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dissertation entitled

The Relationship Between the Clean Air Act
and Great Lakes Shipping

presented by

F. Joseph Daubenmire Jr.

has been accepted towards fulfillment
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Ph.D degree in Resource Development/

 

 

Urban Studies

  

 

 

 

 

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Date November 13 , 1993

 

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THE RELATIONSHIP BETWEEN THE CLEAN AIR ACT AND
GREAT LAKES SHIPPING
By

F. Joseph Daubenmire Jr.

A DISSERTATION

Submitted to
Michigan State University
in partial fulﬁllment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Resource Development/ Urban Studies

1993

ABSTRACT
THE RELATIONSHIP BETWEEN THE CLEAN AIR ACT AND
GREAT LAKES SHIPPING
By

F. Joseph Daubenmire Jr.

The complexity of the Coal and electric utility industries in the United States poses
difﬁcult challenges for Strategic planners, market analysts, and policymakers. Changes
in the Clean Air Act of 1990 further impact this relationship. While the Act codiﬁes
emissions trading, low sulfur coal is presently more central to the workability of
regulating power plant emissions. On average 10 to 12 million net tons of Western coal
are Shipped annually to lower Lakes utilities. As utilities respond to Clean Air Act
compliance requirements, waterborne coal demand could increase to as much as 40
million tons per year by the end of the decade.

This research examines the geographical, conceptual, and logistical linkages
between the low-sulfur coal deposits of the Powder River Basin in Montana and the
electric utility industry via the Great Lakes Shipping industry. The central question
researched is whether the increased demand for waterborne clean coal by lower lakes
utilities can be accommodated by current U.S flag ﬂeet shipping capacity with its
competing commodities.

The approach of this study is to evaluate various government and industry
forecasts for increased demand for coal, iron ore, and limestone in the Great Lakes basin

to the year 2000, to quantify growth rates, develop forecasts, and compare this

composite dry bulk demand to US. dry bulk ﬂeet carrying capacity. The basic concept
employed is supply and demand. Low cost waterborne fuel and non-fuel minerals are
in increasing demand by American utilities and by manufacturers, but supply of vessels
is limited.

From a purely numerical standpoint, composite forecasts indicate that there will
be no capacity shortfall before the year 2000, but when the ﬂeet is examined by vessel
size a different picture emerges. Excess capacity exists primarily in the smaller vessels
which, because of economies of scale, are not engaged in long distance, high volume
transport. In reality, several new thousand foot vessels will indeed be required
throughout the nineties, the number of which depends upon which growth scenario is

more COITBCI.

ACKNOWLEDGEMENT

This Research is dedicated to my advisor, mentor, and friend, Peter Kakela without
whose support and guidance this project would not have been possible, and to those
members of my family who could not understand why I should undertake such a tortuous

adventure, but who nevertheless acknowledged that it’s OK to be uncommon if you can.

iv

TABLE OF CONTENTS

LIST OF TABLES .......................................... viii
LIST OF FIGURES ......................................... ix
CHAPTER 1. AN OVERVIEW. .......................... 4
1. INTRODUCTION. ................................ 4
a. Coal and Electricity. .......................... 4
b. Acid Rain Legislation. ......................... 6
c. Research Focus ............................ 7
II. STATEMENT OF THE PROBLEM. .................... 8
a. Dry Bulk Shipment on The Great Lakes System. ......... 8
b. Shipment of Dry Bulk Commodities Will Increase. ........ 9
III. METHODOLOGY - A DETERMINATION OF SUPPLY AND
DEMAND. ................................. 11
IV. ALTERNATIVES. ............................. 13
a. Coal Slurry ................................ 13
b. Coal by Wire. ............................. 14

