---------- Forwarded message ----------
From: <frankzas@aol.com>
Date: Fri, Jul 8, 2011 at 12:25 PM
Subject: Our Economy may be Vulnerable to Coal and Oil Trends
To: pjgrunt@gmail.com

Hi Paul, Some new facts on coal. I'm a Sierra Club volunteer in Michigan. frank

If these trends continue, the economy of many states and the entire US may be at risk because of our over-reliance on coal to generate electricity. The following are details I researched. Feel free to use them.

Disturbing Coal Facts and Trends, June 2011

1. The Delivered Price of Coal Increased Three Times Faster Than Inflation in Past 5 Years

2. Cost of Transporting PRB Coal is Three Times Greater than Its Mining Costs

3. Oil Has Twice the Impact of Mining on the Cost of Delivered PRB Coal

4. States Dependent on Coal Had the Highest Electricity Price Increases in Past 5 Years

5. US Coal Mining Productivity Peaked in 2000 and Declined 20% Since

6. Other Cost Pressures on Coal

1. The Delivered Price of Coal Increased Three Times Faster Than Inflation in Past 5 Years

· A common measure of the price of coal delivered to US utilities in dollars per million Btu (MMBtu) to account for the different coal Btu values.

· Over the past 5 years, the average delivered price of coal to US utilities increased 54% from $1.53 in 2005 to $2.35 in March 2011. US inflation increased just 15% during the same period. http://www.eia.gov/cneaf/electricity/epm/epm_sum.html Table 4.2 http://www.usinflationcalculator.com/

· In the past 10 years, the delivered price of coal increased 96% from $1.20 in 2000 to $2.35 in March 2011. The US inflation increased was 30% during this time

· The March year-to-date 2011 price of delivered coal rose 3% from the same period last year in MMBtu ($2.35 from $2.27) and in dollars per ton ($46.51 from $45.09). http://www.eia.gov/cneaf/electricity/epm/epm_sum.html#one Table 4.2

· Some Midwestern states had much higher increases 1^st Q 2011 vs. 1^st Q 2010: Michigan +18%, Indiana +14%, Wisconsin +20%. http://www.eia.gov/cneaf/electricity/epm/epm_sum.html#one Table 4.10 A and B (It is assumed all cost increases will be passed on to electric ratepayers.)

2. Cost of Transporting PRB Coal is Three Times Greater than Its Mining Costs

· The price of Powder River Basin (PRB) coal from Wyoming has fluctuated from roughly $7 a ton to $20 a ton in the past 10 years.

· In June 2011, the mine mouth price of PRB coal price was stable at $12.40 - $13.00/ton.

· The rail rate for shipping PRB coal in 2010 is estimated to be 2.1 cents per ton per mile. http://www.jacksonkelly.com/jk/pdf/USCoalMarketsHeller.pdf Slide 26

· Assuming PRB coal is shipped (rail and boat) 1,600 miles to Midwestern utilities; the cost of transportation alone is $36 (a 2011 estimate).

· Add the $12 PRB price to $36 transportation charges results in a delivered price of approximately $48.00 per ton. $36 divided by $48 = 75%.

· The cost of PRB coal mine mouth is only 25% of the price of delivered coal.

This estimated transportation charge could be well underestimated. It does not reflect new 2011 contacts, recent diesel price increases and Burlington Northern’s attempt to recoup Warren Buffett’s overpayment for the purchase of all BN stock in 2010.

Only two rail lines ship PRB coal out of Wyoming, Burlington Northern and Union Pacific. They share the “Joint Line” which runs parallel to the Powder River Basin (almost a monopoly?). This is the busiest 100 miles of track in the world, carrying 130 trains per day.

3. Oil Has Twice the Impact of Mining on the Cost of Delivered PRB Coal

· It is estimated that the price of diesel fuel accounts for half of the price of coal transportation

· The estimated $18 cost of oil (half of the $36 transportation charge per ton) is 50% greater than the cost of PRB coal cost of $12 per ton.

· Plus, oil can be 17%+ of the cost of coal mining. http://biz.yahoo.com/e/110225/cld10-k.html

· The EIA conservatively forecasts the price of oil will increase roughly 3% a year faster than inflation (Inflation +2% a year, oil an additional +3%, equals +5% a year increase in the price of oil). Essentially, the price of delivered coal may increase at a rate much faster that of inflation

http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2011&subject=0-AEO2011&table=1-AEO2011&region=0-0&cases=ref2011-d020911a

http://www.eia.gov/forecasts/aeo/source_oil.cfm

4. States Dependent on Coal Had the Highest Electricity Price Increases in Past 5 Years

· The retail price of electricity in the US increased 22% over the past five years ( from 8.1¢ in 2005 to 9.9¢ in 2010)

