trai no r

trainloa dsiz e shipment s whic har e availabl e t o mos t

utilities . I n market s whic har e close r t o th e coa l fields , an dwher e oi l an dnatura l ga s ar e mor e expensive , i t i s unclea r

ho w th e declin e i ndelivere dcoa l price s wil l affec t th e economic s of

fue l choic e i nne w industria l boilers . A s transportatio n cost s declin e an ddelivere dcoa l cost s approac hfo b min e price s i nspecifi c cases , coa l shoul db e competitive . II . Purpos e Thi s forecas t

i s designe dt o tes t

th e hypothesi s tha t

delivere dcoa l cost s canno t declin e sufficientl y i n th e foreseeabl e futur e t o mak e coal competitiv e wit h oi l o r ga s i n ne w industria l boilers . Generally , ne w industria l boiler s woul d therefor e b e expecte dt o bur n oi l o r ga s i f allowed . I nothe r

words , coa l price s whil e flexibl e downwar d(bothfo b min e an dtransportation ) ar e unlikel y t o fal l sufficientl y t o b e abl e t o displac e oi l an dga s i nmajo r industria l market s i nth e 1990-199 5 tim e frame .P. 6

III . Scop e Th e analysi s teste dthre e exampl e market s t o determin e ho w coa l price s o na delivere dbasi s hav e bee n abl e t o compet e agains t oi l an dgas . Th e market s teste dinclude dNe w England , th e SouthAtlantic , an dth e Gul f Coast . Th e analysi s use s thes e exampl e market s t o tes t th e hypothesi s regardin g whethe r coal price s hav e bee n abl e t o declin e sufficientl y t o compet e wit hoi l an dga s i n industria l markets . Th e scop e di dnot includ e comprehensiv e forecast s of coal price s fo r al l region s an dsulfu r

contents . IV . Methodology , Assumption s an dCaveat s Th e analysi s wa s conducte dfollowin g th e methodolog y an dusin g th e assumption s an dcaveat s describe dbelow . Wher e assumption s wer e required , w e generall y trie dt o tak e th e positio ntha t i f th e assumptio nwa s incorrect , th e resul t wil l b e eve n highe r

delivere dcoal prices . Sinc e th e hypothesi s bein g teste d i s tha t coa l price s canno t

declin e sufficientl y i nth e foreseeabl e futur e t o mak e the mcompetitiv e wit hoi l o r ga s i nane w industria l boiler , us e of alternativ e assumption s whic har e eve n les s favorabl e t o industria l coal woul donl y strengthe n th e conclusion . Methodolog y 1 . Identificatio n of

thre e tes tregions : I nconjunctio nwit hEnerg y an d Environmenta l Analysis , Inc . (EEA) , i t wa s decide dt o tes t th e relationshi p betwee n delivere dcoa l price s an doi l o r ga s price s i nNe w England , th e South Atlantic , an dth e Gul f

Coast . Thes e region s wer e selecte dbecaus e the y ar e area s wher e delivere dcoal price s ar e likel y t o experienc e th e greates t competitio nfro m oi l o r natura l gas . Ne w Englan dan dFlorid autilitie s hav e read y acces s t o importe doi l an dhav e oil-fire dgeneratio ncapacity . Utilitie s i nth e Gul f Coas t hav e substantia l gas-fire dgeneratio ncapacity . 2 . Identificatio n o

f sampl e utilitie s an

d plants : Dat ao ndelivere dfue l price s t o utilit y plant s withi n thes e thre e region s wer e examine dt o identif y case s wher e i t appeare dtha t

declinin g price s fo r

oi l o r ga s may hav e force ddecline s i ndelivere d coa l prices . I n general , w e wer e seekin g case s wher e th e dat aindicate dtha t coa l producer s an dtransporter s may hav e bee nrequire dt o dro p thei r price s i norde r t o preserv e thei r

markets . Thes e situations , w e hypothesized , wer e likel y t o provid e some indicatio n of th e exten t

t o whic hcoal an dcoa l transportatio nprice s woul db e downwar dflexible . Severa l utilitie s hav e clearl y use dth e recen t declin e i noi l an dga s price s t o bac k ou t coal , o r forc e reduction s i ndelivere dcoa l prices . Thes e includ e Ne w Englan dElectri c Syste man dNe w Hampshir e Publi c Servic e Compan y i nNe w England ; Florid aPowe r Corp . i nth e SouthAtlantic ; an dLowe r Colorad o Rive r Authority , th e Cit y of

Sa n Antoni o Publi c Service , an dCentra l Powe r & Ligh t Co . i nth e Gul f

Coast . I n al l of

thes e cases , coal market s hav e bee nthreatene db y declinin g oi l o r

ga s prices .P. 7

3. ' Identificatio n of

Utilit y an dIndustria l Coal Suppl y Sources : Fo r eac hof th e sampl e utilitie s identified , th e coal sourc e region s wer e identified . Instruction s fro mEE A indicate dthat , becaus e of th e formof

th e industria l Ne w Sourc e Performanc e Standar dbein g considered , th e industria l coal shoul db e source d withou t regar dt o sulfu r

content . Consequently , w e assume dtha t potentia l industria l coa l user s woul dseek t o minimiz e delivere dcost s of coal i ncent s pe r MMBtu . I nNew England , thi s mean t tha t industria l coal users woul dprobabl y seek t o originat e coa l i n Pennsylvani ao r norther nWes

t Virginia . Thi s i s th e are afro m whic hsome o f

th e sampl e utilit y coal s originate . I n Florida , utilit y coal s ar e delivere deithe r b y rai l o r

barge . Mos t

industria l coal i s currentl y delivere db y rail . Dependin g upo ntransportatio nconsiderations , th e coals coul db e source di n centra l Appalachia , o r th e Illinoi s Basin . W e assume drai l deliver y fo r industria l coal shipment s t o Florida , an dtherefor e source dth e coal s fro mcentra l Appalachia . I nth e Gul f

Coast , coa l sourcin g i s adifficul t issue . Utilitie s generall y sourc e coal fro mth e Powde r

Rive r Basi ni nMontan aan dWyoming , o r us e Texa s lignite . However , mos t

industria l coal users ar e likel y t o sourc e coal fro mdifferen t suppl y region s includin g Oklahoma , Ne w Mexic o an dColorado . Thi s methodologica l anomal y wa s addresse db y considerin g on e utilit y whic hdoe s purchas e Colorad o coal , an dothe r

informatio n regardin g fo b min e price s an dproductio ncost s fo r coals fro mColorado , Ne w Mexic o an dOklahoma , an dtransportatio nprice s an d costs . 4 . Identificatio n O f

Utilit y an dIndustria l Coal Transportatio nRoutings : Fo r eac h of th e coa l source s an dutilit y combinations , a nassume dtransportatio nroutin g wa s developed . I n Ne w Englan dan dFlorida , th e industria l an dutilit y coal source s an dtransportatio n routing s wer e matche dclosel y enoug ht o dra w som e conclusion s abou t

th e likel y response s i nth e industria l coa l marke t fro mth e change s i nth e utilit y market . I nthes e cases , i t wa s easie r

t o dra w analogie s betwee n th e responsivenes s o f th e railroad s i nadjustin g t o interfue l competitio n tha n i n th e Gul f

Coas t wher e mos t

of th e coal source s an dtransportatio nrouting s differed . 5 . Applicatio n of

Change s i n Utilit y Price s t o Industria l Coa l Prices : Drawin g upo n th e experienc e of utilitie s i nbein g abl e t o obtai nlowe r delivere dcoa l prices , i n part , b y takin g advantag e of interfue l competition , thi s experienc e wa s the n applie dt o th e industria l sector . Th e logi c i s tha t a nindustr y plannin g a ne w boile r

an dconsiderin g coa l o r anothe r fue l shoul db e abl e t o exer t some leverag e t o obtai n reduce ddelivere dcoal prices . Th e caveat s o nthi s typ e of analysi s ar e numerous . An existin g utilit y an da nindustr y plannin g ane w boile r ar e i n ver y differen t

positions . I t

i s questionabl e whethe r a nindustria l custome r utilizin g muc hlowe r

coa l volume s tha nautilit y woul db e abl e t o exer t sufficien t leverag e t o obtai n th e sam e concession s a s autility . However , b y assumin g tha t th e industr y achieve s simila r pric e reductions , w e woul db e likel y t o understat e delivere dindustria l coa l price s an dthereb y maximiz e th e likelihoo dof industria l coal penetration . If

unde r thes e assumptions , ne w coal-fire dboiler s ar e not projecte dt o b e buil t

i n th e market s bein g examined , th e hypothesi s woul dappea r t o b e strongl y supporte d(ie . tha t coal price s canno t

declin e sufficientl y eve n unde r ahig hoi l pric e scenari o i nthes e market s t o resul t i nconstructio nof

ne w industria l coal-fire dboilers. )P. 8

6 . Futur e Pric e Tren dAnalysis : Th e result s obtaine di nth e previou s analyse s ar e extrapolate dint o th e 1990-199 5 tim e perio dt o determin e whethe r industria l coal penetratio n migh t

occu r i n tha t period . Th e questio nof whethe r th e reduce d coal price s whic har e apparen t i n mid-198 6 coul db e expecte dt o b e sustaine dint o th e futur e i s acomple x one . W e assum e tha t

the y ca nb e sustaine dwhic h probabl y understate s lon g ter mcoal price s (se e assumptio no n"Futur e Coal Pric e Trends") . Coal price s fo b min e ar e hel dconstan t i nrea l term s whil e transportatio n price s ar e assume dt o increas e b y 1%/yea r o r les s i nconstan t dollars . Thi s i s base dupo n assume dcos t increase s i nlabor , material s an d supplies , an dth e EE A diese l fue l prices . 7 . Compariso n of