CHAPTER 2. THE CLEAN AIR ACT AND THE ELECTRIC UTILITY

INDUSTRY .............................. 16
I. INTRODUCTION .............................. 16
11. TITLE IV OF THE CLEAN AIR ACT. ................. 19
a. Market Approach versus Command and Control. ........ 19
b. Emission Control Options. ..................... 21
III. THE ELECTRIC UTILITY INDUSTRY. ................ 23
a. Serving a Captive Audience. ..................... 23
b. Future Demand ............................. 26

IV. REGIONAL VARIATIONS IN EASTERN AND WESTERN
COAL. .................................... 28
a. The Appalachian, Interior and Western Coal Regions. ...... 29
b. Blending of Regional Coals ..................... 3O

CHAPTER 3. WINTER NAVIGATION. ..................... 34

I. THE EXTENDED SHIPPING SEASON .................. 34

a. Introduction. .............................. 34

b. Fixed Opening and Closing Dates Required by Shippers. . . . 35

c. History of the Controversy. ................. ' . . . . 37

d. Opposite Conclusions from Incomplete Data. ........... 40

e. Present Controversy. ......................... 41

CHAPTER 4. ANALYSIS OF US. FLAG FLEET DRY BULK CAPACITY.44
I. INTRODUCTION. ............................... 44

a. Historical Overview of the US. Great Lakes Fleet. ....... 46

b. Fleet Composition. .......................... 49

c. Dry Bulk Fleet Utilization Rate for 1992. ............. 56

(1. Summary. ................................ 60

CHAPTER 5. AN INVENTORY OF LAKESIDE POWER PLANTS. . . 61
I. INTRODUCTION. .............................. 61

11. THE US POWER SUPPLY GRID AND WESTERN COAL. ..... 62

III. BLEND, SWITCH OR SCRUB DECISION FACTORS ......... 64

a. Delivered Price. ............................ 64

b. Characteristics of Fuel. ........................ 67

c. Political Climate. ........................... 67

IV. STATUS OF WESTERN COAL USAGE BY LOWER LAKES

UTILITIES. ................................. 68
a. Western Coal is Presently Not Competitive in New York
State. ................................ 68

b. Allegheny Electric Coop Does Not Rule Out Transhipments. . 69
c. Ohio is Still Looking but has Closed One Facility Because of

CAA Requirements ........................ 70
(1. Indiana Utilities Currently Receive Low Sulfur Coal via
Rail. ................................. 70
e. Wisconsin’s New Mexico Contract Creates Surplus Vessel
Capacity .................................. 71
f. Michigan has Already Complied ................... 72
g. Present Usage Level Veriﬁed. .................... 73
V. A DOZEN DIFFERENT VIEWPOINTS. ................ 74

vi

CHAPTER 6. ANALYSIS OF DRY BULK CARGO .............. 80

I. TRENDS IN DEMAND FOR DRY BULK CARGO ON THE

GREAT LAKES ............................... 80

a. Increase of Coal Consumption can be Tied to Increase of
GNP. ................................ 80

b. Increase of Coal Consumption According to some Industry
Experts. ............................... 82

II. IRON ORE WILL INCREASE, THEN RETURN TO PRESENT
LEVELS. ................................. 87
III. MULTIPLE USES OF LIMESTONE. ................. 90

IV. FLUXED PELLET PRODUCTION AND LIMESTONE

CONSUMPTION. ............................. 95
V. SAND, SALT AND GRAIN. ....................... 96
CHAPTER 7. TONNAGE VERSUS CAPACITY ................ 97
1. TOTALS ................................... 97

II. NUCLEAR REACTOR LICENSING AND COAL CONSUMPTION. 104

CHAPTER 8 CONCLUSIONS. .......................... 107
I. SUMMARY. ................................. 107

II. LIMITATIONS. ............................... 110

III. RECOMMENDATIONS FOR FURTHER STUDY. ......... 110

a. Winter Navigation Issues. ...................... 110

b. Second Poe-Sized Lock. ....................... 111

c. Emissions Trading and Transmission Access. ........... 111

e. Short—Term Future Studies - Rolling Forecasts. ......... 112
BIBLIOGRAPHY ....................................... 114

vii

Table 2-1.
Table 2-2.
Table 2-3.
Table 3—1.
Table 4-1.
Table 4-2.

