Economy

Illinois coal plants: Victims of Obama policies or something else?

Rail cars loaded with coal line the track on their way to be fed into Dynegy’s Baldwin Energy Complex in southern Illinois.
Rail cars loaded with coal line the track on their way to be fed into Dynegy’s Baldwin Energy Complex in southern Illinois. Belleville News-Democrat

Republican members of Congress from Illinois have blamed the Obama administration’s energy and environmental policies for the planned closures of coal-fired power plants in the southern part of the state.

But other factors may have worked against the plants.

The recent decisions by Houston-based Dynegy to partially idle its Baldwin and Newton plants within a year, and to shut down its Wood River plant next month, coincide with a sharp increase in the cost of transporting coal mined hundreds of miles away by rail.

It isn’t clear that the increased costs of transporting coal to the plants contributed to the decision to close them. Adding to the complexity, members of Congress from the region, Dynegy’s management and environmental groups offer different explanations for how they got to the chopping block.

Illinois is a major coal producer, but virtually none of its power plants use the fuel from their own backyard

Illinois is a major coal producer, but virtually none of its power plants use the fuel from their own backyard. Instead, more than 50 million tons a year comes from Wyoming’s Powder River Basin, the source of 40 percent of the nation’s coal production.

It cost $16.37 a ton in 2008 to ship Wyoming coal by rail to Illinois, but $22.08 a ton in 2014, according to the most recent data from the U.S. Energy Information Administration. That exceeded the per-ton cost of the coal itself, about $13 in 2014 and about $9 today. All figures were adjusted for inflation.

Consequently, the three Dynegy plants spent $73.8 million more in 2014 to import coal from Wyoming than they did in 2008. Statewide, the power sector’s reliance on Wyoming coal cost it $308 million more in 2014 than it did in 2008.

Ironically, the plants Dynegy is closing could burn Illinois coal, but only if the company installed scrubbers to remove sulfur dioxide, a requirement that long predates Obama’s presidency. The low-sulfur content of Wyoming coal enabled numerous plants throughout the country to avoid spending hundreds of millions of dollars to add the equipment.

Now, in an era of depressed electricity demand and cheaper alternatives to coal, many utilities have decided it isn’t worth the cost.

“Coal plants are operating on increasingly tight margins,” said Mary Anne Hitt, director of the Sierra Club’s Beyond Coal campaign. “These plants are having a hard time competing these days.”

$308 million Increase in the cost to transport Wyoming coal by rail to Illinois from 2008 to 2014

David Onufer, a spokesman for Dynegy, said he couldn’t get into specific details about what it paid for coal transportation “for competitive reasons.”

Beth Sutton, a spokeswoman for Peabody Energy, which operates many of the Wyoming mines that supply Illinois power plants, declined to comment. The St. Louis-based company filed for bankruptcy protection last month amid a coal industry downturn.

Ed Greenberg, a spokesman for the Association of American Railroads, the industry’s principal advocacy group in Washington, said shipping coal by rail remained cost effective.

“Adjusted for inflation, average railroad coal rates were 47 percent lower in 2014 than in 1981,” Greenberg said, “which means a typical coal shipper can ship about twice as much coal today for close to what was paid more than 35 years ago.”

58 million Tons of coal produced in Illinois in 2014

54 million Tons of Wyoming coal consumed in Illinois in 2014

Illinois produced about 58 million tons of coal in 2014, according to the state Department of Commerce and Opportunity, and most of it was shipped to other states. That year, Illinois also used almost as much coal – 54 million tons – from Wyoming, according to the Wyoming Mining Association.

Reps. Mike Bost and John Shimkus, Republicans who represent southern Illinois in Washington, blamed the Environmental Protection Agency for the plant closures.

Last week, Bost called the Baldwin plant’s fate “just another example of unjustified EPA overreach resulting in increased energy costs and reduced jobs in Southern Illinois.”

He also implied that the closures would cost mining jobs in Illinois, even though all the coal the plant uses comes from Wyoming.

“My thoughts go out to these hardworking Illinois coal miners and their families,” he said last week.

On Tuesday, Bost clarified that statement.

“Regardless of where the coal is mined or used,” he said, “the administration is coming after it and consumers are going to be hurt.”

Regardless of where the coal is mined or used, the administration is coming after it and consumers are going to be hurt.

Rep. Mike Bost, R-Ill.

Shimkus, a member of the House Energy and Commerce Committee, faulted environmentalists, including the Sierra Club, a major foe of the coal industry.

“The heartbreaking trend of power plant shutdowns and mine closures across the country is not merely the result of market forces,” he said in a statement last week, “but of a deliberate campaign by the environmental left to keep America’s most abundant source of reliable electricity in the ground.”

Hitt, of the Sierra Club, said pointing the finger at President Barack Obama was politically expedient but didn’t reflect reality.

Coal plants produce about a third of the country’s power and 40 percent of Illinois’, but they face competition from natural gas, wind and solar energy, all of which have become cheaper in recent years.

Further, most of the country’s coal plants were built between 1950 and 1980, and utility companies face the choice of upgrading the aging facilities with new pollution controls or closing them. Those things would have happened anyway, Hitt said.

“We could have a different president and a different EPA and see the same changes in the landscape,” she said.

We could have a different president and a different EPA and see the same changes in the landscape.

Mary Anne Hitt, director, Sierra Club Beyond Coal campaign

When Dynegy’s CEO, Robert Flexon, participated in a public forum in Alton, Illinois, in January on the decision to close the Wood River plant, he said the core problem was state, not federal, regulation.

Flexon cited a regulatory mismatch in which deregulated utility operations in central and southern Illinois are forced to compete with regulated utilities in northern Illinois and surrounding states.

Electricity rates in the region are set by auction, and Flexon said the auction prices were too low for plants in the deregulated zone to recover their basic costs of operation. It doesn’t matter whether they use coal, gas, wind or solar, he said.

Flexon added that state lawmakers would have to work with Gov. Bruce Rauner to fix the mismatch.

“There is a structural problem in central and southern Illinois,” Flexon said in January.

1,100 Miles by rail from Peabody Energy’s North Antelope Rochelle Mine in Wyoming to Dynegy’s Baldwin Energy Complex in Illinois

It is about 1,100 miles by rail from Peabody Energy’s North Antelope Rochelle Mine in Wyoming to Dynegy’s Baldwin Energy Complex, about 45 miles southeast of St. Louis.

In 2014, the mine was Baldwin’s sole supplier, sending 7.1 million tons of coal to the plant at a cost of $158.5 million, based on the Energy Information Administration’s real annual average coal transportation costs. That’s nearly $41 million more than it would have paid at the 2008 average cost.

Idling the two generators at Baldwin, one at Newton and the entire Wood River plant will eliminate more than 250 jobs. The lost power could be replaced with wind, solar, natural gas or other coal plants.

Curtis Tate: 202-383-6018, @tatecurtis

Costly haul

Increase in cost to transport Wyoming coal to southern Illinois power plants, from 2008 to 2014

Baldwin Energy Complex: $40.9 million

Newton Power Station: $21.7 million

Wood River Power Station: $11.1 million

Source: U.S. Energy Information Administration

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