198 6 Utilit y Delivere dCoal Price s t o Industria l Ga s an dOi l Forecas t Prices : Th e projecte dfutur e utilit y coa l price s wer e the ncompare dwit h th e delivere dindustria l oi l o r ga s price s t o se e i f

th e $3/MMBt

u threshol dcriteri a wer e me t

i n th e 1990-199 5 tim e frame . If not , the nindustria l coa l price s ar e clearl y non-competitiv e fo r asimilarl y situate dindustria l consume r wh o woul db e payin g highe r

delivere dcoa l prices . 8 . Adjustmen t

o f Utilit y Price s t o Industria l Prices : Fo r coa l productio ncosts , some adjustment s wer e mad e t o accoun t fo r th e likelihoo dtha t

industria l coal woul dcos t

mor e fo b min e tha n utilit y coal purchase s du e t o specia l screenin g an d cleanin g requirements , an dth e highe r cost s associate dwit hhandlin g smalle r volumes . Approximatel y $.20/MMBt u wa s assumed . B y examinin g th e relationshi p betwee n actua l transportatio n rate s fo r uni t trai nan dsingl e ca r

movements , some adjustment s wer e mad e t o conver t utilit y transportatio nprice s int o industria l equivalents . 9 . Estimatio n of

Ful l an dVariabl e Coal Productio nan dTransportatio nCosts : Fo r eac ho f th e sourc e an dtransportatio ncombinations , ful l an dvariabl e coal productio n an dcoa l transportatio ncost s wer e estimated . Th e purpos e of thi s analysi s wa s t o determin e th e degre e t o whic hcoa l transporter s an dproducer s coul dreduc e price s an dstil l cove r thei r variabl e cost s of

productio no r transportation . I t

wa s als o intende dt o reflec t ho w curren t

price s migh t

compar e wit hth e producers ' an dtransporters ' underlyin g cos t structures . Variabl e coa l productio n cost s wer e define dt o includ e out-of-pocke t cost s suc h a s min e labor , material s an dsupplies , haulage , taxes , an droyalties . Thi s i s a ver y shor t

ter mconcep t

an di s mos t

likel y t o reflec t

spo t o r ver y shor t

ter m contrac t marke t prices . A t

thes e pric e levels , th e produce r doe s no t

ear na retur no nit s investe dcapital , an dwoul dnot b e expecte dt o reinves t capita l onc e th e reserve s o r

minin g equipmen t

wer e exhausted . Ho w lon g price s ca nremai na t thes e level s i s largel y afunctio nof th e industry' s exces s capacit y situation . S o lon g a s segment s of

th e industr y experienc e exces s capacity , an dprice s i nthes e segment s nee dno t

b e stron g enoug ht o encourag e increase dinvestmen t i nne w capacity , the n industria l coal users may expec t t o benefi t

fro mdepresse dcoal pric e levels . Price s whic hcove r

ful l coal productio ncost s ar e estimate da s thos e whic h provid e sufficien t

cas hflo w ove r

th e min e lif

e t o provid e a15 % retur no n investment . Th e variabl e cost s of

coal transportatio nar e define db y mode . Fo r barge s an d trucks , th e concep t

i s ver y simila r

t o tha t of coal producer s (ie. tha t neede dt oP. 9

cove r th e cas hcost s of

transportation) . However , fo r rail , cost s ar e calculate d base dupo n"Rai l For mA " costs . Thes e ar e base dupo nawidel y use dtechniqu e of allocatin g railroa dcost s amon g variou s operatin g parameter s an ddevelopin g uni t cost s whic hca n the n b e applie dt o specifi c movements . Thi s costin g techniqu e was applie di n thi s stud y fo r specifi c routing s an dfo r specifi c rai l carrier s t o estimat e variabl e costs . However , 135 % of Rai l For mA calculate d variabl e cost s wa s use da s th e definitio nof "variabl e costs " tha t

arai l carrie r

i s likel y t o charge . Thi s i s fa r belo w th e rate s charge do nmos t coa l traffic , bu t

i s approximatel y th e leve l a t whic hth e railroa dcoul dcove r it s costs , i f

al l traffi c pai dasimilarl y calculate drate . Ful l rai l cost s wer e calculate da s 180% of variabl e costs . Thi s i s aregulator y threshol dabove whic hth e Interstat e Commerc e Commissio nca ntak e jurisdictio n i ndecidin g whethe r

arat e i s reasonable . I t indicate s tha t

arat e wil l als o b e highl y profitable . 10 . Compariso n o

f Costin g Result s t o Sampl e Utilit y Plan t Prices : Th e cos t mode l result s wer e compare dt o th e actua l delivere dprice s fo r contrac t

an dspo t coal s a t th e sampl e utilitie s t o determin e th e degre e t o whic hdelivere dcoa l price s ha dbee n reduce dan dwhethe r th e pric e reduction s whic hha dbee n effecte dt o mee t

interfue l competitio nappeare dt o b e sustainable . Assumption s an dCaveat s Competitiv e Fuels : Th e competitiv e fue l i nNe w Englan dan dth e SouthAtlanti c (Florida ) wil l b e 1.6

% sulfu r resid . I nth e Gul f

Coast, th e competitiv e fue l wil l b e natura l gas . Us e of

3 % sulfu r

resi dwoul dhav e lowere dth e resi dcost s b y abou t $.20/MMBt

u makin g coal eve n les s competitive . Price s of Competitiv e Fuels : Th e delivere dprice s fo r natura l ga s an dresi duse d i nth e cas e studie s wer e provide db y Energ y an dEnvironmenta l Analysis , Inc . unde r thei r "Hig hOi l Pric e Scenario " i narepor t t o USEPA "Regiona l Projection s of Industria l Fue l Prices " date dAugus t 14 , 1986 . Threshol dPric e Differentia l fo r Ne w Industria l Boilers : EEA indicate dtha t th e approximat e threshol dfue l pric e differentia l fo r constructio nof

ane w coal-fire d industria l boile r

woul db e approximatel y $3/MMBtu . Thi s means tha t th e cos t of th e competin g fue l (ie . oi l o r natura l gas ) mus t

b e expecte dove r

some perio dt o excee dth e cos t

of coal o n adelivere dbasi s b y approximatel y $3/MMBtu befor e th e industria l facilit y i s likel y t o choos e t o instal l acoal-fire dboiler . Thi s differentia l i s require dbecaus e th e capita l an doperatin g cost s associate dwit ha n industria l coal-fire dboile r fa r excee dth e cost s of

a nindustria l oi l o r

gas-fire d boiler . Disaggregatio n o

f Delivere dCoal Pric e Data : Whil e utilit y delivere dcoa l pric e dat aar e readil y availabl e throug hFER C for m42 3 data , disaggregatio nof thes e dat aint o transportatio n an dfo b min e component s i s generall y confidential . I n determinin g wha t

portio n of

th e delivere dpric e reduction s wer e du e t o change s i n transportatio n an dfo b min e costs , i t wa s necessary t o mak e assumption s base d upo n dat afro mothe r

source s o r

discussion s wit hth e utilitie s an drailroads . I n general , producer s hav e bee n mor e responsiv e i nterm s of droppin g price s t o mee t competitio n tha n hav e bee n th e railroads . However , thi s ha s generall y bee ni n respons e t o competitio n fro mothe r coal producers . T o th e exten t tha t furthe rP.1 0

prfc e reduction s ar e neede dt o mee t interfue l competition , thi s burde nha s bee n born e i n par t

b y th e coal transporters . However , some rai l carrier s hav e resiste dthes e pric e reductions , i npar t becaus e th e carrier s ar e concerne dtha t i t wil l b e difficul t

t o increas e thei r

rate s onc e th e pressur e fro malternativ e fuel s i s relieved . Relationshi p Betwee n Industrial an d Utilit y Pric e Trends : Whil e utilit y delivere d coal price s hav e decline da s aresul t of declinin g oi l an dga s prices , i t doe s not necessaril y follo w tha t industria l coal user s woul dexperienc e th e sam e typ e of delivere dcoal pric e response . Thi s analysi s i s predicate di npar t o nth e concep t tha t some relationshi p doe s exis t betwee nutilit y an dindustria l coa l prices . Sinc e th e volum e of

utilit y coa l shipment s i s mor e tha na norde r of magnitud e greate r tha n th e volum e of

industria l stea mcoal shipments , an dbecaus e i t i s utilit y purchasin g decision s tha t largel y dictat e th e marke t condition s experience db y U.S . stea mcoal producers , i t i s likel y tha t

industria l coal users wil l b e pric e taker s i n thi s market . T o th e exten t tha t th e exces s of

suppl y ove r

demand , an d. increasin g interfue l competitio n resul t i nlowe r

coal prices , industria l coal users ar e likel y t o b e beneficiarie s of th e lowe r

prices . Th e relationshi p betwee n utilit y an dindustria l transportatio nprice s i s mor e difficul t t o establis hbothactuall y an dconceptually . Fo r barg e an dtruckin g costs , th e marke t

i s highl y competitive , an dprice s ar e essentiall y cos t base di n th e curren t

situatio n of

barg e ove r

capacity . Th e limite dbarrier s t o entr y i n coal truckin g als o resul t i n rate s tha t

ar e probabl y largel y cost-based . However , rate s fo r rai l transpor t

whic hi s th e primar y mod e fo r utilit y an dindustria l coal shipment s ar e no t