LIST OF TABLES

U.S. FLAG COAL SHIPMENTS. .....................
GNP GROWTH AND ELECTRICITY GROWTH 1970-2000 .....
FIRST QUARTER COAL - 1992. .....................
SOO LOCKS - OPENING/CLOSING DAYS OF NAVIGATION.

COMBINED GREAT LAKES BULK COMMERCE. .........

Table 4-3. VESSEL CLASSIFICATION. .......................
Table 4—4. VESSELS ENROLLED IN LCA FLEET - 1992. ............
Table4-4a DISENROLLED VESSELS OWNED BY LCA MEMBER
FLEETS. .......................................
Table 4-5. 1992 FLEET AVERAGES. .........................
Table 4-5a. 1987 - 1992 FLEET AVERAGES. ....................
Table 4-6. DRY BULK CAPACITY UTILIZATION - 1992 by Vessel Class.
Table 5-1.COAL SHIPMENTS TO UTILITIES - by Mode of
Transportation. ...................................
Table 5—2. ORIGIN OF COAL RECEIVED AT ELECTRIC UTILITIES .....

Table 5-2

. ORIGIN OF COAL RECEIVED AT ELECTRIC UTILITIES .....

Table 6-1. GROWTH IN COAL DEMAND ON THE LAKES THROUGH
2000. .........................................

U.S.-FLAG DRY-BULK CARRIAGE BY MONTHS. . . . . . . . . '

OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO

Table 6-4.
Table 6-5.
Table 6-6.
Table 6-7.
Table 7-1.

ANNUAL INCREASES FOR ALL WATERBORNE COAL. . . . .
U.S. IRON ORE PELLET PRODUCTION THROUGH 2000 .....
ESTIMATED LIMESTONE TONNAGE THROUGH 2000. .....
LIMESTONE GROWTH - 80% Fluxed Pellet Production. ......
DRY BULK COMPOSITE. .........................

viii

25
30

74

LIST OF FIGURES

Figure 2-1. WESTERN COAL REPLACING ERIE COAL. ............
Figure 2-2. U.S. ELECTRIC POWER GENERATION 1990. ...........
Figure 2-3. GNP GROWTH AND ELECTRICIY GROWTH 1970-2000. . . . .
Figure 4—2. UTILIZATION OF CAPACITY. .....................
Figure 6-1. ESTIMATED GROWTH OF COAL DEMAND. ...........
Figure 6-2. IRON ORE PELLET DEMAND THROUGH 2000 ..........
Figure 6-3. ESTIMATED LIMESTONE TONNAGE THROUGH 2000. . . .
Figure 7-1. ESTIMATED TOTAL DRY BULK DEMAND. ............
Figure 7—2.HIGH DRY BULK DEMAND VS. TOTAL DRY BULK
CAPACITY. .....................................
Figure 7-3. HIGHEST DRY BULK DEMAND vs. TOTAL DRY BULK
CAPACITY. .....................................
Figure 7-4. NUCLEAR REACTOR LICENSE EXPIRATION DATES. .....

ix

AN OVERVIEW
CHAPTER 1.

I. INTRODUCTION.

In a March 1991 interview Mr. George Ryan, President of the Lake Carriers’
Association, stated that "two or three new 1,000-foot coal carriers will be needed to
move 'Western coal" by the year 2000 (Seaway Review, 1991a). In a February 1992
address to the Lake Carriers’ Association, Mr. John Ethan, President of Superior
Midwest Energy Terminal in Superior, Wisconsin repeated this concern indicating that
depending on the movement of other commodities on the Great Lakes, a vessel capacity
problem for IOOO-foot vessels could exist in the? near future. Since 1984 Superior
Midwest Energy Terminal has been the largest volume U.S. ﬂag coal port on the Great
Lakes. As of summer 1993 there is very little economically feasible excess capacity
remaining in the U.S. Great Lakes Flag ﬂeet. The question addressed by this research
is: As a result of the Clean Air Act Amendments of 1990 how will the shift toward

Western coal change the demand for Great Lakes ship capacity?

a. Coal and Electricity.