· However, two regions very dependent on coal (and located further from PRB), saw their electric bills increase the most since 2005. East South Central (TN KY MS AL) saw their rates increase 34% (from 6.14¢ to 8.21¢) and East North Central (MI OH IN IL WI) had a 32% increase (from 6.87¢ to 9.09¢)

· Regions less dependent on coal experienced smaller than average electric price increases. For example, Pacific coast +17% and West South Central (TX AR LA OK) +3%. http://www.eia.gov/emeu/steo/pub/cf_query/index.cfm

http://www.eei.org/ourissues/ElectricityGeneration/FuelDiversity/Documents/diversity_map.pdf

5. US Coal Mining Productivity Peaked in 2000 and Declined 20% Since

· According to the Energy Information Administration (EIA), improved mining technology and the shift toward more surface-mined coal promoted dramatic improvement in productivity from the Nation's mines from 1978 through 2000 when an average 7.0 tons of coal was produced per employee per hour.

· Since 2000, productivity has declined in most years to an average of 5.6 tons per person in 2009. http://www.eia.gov/totalenergy/data/annual/pdf/perspectives_2009.pdf Figure 40.

· This 20% productivity decline happened in spite of improved technology, cost cutting efforts and more strip mining.

· The biggest productivity decline, a 5.9% drop, occurred from 2008 to 2009 (the last year reported)

· 2009 coal mining productivity dropped in all parts of the US especially for Western coal which dropped 9%. Of note: PRB surface mining productivity declined 7.5%, and Montana surface mining dropped 10.4%. http://www.eia.gov/cneaf/coal/page/acr/table21.html

· Most of the PRB coal mining productivity decline probably can be attributed to increasing overburden (the amount of dirt and rock above the coal seam). It appears the typical PRB overburden is about 200 feet thick and doubling to about 400 feet thick in 8 years – a productivity killer. http://www.blm.gov/pgdata/content/wy/en/info/NEPA/documents/cfo.html

6. Other Cost Pressures on Coal

In addition to declining productivity and escalating delivery costs, there are other reasons the price of coal could continue to rise at a fast past:

· US coal exports are increasing and putting upward pressure on coal prices. Exports of steam and metallurgical coal increased 38% in 2010. The largest export increase was to Asia (+176%) and particularly China (+400%) http://www.eia.gov/cneaf/coal/quarterly/html/t7p01p1.pdf

· China and India are buying US coal mines and a new coal-export port facility on the US West Coast

· As Appalachian coal fields are depleted, Eastern and Midwestern utilities are increasing their purchase of PRB coal. The increased demand will put upward pressure on the price of PRB coal and will also further increase rail congestion and costs for coal shipments.

· The total cost of coal generation must include the damage caused by coal mining, burning and ash. These externalities include damaged health, premature death, lost productivity and damage to our environment. A Harvard study estimated these costs are an additional 17.84¢/kWh. http://onlinelibrary.wiley.com/doi/10.1111/j.1749-6632.2010.05890.x/full

· There is pressure to fund coal to liquid programs. Recently proposed GOP legislation includes a requirement that the Defense Department construct and operate a coal-to-liquids plant. http://thehill.com/blogs/e2-wire/677-e2-wire/164609-navy-on-coal-to-liquids-no-thanks

· Utilities planning to burn petroleum coke need to consider that the price of delivered petroleum coke has increased 38% from 2009 to 2010 and increased 56% in the first quarter 2011 compared with the same period last year. At $3.09 per MMBtu, pet coke is even less of a value than March 2011 coal at $2.35 per MMBtu. http://www.eia.gov/cneaf/electricity/epm/epm_sum.html Table 4.12.B

Helping to somewhat reduce demand for coal and cost pressures are:

· Some utilities may close coal plants to avoid increasing SO2, NOx, mercury and other pollutant compliance costs

· Environmentally progressive companies like Johnson Controls, Haworth, Steel Case and Wal-Mart have set high goals to reduce their carbon footprint. This will require their electric suppliers to produce less electricity using fossil fuels and more from renewable sources.

If these trends continue, the economies of many states (and the US) will be at a disadvantage because of our over-reliance on coal to generate electricity. This argues for more energy efficiency, renewable energy and natural gas generation to diversify their fuel supplies. We have too many eggs in one basket.

Frank A. Zaski

30310 Cheviot Hills Dr.

Franklin, Mi. 48025

248 855 5018

frankzas@aol.com

Concerned citizen, former member of the 21^st Century Energy Plan Energy Efficiency Work Group, Michigan Climate Action Committee RCI TWG and the Midwest Governor's Association Renewable Energy Advisory Group.