necessaril y cost-based . Industria l coal shipment s b y rai l occu r mostl y i nsingl e carloa dlots . Som e publishe drate s ar e als o establishe dfo r multipl e car s an dminimu mannua l volumes . However , man y industria l coal movement s ar e covere dunde r transportatio n contract s whic hwer e allowe dunde r th e 198 0 Stagger s Rai l Act . Thes e contrac t rate s ar e confidential . Sinc e delivere dindustria l coal price s ar e als o confidential , ther e i s littl e dat ao n th e exten t t o whic hth e railroad s may hav e reduce drai l rate s fo r th e industria l secto r

t o mee t interfue l competition . Discussion s wit hindustria l an dutilit y coa l users indicat e tha t th e railroad s hav e reduce drate s fo r

industria l coa l shipper s unde r contract s fro mtarif

f levels . Th e exten t

of thes e reduction s i s probabl y aresul t of th e industry' s bargainin g leverag e ove r

th e railroads , an dth e company' s associate dcommitmen t t o mov e coa l ove r th e track s of

th e railroa dwit hwho mi t contracts . Becaus e some coa l usin g industrie s als o shi p othe r product s b y rail , th e contrac t rate s may reflec t

a commitmen t

t o furthe r

utiliz e th e railroads ' service s i ncommoditie s othe r tha n simpl y coal . A n industr y considerin g installin g ane w coal-fire dboile r an dhavin g anon coa l fue l optio n i s likel y t o b e i napositio nt o exercis e some leverag e ove r th e railroad . Specifically , i f th e carrie r

i s no t willin g t o establis hacceptabl e rate s unde r contract , i t

wil l los e al l of

th e potentia l revenue s fo r coa l shipment s fo r th e ne w boiler . Als o i f th e plan t

i s unsited , o r

th e sit e i s serve db y mor e tha n on e carrier , th e industr y may b e abl e t o achiev e lowe r rai l rate s throug h intramoda l competition . Th e benefi t of thi s ex-ant e competitio nca nthe nb e preserve d(t o some extent ) throug hacontract .P.1 1

'Th e availabilit y of

chea p oi l an dga s an dth e abilit y o f a nindustr y addin g boile r capacit y t o demonstrat e t o th e railroa dtha t lowe r rai l rate s woul db e a prerequisit e t o adecisio n t o buil dacoal-fire dboile r woul dseemt o provid e a n impetu s fo r

lowe r rai l rates . However , becaus e industria l coa l volume s ar e lo w relativ e t o utilit y coal volumes , i t i s likel y tha t

th e railroad s woul dno t mak e th e sam e sort s of

concession s t o gai nindustria l traffi c tha t the y woul dt o gai nne w utilit y traffic . Thi s i s especiall y tru e i f th e railroa dperceive s tha t th e industry' s leverag e i s short-live d(eg . oi l an dga s price s ar e onl y temporaril y depressed) ; or tha t grantin g pric e concession s woul dhav e implication s beyon dth e compan y t o who mth e concessio n was grante d(eg . Compan y B wil l lear ntha t Compan y A receive dasignifican t

rat e reductio nan dCompan y B wil l deman dth e sam e consideratio nwhe n it s curren t contrac t expires) . W e conclud e tha t

i t i s ver y difficul t

t o predic t

ho w railroa drate s wil l respon d t o reduce doi l an dga s prices . W e hav e assume dtha t

fo r ne w industria l coal boilers , companie s may accomplis hth e sam e sort s of reduction s tha t

utilitie s achieved . Thi s i s atenuou s result , bu t i s usefu l give nth e hypothesi s bein g teste d tha t industria l coa l price s canno t fal l enoug ht o resul t i nne w coa l boile r additions . I f

thi s hypothesi s i s wrong , an dindustria l rai l rate s d o no t declin e proportionatel y a s muc ha s utilit y rai l rates , the nth e conclusion s of th e analysi s wil l b e furthe r

strengthened . Impac t o f Qualit y Constraints : T o th e exten t tha t industria l coal specification s ar e mor e stringen t

tha n utilit y coal specs , thi s wil l ten dt o limi t th e availabilit y of acceptabl e supplier s an dthu s competition . Industria l coal , especiall y stoke r coal i s likel y t o hav e mor e stringen t specification s tha nutilit y coal use di n pulverize dcoal boilers . I n fact , onl y certai nproducer s ar e capabl e of screenin g an dsizin g coa l fo r

us e i n stoke r

applications . Consequently , th e spillove r effect s of ove r capacit y i n th e utilit y stea mcoal marke t ma y b e mor e limite di nthei r effect s o n th e industria l coal market . Futur e Coal Productio n Pric e Trends : Mos t of thi s analysi s flow s fro ma n examinatio n of

th e change s i n utilit y coal price s ove r th e pas t

twelv e month s whe noi l an dga s price s plummeted . Thes e reduction s i nfo b min e price s ar e i n par t attributabl e t o pressur e fro mdeclinin g oi l an dga s prices , bu t the y ar e primaril y affecte db y th e ove r capacit y i nth e coal minin g industr y resultin g fro m th e previou s decision s of coal producer s t o expan dcapacit y fo r amarke t

tha t faile dt o gro w a t

th e rat e perceive db y th e coal industry . Thi s resultan t ove r capacit y ha s engendere dfierc e competitio namon g producer s whic hha s helpe d promot e marke dimprovement s i nproductivit y an dminin g efficienc y whic hhav e lea dt o lowe r

costs . Estimate s of

coa l industr y capacit y utilizatio nvar y bu t man y impl y tha t

a t curren t deman dgrowt hrates , ne w capacit y i nman y region s may not b e require d unti l th e mid-1990's . Th e growt hof

lo w cos t

productio nwhic hha s bee ndrive nb y man y factor s of whic hcompetitio n i s onl y on e i s a nendurin g chang e tha t shoul dresul t

i nreduce d industria l coa l prices . T o th e exten t tha t labo r productivit y improvement s ar e maintaine do r

additiona l gain s ar e realized , th e cos t structur e of

th e coa l minin g industr y wil l b e reduce dan dsom e of th e competitiv e price s whic hutilitie s hav e experience dt o mee t

oi l an dga s competitio nmay b e maintainable . I f thi s observatio n i s wrong , an dfo b min e price s increase , th e hypothesi s tha t coal price s canno t

b e kep t

lo w enoug ht o mak e coa l a nattractiv e optio ni nne wP.1 2

FIGUR EIV- 1

e ! z 

## COA

L MIN E PRODUCTIVIT Y

NATIONA L TRENDS

i—l— r I96 0 198

5 UNDERGROUN D SURFAC E

SOURCE : RESOURC E DAT AINTERNATIONA

LFIGUR EIV- 2

1 . 3 O J C I c D 

### £ c o 

# Coa l Minin g Productivit y Easter n Kanfuck y

198 1 198 2 198 3 

### 198 4 198 5 D Undergroun d Surfac e SOURCE : U.S . DEPT . O F ENERGY COA L PRODUCTIO N

T JFIGUR EIV- 3

O £ I C o 

### E £ 

# Coa l Minin g Productivit y Was f Vfrgfnr a



### 198 1 198 2 198 3 198 4 198 5

•Undargroun d + Surfac e SOURCE : U.S . DEPT . O F ENERGY COA L PRODUCTIO N

v

## z\ P.1 5

1 > W e d C J M 

# X -f- »ivi

-•— » 

# o D 

## " U > . 

# o ? L - 5 

## C L S M 

### O ^ £ C - 2

. —« ~YZ * 

## C 5 

# o o o 1 0 0 1

t n D c n T ~

1 0 o j c n T —

N 0 3 0 ) t —

r _ 0 3 c n T ~Surface

• f

• o c a 0 v .nde D 

## a J 3

O ^- 1 H URGYCOALPRODU

2 ; w fe o • P M W a W » •• « S 3 o

(jnoq

—UDUI/SUC»4 )FIGUR EIV- 5

i . D O £. I C D 

## £ c 

# Coa l Minin g Productivit y Pennsylvani a

198 1 

### 198 2 198 3 198 4 198 5

•Undergroun d Surfac e SOURCE : U.S . DEPT . O F ENERG Y COA L PRODUCTIO N

vP.1 7

industria l boiler s wil l b e strengthened . Thu s thi s assumptio nof constan t fo b min e price s i nconstan t

dollar s i s probabl y aconservativ e on e i nligh t of th e hypothesi s bein g teste di n thi s analysis . Labo r productivit y ha s improve dmarkedl y i nth e coa l industr y whic hshoul d hav e alon g ter mstabilizin g effec t o ncoa l prices . Figur e IV- 1 show s th e nationa l tren dsinc e 1960 whil e Figure s IV- 2 t o IV- 5 sho w th e trend s i nvariou s region s (easter n Kentucky , Wes t Virginia , wester nKentuck y an dPennsylvania) . T o th e exten t

tha t rapi dproductivit y improvement s continu e throug hth e 1990

- 199 5 tim e perio d(whic hi s generall y no t expected) , fo b min e price s coul dcontinu e declinin g i nrea l terms . Thi s coul dresul t i nlowe r

industria l delivere dprice s tha n thos e assume di n thi s study . Futur e Transportatio n Pric e Trends : Barg e an dtruckin g price s ar e likel y t o reflec t change s i n futur e oi l price s t o th e exten t tha t thos e price s ar e par t

of thei r existin g cos t

structures . Rai l rate s whic har e ou r primar y focu s ar e assume dt o increas e slightl y i n constan t dollar s wit hrea l increase s occurrin g i n labo r costs , diese l fue l price s changin g wit hth e projecte dchange s i noi l prices , an dmos t othe r cost s remainin g constant . Th e railroad s hav e mad e significan t labo r productivit y improvements , an dth e result s of thos e improvement s ar e mos t likel y t o b e realize do n competitiv e traffi c includin g instance s wher e coa l mus t compet e wit hothe r

fuels . Thu s rai l rate s ar e show nincreasin g b y abou t 1 % pe r year . Again , i f

thi s assumptio n understate s th e case , the ncoal wil l simpl y b e eve n les s competitiv e tha n predicte di nthi s analysis . V . New Englan dMarke t Analysi s Utilit y Marke t Th e utilit y marke t

fo r coal i nNe w Englan dha s experience dsubstantia l decline s i ndelivere dcoal prices . Thi s i s du e i npar t t o declinin g price s fo r importe doil . Thi s pric e declin e i s eviden t i nth e delivere dfue l price s bein g pai d b y Ne w Englan dElectri c Syste m(NEES ) fro m197 3 throug hMarc h1986 . (Figur e V-l ) Figur e V- 2 show s th e delivere dpric e fo r coal a t NEES' s Brayto nPoin t statio nfro m198 0 throug hmid-1986 . Averag e delivere dcoa l price s peake da t abou t $2.50/MMBt

u i n 198 2 an ddecline dt o a naverag e $1.81/MMBt u i nth e firs t hal f of 1986 . Contrac t

price s average d$1.82/MMBt u durin g th e firs t

hal f of 1986 , whil e spo t

price s average d$1.56/MMBt u an dhav e falle na s lo w a s $1.45/MMBtu . Thi s dro p o f

mor e tha n 25 % i ndelivere dcoa l price s i s du e t o acombinatio nof declinin g coa l an dtransportatio ncosts . Th e declinin g fo b min e price s ca nb e relate dt o industria l coal price s sinc e NEE S purchase s hig hBt u coa l fro mnorther n Wes t Virginia , a n are afro mwhic hindustria l coa l consumer s ar e likel y t o purchas e coal fo r ne w industria l boiler s (accordin g t o th e criteri asuggeste db y EEA) . However , NEE S coal deliverie s ar e route dvi arail-coastwis e vesse l t o it s Brayto n Poin t an dSale mHarbo r

plants . I t

i s unlikel y tha t

mos t industria l facilitie s i n Ne w Englan dwoul db e directl y wate r accessible . Par t

o f NEES' s abilit y t o pressur e it s rai l carrier s i s du e t o thi s wate r access . Consequently , it s accomplishment s i n transportatio nrat e reduction s ar e no t likel y t o b e easil y duplicate db y acompan y installin g acoal-fire dboile r (havin g onl y rai l access) , and , thi s 25 % reductio n i n delivere dcoal price s may b e amaximum .

1 4FIGUR E V- l

DELIVERE D FUE L PRICE S TO NE W ENGLAN

D ELECTRI C SYSTE M 197 3 - 198 6 P.1 8

5 T -

M.MlM.lMMMMJH^INMMMlUlinNIMINlMJ U 

## 2 . S - & "fe - 

## fe -f e 

## S 

## . 1 I 

## ! •i § § | 'January , February , an d Marc h 198 6

SOURCE : FROM NE W ENGLAN D ELECTRI C SYSTE M DAT APUBLISHE D IN "COA L MINING " JUNE 198 6

1 5/FIGUR EV- 2

27 0 

# Delivere d Coa l Price s NEE S —Brayto n Poin t

m

- M 26 0 - 25 0 - 24 0 - 23 0 - 22 0 - 21 0 - 20 0 19 0 - 18 0 - 17 0 - 16 0 - 15 0 - 14 0 - 13 0 - 12 0 - 

## + A

11 0 - 

### 198 0 198 1 I 198 2 198 3 I 198 4 195 5 

### 198 6 1 / D Annua l Average s A Lowes t

Averag e Pric e Durin g Firs t 6 Month s o f

198 6 O Averag e Contrac t Pric e Durin g Firs t 6 Month s o f

198 6 + Averag e Spo t

Pric e Durin g firs t 6 Month s o f

198 6 SOURCE : FER C FOR M 42 3 DAT

A

1 / Averag e dat afo r firs t si x month s o f

1986 . C OP.2 0

'NEE S ha s tie dit s recentl y negotiate dcoa l an dtransportatio ncontract s t o oi l prices . A s petroleu mprice s decline , coal price s ar e reduce dt o remai ncompetitiv e wit hafloo r

se t a t abou t $9/bbl , belo w whic hth e trackin g mechanis mmay b e altere da s coa l deman ddeclines . Thi s flexibilit y i s buil t int o th e coa l suppl y agreement s an dNEE S ha s attempte dt o negotiat e aparalle l arrangemen t wit hth e railroads . A t

it s lo w point , NEE S oi l price s fel l belo w thi s $9/bb l threshold . Publi c Servic e Co . of

Ne w Hampshir e ha s als o bee nabl e t o capitaliz e onfallin g oi l price s an dha s use dthi s competitio nt o bac k of f coa l an dbas e loa da noil

fire dunit . Mos t

of it s remainin g coa l i s shippe dunde r lon g ter mcontract . However , it s contrac t

involve s annua l pric e redetermination s an di s expecte dt o declin e mor e i n th e comin g year . A s show ni nExhibi t V-3 , averag e coa l price s hav e stabilize di n curren t dollar s implyin g adeclin e i nrea l dollars . I naddition , some purchase s i n 198 6 ar e substantiall y belo w th e average . Th e PSCNH' s Schille r

statio n whic hburne dcoa l i nearl y 198 6 ha da naverag e delivere dcoa l pric e of

abou t $2.21/MMBtu . Spo t

purchase s wer e a t

$1.92/MMBtu . Th e plan t

use d1 % sulfu r

centra l Appalachia ncoal delivere db y barge . I nJul y 1986 , PSCNH' s Newingto n statio nburne d1.7-2.0% resi da t adelivere dpric e of $1.46/MMBtu . Lo w sulfu r coa l coul dapparentl y not compet e a t

tha t pric e level . Eve n highe r

sulfu r coal s delivere db y rai l t o PSCNH' s Merrimac k plan t show ni n Figur e V- 3 ar e substantiall y above tha t price . Onl y some of

th e NEE S spo t

coa l shipment s appea r

competitiv e a t

les s tha n$1.50/MMBt

u delivere dan dthes e coal s ar e a t atransportatio n advantag e relativ e t o PSCNH' s Schille r station . PSCNH receive s coal fo r it s Merrimac k

statio nvi auni t

trai nove r

aroutin g whic hcoul db e typica l fo r aNe w Englan dindustria l coa l user . However , PSCNH may no t hav e bee n abl e t o exer t significan t

leverag e ove r

th e rai l carrier s becaus e it s existin g coal contrac t commitment s limi t

it s flexibility . I nfact , ane w industria l coa l use r

whil e i t coul dno t

obtai nth e sam e uni t

trai nrates , migh t

b e abl e t o forc e additiona l competitio nbecaus e of it s abilit y t o choos e afue l othe r tha n coal . Industria l Coa l Us e Ver y littl e industria l coa l i s use di nNe w England ; tota l consumptio ni n198 5 wa s approximatel y 242,00 0 tons . Fo r thi s analysi s of

industria l coa l use , th e assume dsupply-transpor t combinatio nfo r

aNe w Englan dindustria l facilit y locate d nea r Bosto n woul db e t o tak e a13,000+ Bt u produc t

o na nall-rai l movemen t fro m Pennsylvani ao r

norther n Wes

t Virginia . Fo r

thi s analysis , asampl e movemen t wa s assume dt o b e a682-mil e rai l movemen t fro mamin e i nPennsylvani at o Boston . Becaus e of

th e relativel y lon g distance s an dhig htransportatio ncosts , i t i s likel y tha t

th e consume r

woul dchoos e t o obtai nahig hBt u coal fro mth e regio n commensurat e wit hth e objectiv e of minimizin g delivere dcost s o nacents/MMBtu basis . Th e delivere dpric e o f

thi s coa l o navariabl e an dful l cos t basi s i s show ni n Figur e V-4 . Th e dat aindicat e tha t th e pric e difference s betwee noi l an dcoal unde r th e assumption s use di n th e industria l fue l choic e mode l woul dprobabl y not b e sufficien t

t o obtai n industria l coal penetratio ni nth e region .

1 7

### u m \

- M 

### c

- FIGUR EV- 3 

# Delivere dCoa l Price s PSC o o f New Hampshir e —Merrimac k c-r\J 2 6 0 - 2 5 0 - 2 4 0 - 2 3 0 - 2 2 0 - 2 1 0 - 2 0 0 - 1 9 0 - 18 0 - 17 0 - 1 6 0 - E 15 0 - 14 0 - 13 0 - 12 0 - 1 1 n i— i n — ^ l l —

1 i u ~ t| | | | | 198 0 198 1 198 2 198 3 198 4 198 5 D Annua l Average s o k Lowes t Averag e Pric e Durin g Firs t 6 Month s o f

198 6 O Averag e Contrac t

Pric e Durin g Firs t

6 Month s o f

198 6 SOURCE : + • Averag e Spo t

Pric e Durin g firs t

6 Month s o f

198 6 1 / Averag e dat afo r

firs t si x month s o f

1986 . 

### +

Q A



## ' 1 / 

## 1 198 6 -

.

0 0

i— 1

FER C FOR M 42 3 DAT

AP.2 2 FIGUR E V- 4

Coa l Delivery Origin : Penn./Norther n W.V . underground min e Dest : Boston , M A Quality : 13,00 0 (Al l Price s i n 198 5 Dollars ) Coa l Price s ($/ton ) F.O.B . Min e Variabl e Cos t

Ful l Cos t Truc k Variabl e Cos t Railroa d Variabl e Cos t

Ful l Cos t Actua l Tarif f Transloade r Variabl e Cos t Barg e Variabl e Cos t Industria l Premiu m Delivere d ($/ton ) Variabl e Cos t

Ful l Cos t Delivere d (cents/MMBtu ) Variabl e Cos t

Ful l Cos t EE A1.6 % Sulfu r Oi l Pric e (cents/MMBtu ) Hig h Scenari o Difference s EE AOi l Pric e (verse s VC ) Hig h Scenari o (verse s FC ) 198 6 17.8 0 23.1 0

16.4 0 21.9 0 25.0 0

5.0 0 39.2 0 49.9 0 151.0 0 192.1 0 (1985 ) 446.00 - 295.0 0 253.9 0 199 0

17.8 0 23.1 0

17.1 0 22.8 0

5.0 0 39.9 0 50.8 0 153.5 0 195.5 0 414.0 0 260.5 0 218.5 0 199 5

17.8 0 23.1 0

17.9 0 23.9 0

5.0 0 40.8 0 52.0 0 156.9 0 200.0 0 467.0 0 310.1 0 267.0 0



### 1 9P.2 3

C6nclusio n I norde r fo r coa l t o b e attractiv e t o a nindustria l use r i nNe w England , i t woul dhav e t o b e delivere da t apric e betwee n$1.1 4 an d$1.67/MMBt u i nth e 1990-199 5 tim e frame . Thi s i s o naleve l wit hth e lowes t price s receive db y NEE S an dsubstantiall y belo w th e bes t price s obtaine db y PSCNH . Sinc e th e transportatio n routin g fo r th e PSCNH coal s ar e mor e aki nt o th e routing s availabl e t o aNe w Englan dindustria l user , thes e price s (whic hhav e not bee n belo w abou t

$1.90/MMBtu ) ar e likel y t o b e th e mor e representative . Increasin g th e delivere dcoal price s t o accoun t fo r th e fac t

tha t thes e ar e industria l shipment s (a t leas t $.20/MMBt

u fo b min e withou t

countin g th e substantia l transportatio ncos t differentials ) woul dmak e i t unlikel y tha t

arai l serve dNe w Englan dindustr y woul delec t t o buil dane w coal-fire dboiler . VI . Sout hAtlanti c Marke t Analysi s I nth e SouthAtlanti c region , coal us e i s muc hwide r sprea dtha ni nNew England . Thi s i s probabl y du e i npar t t o th e close r

proximit y of

thes e facilitie s t o th e coa l fields . Discussion s wit hanumbe r of utilitie s indicat e tha t whil e delivere dcoa l price s hav e decline ddramaticall y ove r th e pas t

tw o years , thi s declin e i s no t

generall y attribute dt o lowe r oi l prices . Rathe r

ove r capacit y i n th e coa l field s an dimprovin g productivit y hav e provide dth e impetu s fo r dramati c decline s i n prices . Florid ai s a nexception , wit hsome utilitie s i nFlorid ahavin g bee n abl e t o obtai n reduce ddelivere dcoal price s becaus e of competitio nfro moil . Dat afro msevera l utilitie s wer e examine dt o determin e th e exten t of delivere d coa l pric e declines . Thes e wer e Virgini aElectri c Powe r Co. , SouthCarolin a Electri c & Gas , an dFlorid aPowe r Corp . Figur e VI- 1 show s th e declin e i ndelivere dprice s a t Virgini aPowe r

Co . (Vepco ) fro mapea k

of almos t $2/MMBt

u i n198 1 dow nt o abou t $1.56/MMBt

u i n 1986 , o r mor e tha n 20% . Spo t

price s hav e falle na s lo w a s $1.40/MMBtu . Durin g thi s period , Vepc o ha s reduce ddelivere dcoa l cost s throug hmin e pric e reductions , an db y forcin g rai l competitio na t it s Chesterfiel dplant . Vepc o doe s not attribut e thes e coa l pric e reduction s t o competitio nfro moil . Figur e VI- 2 show s th e delivere dpric e profil e fo r SouthCarolin aElectri c & Ga s whos e delivere dprice s peake di n198 3 a t $2.06/MMBt

u an ddecline dmor e tha n 10 % t o $1.80/MMBt

u i n 1986 . Th e averag e pric e fo r deliver y of

spo t coal , t o SCE Gwa s abou t

$1.53/MMBt

u durin g th e firs t

hal f of 1986 . Thes e decline s accordin g t o th e utilit y wer e no t cause db y oi l an dga s competition , bu t b y weaknes s i n th e coal markets . Florid ai s a n exceptio n i n th e SouthAtlanti c region . Th e stat e ha s significan t amount s of

oil-fire dcapacity , an dutilitie s bu y an dsel l powe r o nabrokerin g syste mtha t

allow s competitio n betwee nfuels . Th e dro p i nimporte doi l price s int o Florid ahav e place dpressur e o ndelivere dcoa l prices . Florid aPowe r

Corp . (FPC ) show s th e impac t o f thi s competition . FPC' s delivere dcoa l price s show n i n Figur e VI- 3 peake di n198 3 a t abou t $2.60/MMBtu , an db y 198 6 ha ddecline dmor e tha n25 % t o abou t $1.92/MMBtu . Spo t

coal price s 2 0FIGUR EVI- 1

-1- 1 (D \ W r-l c 

# Delivere d Coa l Price s Virgini a Electri cSc

Powe r—Al l Plant s 27 0 26 Q - 25 0 - 24 Q - 23 0 - 22 0 - 2 1 O - 20 Q - 19 0 - 18 0 17 0 - 16 0 - 15 0 - 14 0 - 13 0 - 12 0 - 

## + A

11 0 198 0 1 —

198 1 198 2 198 3 I 198 4 198 5 T 198 6 1 / D Annua l Average s A . Lowes t

Averag e Pric e Durin g Firs t 6 Month s o f

198 6 O Averag e Contrac t Pric e Durin g Firs t 6 Month s o f

198 6 + Averag e Spot . Price , Durin g firs t 6 Month s o f

198 6 SOURCE : FER C FOR M 42 3 DAT

A

1 / Averag e dat afo r firs t si x month s o f

1986 , r oFIGUREVI- 2

m \ c 0 

# Delivere d Coo l Price s S.C . Electri c£c

Gas — Al l Coa l Unit s 27 0 

### 26 0 

### - 25 0 

### - 24 0 

### - 23 0 

### - 22 0 

### - 21 0 

### - 20 0 

### - 19 0 

### - 18 0 

### - 17 0 

### - 16 0 -j 

### 15 0 

### - 14 0 

### - 13 0 

### - 12 0 II O C M CM



### 19S O 198 1 198 2 

### I 198 3 

### I

198 4 

### I

198 5 

## r

198 S 1 / D Annua l Average s A . Lowes t Averag e Pric e Durin g Firs t 6 Month s o f 198 6 ^ Averag e Contrac t Pric e Durin g Firs t 6 Month s o f 198 6 •# • Averag e Spo t Pric e Durin g firs t 6 Month s o f 198 6 SOURCE : FER C FORM 42 3 DAT A

1 / Averag e dat a fo r firs t si x month s o f 1986 .FIGUR EVI- 3 

# Delivere d Coo l Price s Florid a Powe rCorp . —Crysta l Rive r 27 0

- M m \ tn r-l 

### c v 

### o C O C M

198 0 198 1 198 2 198 3 198 4 198 5 198 6 1 / 0 Annua l Average s ALowes t Averag e Pric e Durin g Firs t 6 Month s o f 198 6 ^ Averag e Contrac t Pric e Durin g Firs t 6 Month s o f 198 6 + Averag e Spo t Pric e Durin g firs t 6 Month s o f 198 6 SOURCE : FER C FORM 42 3 DATA

1 / Averag e dat a fo r firs t si x month s o f 1986 .i nth e firs t hal f of 198 6 average d$1.75/MMBtu , an dth e lowes t price s wer e a t abou t $1.20/MMBtu , les s tha n hal f th e averag e pric e level s of 1983 . Becaus e FP C buy s coal s of

differen t

qualitie s fro mvariou s suppl y region s an duse s bot hrai l an dwate r

transportation , i t

i s difficul t

t o dra w adirec t

analog y betwee nth e result s i t ha s achieve dan dthos e whic hcoul db e expecte db y aFlorida-base d industr y considerin g installin g ane w coal-fire dindustria l boiler . Bu t clearl y th e marke t ha s responde dt o interfue l competitio nwit hdramaticall y lowe r delivere d coal prices . I nJul y 1986 , Florid aPowe r Corp . an dFlorid aPowe r & Ligh t wer e receivin g oi l an dnatura l ga s a t

delivere dprice s o f

approximatel y $1.50-1.75/MMBt u whic hwas belo w th e averag e delivere dcoal pric e of abou t $1.81/MMBtu . However , some Distric t 8 complianc e coal s wer e competin g a t delivere dprice s of

$1.50

- $1.60/MMBtu . Betwee n th e firs t hal f of 198 5 an d1986 , coa l generate dpowe r increase dslightly , bu t

oi l consumptio njumpe d75% , primaril y backin g out natura l gas . Industria l Coa l Us e I nth e SouthAtlantic , industria l coa l us e i s considerabl y mor e widesprea dtha n i nNe w England . Fo r thi s region , thre e coal suppl y an dtransportatio n combination s wer e examined : Coal Origi n Destinatio n Mod e Mile s Wes t Virgini aRichmond , VA Rai l (CSX ) 46 8 Virgini aCharleston , S C Rai l (CSX ) 63 1 Kentuck y Jacksonville , F LRai l (CSX ) 75 4 Thes e coals wer e al l assume dt o b e 12,500 Btu/lb . However , t o reduc e th e impac t of hig htransportatio n costs , industria l consumer s migh t op t fo r highe r (e g 13,000 BTU ) coals . Figure s VI-4 , VI-5 , an dVI- 6 sho w estimate dful l an dvariabl e cost s fo r coal productio n an ddeliver y t o potentia l industria l customer s i nVirginia , South Carolin aan dFlorida . Thes e cos t analyse s ca nb e compare dt o th e projecte dcost s of oi l i n thi s regio n i n 199 0 ($4.07/MMBtu ) an d199 5 ($4.60/MMBtu) . A $3/MMBt

u differentia l requiremen t woul drequir e a$1.07/MMBt u delivere d coal pric e i n 1990 . N o utilit y ha s achieve dthes e level s o neve naspo t shipmen t basi s an dthi s woul db e belo w eve nth e variabl e cost s of th e producer s an d transporters . I n1995 , a$3/MMBt

u differentia l woul dyiel da$1.60/MMBt u delivere dcoal pric e a s th e threshol dfo r coal penetratio nof

ne w boilers . Thi s pric e i s not inconceivable , an dha s actuall y bee nachieve dfo r deliverie s t o Florida , probabl y i n uni t trai n shipment s o r

b y water . I nfact , Colombian coa l import s ac t a s apartia l cap o nthes e prices . However , fo r industria l user s wh o may generall y lac k wate r access , requir e singl e ca r shipments , an dpa y apremiu mfo r coa l preparation , i t

i s unlikel y tha t

coal coul db e delivere dcompetitivel y int o Florid aa t $1.60/MMBtu . 2 4P.2 8 _ FIGUR E VI- 4

Coa l Deliver y Origin : Harlan , K Y Dest : Charleston , S C Quality : 12,50 0 Distance : 631. 0 (Al l Price s i n 198 5 Dollars ) Coa l Price s ($/ton ) F.O.B . Min e

Truc k Railroa d Variabl e Cos t

Ful l Cos t Variabl e Cos t Variabl e Cos t Ful l Cos t 198 6

20.0 0 35.5 0

13.3 0 17.7 0 199 0

20.0 0 35.5 0

14.3 0 18.7 0 199 5

20.0 0 35.5 0

15.3 0 19.8 0 Transloade r Variabl e Cos t Barg e Variabl e Cos t Industria l Premiu m Delivere d ($/ton ) Variabl e Cos t

Ful l Cos t Delivere d (cents/MMBtu ) Variabl e Cos t

Ful l Cos t EE A1.6 % Sulfu r Oi l Pric e (cents/MMBtu ) Hig h Scenari o DIFFERENCE S EE AOi l Pric e Hig h Scenari o (verse s VC ) (verse s FC ) 5.0 0 38.3 0 58.2 0 153.1 0 232.6 0 (1985 ) 438.0 0 284.9 0 205.4 0 5.0 0

39.3 0 59.2 0 157.3 0 236.8 0 407.0 0 249.7 0 170.2 0 5.0 0

40.4 0 60.3 0 161.5 0 241.0 0 460.0 0 298.5 0 219.0 0

2 5P.2 9 

### FIGUR E VI- 5

Coa l Delivery Origin : Souther n Wes t Virgini a Dest : Richmond , V A Quality : 12,50 0 Distance : 468. 0 (Al l Price s i n 198 5 Dollars ) Coa l Price s ($/ton ) F.O.B . Min e Truc k Railroa d Variabl e Cos t

Ful l Cos t Variabl e Cos t Variabl e Cos t Ful l Cos t 198 6

20.0 0 35.5 0

12.0 0 16.0 0 199 0

20.0 0 35.5 0

12.5 0 16.6 0 199 5

20.0 0 35.5 0

13.1 0 17.5 0 Transloade r Barg e Variabl e Cos t

Variabl e Cos t Industria l Premiu

m Delivere d ($/ton ) Variabl e Cos t

Ful l Cos t Delivere d (cents/MMBtu ) Variabl e Cos t

Ful l Cos t EE A1.6 % Sulfu r Oi l Pric e (cents/MMBtu ) Hig h Scenari o DIFFERENCE S EE AOi l Pric e Hig h Scenari o (verse s VC ) (verse s FC ) 5.0 0

37.0 0 56.5 0 148.0 0 225.8 0 (1985 ) 438.0 0 290.0 0 212.2 0 5.0 0

37.5 0 57.1 0 149.9 0 228.4 0 407.0 0 257.1 0 178.6 0 Note : Rai l movemen t i s assume d t o b e from Logan , WV . However , easter n Kentck

yF.O.B . min e price s wer e used . 5.0 0 38.1 0 57.9 0 152.5 0 231.8 0 460.0 0 307.5 0 228.2 0

2 6P.3 0 FIGUR E VI- 6

Coa l Deliver y Origin : Harlan , K Y Dest : Jacksonville , F L Quality : 12,50 0 Distance : 754. 0 (Al l Price s i n 198 5 Dollars ) Coa l Price s ($/ton ) F.O.B . Min e

Truc k Railroa d Actua l Variabl e Cos t

Ful l Cos t Variabl e Cos t Variabl e Cos t Ful l Cos t Tarif f 198 6 20.0 0 35.5 0

15.8 0 21.1 0 21.0 0 199 0

20.0 0 35.5 0

16.5 0 22.0 0 199 5

20.0 0 35.5 0

17.3 0 23.1 0 Transloade r Variabl e Cos t Barg e Variabl e Cos t Industria l Premiu m Delivere d ($/ton ) Variabl e Cos t

Ful l Cos t Delivere d (cents/MMBtu ) Variabl e Cos t

Ful l Cos t EE A1.6 % Sulfu r Oi l Pric e (cents/MMBtu ) Hig h Scenari o DIFFERENCE S EE AOi l Pric e Hig h Scenari o (verse s VC ) (verse s FC ) 5.0 0 40.9 0 61.6 0 163.4 0 246.5 0 (1985 ) 438.0 0

274.6 0 191.5 0 5.0 0

41.5 0 62.5 0 166.0 0 249.9 0 407.0 0

241.0 0 157.1 0 5.0 0

42.3 0 63.6 0 169.4 0 254.4 0 460.0 0

290.6 0 205.6 0

2 7P.3 1

I nothe r part s of

th e SouthAtlanti c regio nlocate dclose r t o th e coa l fields , th e differentia l betwee n coal an doi l an dga s price s wil l probabl y b e greate r tha n i n Florida . Thi s i s becaus e th e delivere dpric e of oi l wil l b e highe r

whil e delivere dcoa l price s wil l b e lower . Sinc e th e dat aindicat e tha t th e recen t declin e i n coa l price s i s no t al l attributabl e t o downwar dpressur e fro moi l an d gas , i t i s not clea r wha t th e impac t

of fue l pric e differential s i nthos e location s wil l be . Conclusio n Unde r th e hig hoi l pric e scenario , th e delivere dpric e of 1.6 % resi di nth e SouthAtlanti c i n 199 5 wil l b e abou t $4.60/MMBtu . I norde r t o achiev e a $3.00/MMBt

u differential , industria l coal woul dhav e t o b e delivere dint o Florid a fo r abou t $1.60/MMBtu . Thi s i s highl y unlikel y excep t i nsome unusua l circumstances . FPC' s 198 6 spo t

coal deliverie s hav e average dabou t $1.80/MMBtu . Whil e occasiona l spo t

shipmen t

price s hav e falle na s lo w a s $1.20/MMBtu , thi s appear s t o b e fo r smal l probabl y distres s quantities . Industria l coal transportatio nprice s ar e likel y t o b e abou t

nearl y $.80/MMBt

u whic hwoul dallo w onl y abou t $20.00/to n a s a nfo b min e price . I t i s unlikel y tha t

an y industr y whic hlack s wate r acces s coul dpla n t o receiv e coa l o n adelivere dpric e basi s i nFlorid aa t thes e pric e levels . I nth e othe r

state s examine di nthi s region , delivere dutilit y coa l price s t o coasta l location s hav e decline dt o a s lo w a s $1.40-$1.50/MMBtu . Thes e price s whe n adjuste dt o b e industria l coal equivalent s ar e likel y t o produc e coa l price s whic har e inadequat e t o mee t th e $3/MMBt

u threshold . Thi s assume s a$5/to n adjustmen t

fo r industria l fo b coal min e pric e differential s (abou t $.20/MMBtu) . Thi s alon e woul db e sufficien t t o mak e coa l non-competitiv e an ddoe s no t accoun t fo r substantia l transportatio n cos t differentials . VII . Gul f Coast Marke t Analysi s Th e Gul f Coas t marke t are ainclude s th e majo r natura l ga s producin g regio n comprisin g i n par t

Texas , Oklahoma , an dLouisiana . Man y utilitie s i nthi s regio n hav e th e capabilit y of

burnin g eithe r

coal o r natura l gas , an di nsom e instances , natura l ga s ha s effectivel y "backe dout " coal . Figur e VII- 1 show s th e declin e i ndelivere dcoa l price s a t Lowe r Colorad o Rive r Authorit y (LCRA ) fro mapeak of abou t $2.58/MMBt

u i n1984 dow nt o an averag e of

$1.84/MMBt

u i n 1986 . Thi s declin e of more tha n25 % wa s du e t o decline s i n bot hcoa l price s an drai l rate s throug hcontrac t litigatio no r

re negotiation . Th e lowes t price s occurre di n1986 . Contrac t price s fel l t o $1.57/MMBt

u reflectin g th e stee p declin e i nth e coa l marke t an dnatura l ga s competition . LCRA pay s almos t exactl y tha t

pric e fo r

natura l gas . Figur e VII- 2 show s th e stee p declin e i ndelivere dcoal price s t o Cit y Publi c Servic e of

Sa n Antonio . Price s peake da t $2.16/MMBt

u i n1982 , staye dabov e $2.10/MMBt

u throug h198 5 an dthe nplummete dmor e tha n20 % t o abou t $1.73/MMBt

u i n th e firs t

hal f of 1986 . Spo t

price s o nadelivere dbasi s fel l t o $1.59/MMBt

u agai n probabl y reflectin g competitio nfro mnatura l gas . Thes e decline s wer e du e bot ht o transportatio nan dcoa l pric e declines . 2 8FIGUR EVII- 1 

# Delivere d Coa l Price s Lowe rColorad o Rive rAuthorit y

rs C D t/i c 1) 27 0 26 0 25 0 24 0 - 23 0 - 22 0 - 21 0 - 20 0 - 19 0 - 18 0 - 17 0 - 16 0 - 15 0 - 14 0 - 13 0 - 12 0 - 11 0 - - & •

CT i CS I

19S O 198 1 

### I 

### 198 2 I

198 3 198 4 

### 198 5 I 

### 198 6 1 / D Annua l Average s ALowes t Averag e Pric e Durin g Firs t 6 Month s o f 198 6 O Averag e Contrac t Pric e Durin g Firs t 6 Month s o f 198 6 + Averag e Spo t Pric e Durin g firs t 6 Month s o f 198 6 SOURCE : FER C FOR M 42 3 DATA 1 / Averag e dat a fo r firs t si x month s o f 1986 . r oFIGUR EVII- 2

27 0 

# Delivere d Coa l Price s Cit yPubli cServic e o f Sa n Antoni o

4- 1 C D

4- 1 c o 26 0 - 25 0 - 24 0 - 23 0 - 22 0 - 21 0 - 20 0 - 19 0 - 18 Q - 17 0 - 16 0 - 15 0 - 14 0 - 13 0 - 12 0 - 11 0 o p- > &

198 0 1 —

198 1 I

198 2 I

198 3 I

198 4 I

198 5 198 6 1 / 0 Annua l Average s A Lowes t

Averag e Pric e Durin g Firs t 6 Month s o f

198 6 O Averag e Contrac t Pric e Durin g Firs t 6 Month s o f

198 6 + Averag e Spo t

Price

- Durin g firs t 6 Month s o f

198 6 SOURCE : FERC FOR M 42 3 DAT

A

1 / Averag e dat afo r firs t si x month s o f

1986 .FIGUR EVII- 3

C D \ </i 4- < c 1) 

### o 27 0 

# Delivere d Coa l Price s Centra l Powe r&c

Ligh t —Colet o Cree k 26 0 - 25 0 - 24 0 - 23 0 - 22 0 21 0 - j 20 0 - 19 0 - 18 0 - 17 0 - 16 0 - 15 0 - 14 0 - 13 0 12 0 11 0 

### + A

198 0 198 1 I 198 2 198 3 198 4 I 198 5 198 6 1 / D Annua l Average s A Lowes t

Averag e Pric e Durin g Firs t 6 Month s o f

198 6 O Averag e Contrac t Pric e Durin g Firs t 6 Month s o f

198 6 + Averag e Spo t

Pric e Durin g firs t 6 Month s o f

198 6 SOURCE : FER C FOR M 42 3 DAT

A 1 / Averag e dat afo r firs t si x month s o f

1986 ,P.3 5

' Figur e VII- 3 show s th e chang e i ndelivere dcoal price s t o Centra l Powe r & Ligh t Company' s (CP&L ) Colet o Cree k plan t i nTexas . Thi s plan t i s uniqu e i n Texa s i n tha t

i t receives , o r

ha s received , Colorad o an dNe w Mexic o coals . CP&L' s delivere dcoa l pric e peake di n198 5 a t $2.68/MMBt

u an dthe ndecline d mor e tha n15 % t o $2.26/MMBt u fo r th e firs t hal f o f 1986 . Spo t

coa l shipment s i n Jul y 198 6 fro mColorad o ha dfalle nt o $1.74/MMBtu , 35 % belo w th e 198 5 averag e delivere dprice . Durin g thi s sam e period , CP&Lwa s receivin g substantia l volume s of ga s a t adelivere dpric e of

abou t $1.55/MMBtu . I n1985 , CP& Lals o receive dNe w Mexic o coa l a t adelivere dpric e o f

abou t $1.90/MMBtu . Thes e shipment s cease di n1986 , an dles s expensiv e spo t coal s wer e purchase dfro mColorado . Thes e decline s i n delivere dcoal price s t o utilitie s canno t b e readil y translate d int o change s i n industria l coal prices . Mos t utilitie s i nth e Gul f

Coas t purchas e lo w Bt u sub-bituminou s coa l fro mth e Powde r Rive r Basi nan dofte ntranspor t i t mor e tha n 1,00

0 mile s i n uni t

train s of

10,000 ton s o r

more . Th e fo b min e price s may b e onl y 25-35 % o f th e delivere dpric e of th e coal . Industria l coa l user s i n thes e region s b y contras t ten dt o bu y highe r

Bt u coal s fro mles s distan t origin s i nOklahoma , Colorado , an dNew Mexico , o r b y barg e fro mth e Illinoi s basi no r centra l Appalachia . Fo r thes e coal consumers , th e pric e of th e coal fo b min e i s not likel y t o b e directl y affecte db y th e price s tha t utilitie s i nth e Gul f

Coas t ar e payin g fo r

coa l i n th e Powde r

Rive r Basin . Fo b min e price s i n th e area s fro mwhic hindustria l consumer s i nth e Gul f Coas t purchas e coa l ar e likel y t o b e determine db y th e deman dfo r coal fro m thos e region s b y th e primar y consumer s of tha t coal . Thes e consumer s var y dependin g upo n th e origi n of th e coal . Discussion s wit hindustria l coal users i nTexa s indicat e tha t some industria l coa l user s d o hav e th e optio n of burnin g eithe r

natura l ga s o r

coal , an dhav e bee n abl e t o obtai n reduction s i ndelivere dcoal prices . Thes e reduction s ar e partiall y aresul t

of th e existin g weaknes s i nth e coal markets , an dpartiall y a resul t of interfue l competition . I ngeneral , transporter s an dproducer s ar e though t t o b e awar e of

natura l ga s competition , an dhav e bee nwillin g t o adjus t price s t o some exten t

t o sta y competitive . B y usin g th e percentag e reduction s obtaine db y Gul f Coas t utilitie s a s a measur e of

th e reduction s availabl e t o industria l coal users , w e woul dprobabl y ten dt o overstat e th e degre e of delivere dindustria l coa l pric e reductions . Utilitie s i nth e Gul f

Coas t whic hpurchas e coa l fro mth e Powde r Rive r Basi nhav e benefite dfro mtremendou s ove r capacit y amon g producer s whic hha s accompanie d ashar p slid e i n bot hth e spo t an dcontrac t

marke t price s fo r

Powde r Rive r Basi n coal . I n addition , intens e competitio nbetwee nth e Burlingto nNorther nRailroa d an dth e Chicag o & Nort hWester nRailroa dfo r

coal origination s fro mportion s of th e Powde r

Rive r Basi n hav e substantiall y reduce drai l rates . Whil e th e coal market s fo r Colorado , Ne w Mexic o an dOklahom ahav e weakene d durin g th e pas t

fe w years , n o equivalen t chang e i ntransportatio ncompetitio nha s occurre dwhic hwoul db e a s likel y t o benefi t industria l coa l consumers . I n addition , th e "lumpiness " of th e utilit y market , wher e million s of ton s of coa l deman dmay tur n o n individua l contrac t decisions , i s likel y t o caus e th e rai l carrier s an dproducer s t o mak e mor e generou s concession s o nutilit y contrac t busines s tha n woul db e availabl e t o industria l coa l user s i nth e region . 3 2P.3 6

Mod e Rai l Truc k Barg e Rai l Mile s

1,034 204 1,11 3 1,154 Th e Centra l Powe r

& Ligh t

cas e may provid e abi t of insigh t int o th e delivere dcost s of

industria l coal i nTexas . CP&L' s lowes t delivere dcoa l pric e fo r Colorad o coa l ha s bee n $1.74/MMBt u an dfro mNe w Mexico , th e minimu mpric e wa s abou t

$1.90/MMBtu . (Thes e may als o involv e th e us e of shippe r owne dcoa l cars. ) Whil e exac t

location , an dtherefor e transportatio ncosts , woul db e important , i t

seem s unlikel y tha t

aTexa s industr y locate dfa r fro mNe w Mexic o o r Colorad o woul dfin dcoal fro mthes e location s abl e t o compet e wit h $4.43/MMBt

u ga s i n 199 5 i n plannin g ane w coal-fire dboile r (assumin g tha t

th e coal mus t b e delivere da t

$1.43/MMBtu) . Industria l Coal Us e Industria l coal i n thi s regio ncome s fro manumbe r of sources , bothi nth e regio nitsel f

an doutsid e th e region . Th e followin g combination s wer e examined : Coa l Origi n Destinatio n Ne w Mexic o Austin , T X Oklahom aDallas , T X Indian aDonaldsonville , LA Barg e Wyomin g For t

Worth , T X Th e Ne w Mexic o an dOklahom aorigin s ar e th e mos t likel y coa l source s althoug hLouisian aindustr y doe s us e some coa l delivere db y barg e fro mcentra l Appalachi aan dth e Illinoi s Basin . Th e Wyomin g origi nmovemen t i s presente d simpl y a s a n illustratio n of autilit y coal movement . Althoug hi t

wa s not selecte dfo r

stud y here , larg e volume s of Texa s lignit e ar e bein g use di n th e industria l sector , particularl y b y th e Aluminu mCompan y of Americ a(ALCOA ) whic hha s larg e industria l facilitie s i neaster nTexas . Thes e operation s ar e likel y t o b e min e mout ho r captive , an dthi s analysi s doe s no t addres s th e relativ e economic s o f minin g lignit e vs . usin g a nalternativ e fuel . I t i s not know n whethe r

th e $3/MMBt

u woul db e accurat e fo r suc hacomparison . Figure s VII-4 , VII-5 , VII- 6 an dVII- 7 sho w th e estimate ddelivere dindustria l coal cost s fo r

movement s fro mNe w Mexico , Oklahoma , Indian aan dWyomin g t o sampl e location s i n Texa s an dLouisiana . Bot hvariabl e an dful l cost s ar e show n i n thes e examples . Th e Louisian abarg e movemen t appear s t o b e th e onl y on e likel y t o mee t

th e $3/MMBt

u threshol drequire dfo r ane w industria l boiler . However , a n industria l facilit y site dclos e t o Oklahom acoa l source s coul dals o mee t thi s threshol dtest . Conclusio n EEA projection s sho w tha t natura l ga s ca nb e delivere dt o industria l consumer s i n th e Gul f

Coas t a t approximatel y $3.44/MMBt u i n199 0 an d$4.43/MMBt u i n1995 . Assumin g a$3/MMBt

u differential , coal i s obviousl y not competitiv e i nthi s regio n 33P.3 7 FIGUR E VII- 4

Coa l Delivery Origin : Yor k Canyon , N M Dest : Austin , T X Quality : 12,50 0 Distance : 1034. 0 (Al l Price s i n 198 5 Dollars ) Coa l Price s ($/ton ) F.O.B . Min e

Truc k Railroa d Variabl e Cos t

Ful l Cos t Variabl e Cos t Variabl e Cos t Ful l Cos t 198 6 17.3 0 21.4 0

22.9 0 30.5 0 199 0

17.3 0 21.4 0

23.8 0 31.8 0 199 5

17.3 0 21.4 0

25.0 0 33.4 0 Transloade r Barg e Variabl e Cos t

Variabl e Cos t Industria l Premiu m Delivere d ($/ton ) Variabl e Cos t

Ful l Cos t Delivere d (cents/MMBtu ) (DVC )

(VC ) EE AIndustria l Natura l Ga s Pric e (cents/MMBtu ) Hig h Scenari o DIFFERENCE S Natura l Ga s (verse s VC ) (verse s FC ) 5.0 0 45.2 0 56.9 0 180.9 0 227.8 0 (1985 ) 228.0 0 47.1 0 0.2 0 5.0 0

46.2 0 58.2 0 184.7 0 232.7 0 344.0 0 159.3 0 111.3 0 5.0 0

47.4 0 59.8 0 189.5 0 239.2 0 443.0 0 253.5 0 203.8 0



### 3 4FIGUR E VII- 5

Coa l Delivery Origin : Latimer , O K Dest : Ne w Braunfels , T X Quality : 13,00 0 Distance : 20 4 (Al l Price s i n 198 5 Dollars ) Coa l Price s ($/ton ) F.O.B . Min e

Truc k Railroa d Variabl e Cos t

Ful l Cos t Variabl e Cos t Variabl e Cos t Ful l Cos t 198 6

30.8 0 50.1 0 20.4 0 199 0

30.8 0 50.1 0 13.8 0 199 5

30.8 0 50.1 0 9.3 0

Transloade r Barg e Variabl e Cos t

Variabl e Cos t Industria l Premiu m 5.0 0 5.0 0 5.0 0 Delivere d ($/ton ) Variabl e Cos t

Ful l Cos t Delivere d (cents/MMBtu ) Variabl e Cos t

Ful l Cos t EE AIndustria l Natura l Ga s Pric e (cents/MMBtu ) Hig h Scenari o DIFFERENCE S Natura l Ga s (verse s VC ) (verse s FC ) 56.2 0 75.5 0 216.1 0 290.4 0 (1985 ) 228.0 0 11.9 0 -62.4 0 4 9

6 8 19 0 26 5 34 4 15 3 7 9 6 0 9 0 7 0 0 0 0 0 3 0 0 0 4 5

6 4 17 3 24 7 44 3 26 9 19 5 1 0 4 0 6 0 .8 0 0 0

4 0 2 0



### 3 5P.3 9 

### FIGUR E VII- 6

Coa l Delivery Origin : Chandler , I N Dest : Donaldsonville , LA Quality : 11,50 0 Distance : 1112. 5 (Al l Price s i n 198 5 Dollars ) Coa l Price s ($/ton ) F.O.B . Min e Truc k Railroa d Transloade r Barg e Variabl e Cos t

Ful l Cos t Variabl e Cos t Variabl e Cos t Ful l Cos t Variabl e Cos t 198 6 20.1 0 28.6 0

1.3 0 199 0

20.1 0 28.6 0

1.3 0 199 5

20.1 0 28.6 0

1.3 0 Variabl e Cos t 8.9 0 9.5 0 10.0 0 Industria l Premiu

m5.0 0 5.0 0 5.0 0 Delivere d ($/ton ) Variabl e Cos t 35.2 0 35.8 0 36.3 0

Ful l Cos t 43.7 0 44.3 0 44.8 0 Delivere d (cents/MMBtu ) Variabl e Cos t 153.1 0 155.8 0 158.0 0

Ful l Cos t 190.1 0 192.8 0 195.0 0 EE AIndustria l Natura l Ga s Pric e (1985 ) (cents/MMBtu ) Hig h Scenari o 228.0 0 344.0 0 443.0 0 DIFFERENCE S Natura l Ga s (verse s VC ) 74.9 0 188.2 0 285.0 0 (verse s FC ) 37.9 0 151.2 0 248.0 0

3 6P.4 0

• .. , * • » 

### FIGUR E VII- 7

Coa l Delivery Origin : Gilette , WY surfac e min e Dest : Ft . Worth , T X Quality : 8,40 0 Distance : 1154. 0 (Al l Price s i n 198 5 Dollars ) Coa l Price s ($/ton ) F.O.B . Min e Variabl e Cos t

Ful l Cos t 198 6 6.7 0 12.7 0 199 0

6.7 0 12.7 0 199 5

6.7 0 12.7 0 

### Truc k Variabl e Cos t Railroa d Transloade r Variabl e Cos t

Ful l Cos t Variabl e Cos t Barg e Variabl e Cos t Industria l Premiu

m 24.6 0 32.8 0

5.0 0 25.6 0

34.2 0

5.0 0 26.9 0

35.9 0

5.0 0 Delivere d ($/ton ) Variabl e Cos t

Ful l Cos t Delivere d (cents/MMBtu ) Variabl e Cos t

Ful l Cos t EE AIndustria l Natura l Ga s Pric e (cents/MMBtu ) Hig h Scenari o DIFFERENCE S Natura l Ga s (verse s VC ) (verse s FC ) 36.3 0 50.5 0 216.1 0 300.7 0 (1985 ) 228.0 0 11.9 0 -72.7 0 37 .

51 . 22 2 30 8 34 4

12 2 3 5 3 0 9 0 0 0 7 0 .0 0 .0 0 .3 0 38 .

53 . 22 9 31 9 44 3

21 3 12 4 6 0 6 0 8 0 0 0 .0 0 .2 0 .0 0

3 7P.4 1

<• *• '

- in * 1990 . I n 1995 , i t woul dhav e t o b e delivere da t apric e of

approximatel y $1.43/MMBtu . Eve n wit hmajo r

pric e reductions , neithe r Sa nAntoni o no r

LCR A hav e bee n abl e t o obtai n delivere dcoal price s i ntha t rang e fo r

Powde r Rive r Basi ncoals . Whil e industria l coal s woul dcome fro mdifferen t origin s an dvi adifferen t routes , i t doe s not

appea r tha t coal s fro mNe w Mexic o o r Oklahom acoul db e delivere d throughou t

th e regio n a t

acos t whic hwoul dallo w the mt o compet e i nthi s market . Th e onl y combinatio n whic happear s t o b e possibl y competitiv e woul db e fo r an industria l facilit y capabl e of receivin g Illinoi s Basi ncoal b y wate r (eg . i n Louisiana) . Thi s woul db e aclos e call , bu t suc hafacilit y migh t

selec t coal fo r a ne w boile r

i f i t coul dforese e increasin g ga s price s beyon d1995 . Uniqu e situation s may arise , suc ha s alarg e industria l facilit y tha t decide s t o us e loca l lignit e or.locat e nea r acoal source , o r

awate r serve dindustria l plan t whic hca n us e relativel y inexpensiv e Illinoi s basi ncoal . Bu t i ngeneral , i t

appear s tha t loca l natura l ga s wil l preclud e constructio nof ne w industria l coal-fire d boiler s i nth e Gul f

Coas t regio n durin g th e tim e perio dof investigation .

3 8