In the U.S. the utility sector is by far the largest market for coal. Steam
coal accounted for 87% of total domestic consumption in 1990. Because of interactions
between these two closely-coupled industries, attempts to analyze either one in isolation
are necessarily incomplete. Yet the complex characteristics of these industries often

strain the limits of traditional analytic methods. In fact one well known ﬁnancial analyst

2

has recently labeled the forecasting of energy demand as an enormous intellectual
challenge at best.

Both coal and electric utility industries face rapidly changing markets. Recent
years have brought about dramatic changes in the growth of electricity demand, price of
alternative fuels, cost of nuclear plant construction, and much more. Market conditions
have swung broadly from under capacity to over capacity. The markets continue in a
state of transition, and the importance of understanding the timing and magnitude of such
changes is great.

Furthermore both industries are heavily inﬂuenced by a wide-range of government
policies and regulations. Government regulation affects nearly every aspect of each of
these industries including environmental protection, miner health and safety,
transportation, taxation, price regulation, and ratemaking. The implications of possible
policy changes are substantial and government and industry planners place great value
on understanding these effects.

The complexity of the coal and electric utility industries in the United States poses
difﬁcult challenges for strategic planners, market analysts, and policymakers. Numerous
uncertainties regarding changing economic trends and future government policies increase
the difﬁculties of forecasting future market condition. Demand side management and its
impact on future generating needs, the potential of retail wheeling, variable fuel and
labor costs, sulfur emissions compliance, and a proposed carbon tax are but a few of
these issues. Others include altering the dispatch of generating units, advancing the

retirement date for facilities with high emission rates and replacing them with new ones

3

having lower rates, building new generating equipment, building new transmission lines
to facilitate additional power purchases and acquiring capacity and energy from non-

utility sources.

b. Acid Rain Legislation.

Changes in the Clean Air Act of 1990 (CAA90) further impact the relationship
between coal and electricity. Title IV of the Act speciﬁcally regulates power plant
emissions which are believed to contribute to the acid rain problem. Acid rain may form
when emissions of sulfur dioxide and various oxides of nitrogen, primarily from the
burning of fossil fuels, mix in the upper atmosphere and are transformed into sulfates and
nitrates. These compounds in turn react to become sulfuric and nitric acid when
combined with water.

Acid rain has been connected with acidiﬁcation of lakes and streams, particularly
in the northeastern United States and Canada, with resulting damage to ﬁsh and wildlife,
as well as damage to various elements of the natural and man—made environments.
Although the extent and severity of these effects and the precise types and combinations
of emissions that ultimately cause them have been much disputed, the 1990 amendments
assume that such effects exist, that they are serious effects, and that they need to be
addressed.

In the early part of this century emitting sources typically had short smoke stacks
and emissions fell to the earth in surrounding neighborhoods, blackening real estate,

marring auto ﬁnish, and creating serious respiratory problems for residents. The mid-

4

century evolution of tall smokestacks solved these problems but resulted in far ranging
windborn emissions that are presumed to incorporate sulfur and nitrous oxides into the
hydrological cycle. The pre-199O Clean Air Act took into account neither these chemical
transformations, nor interstate and international pollution, nor the resulting environmental
impacts.

Title IV of the Clean Air Act as amended, known as the acid rain provision, is
a complex two phase program which regulates stationary emission sources and imposes
limits on emissions that cause acid rain. Eighty percent of these sources are coal ﬁred
electrical power generation facilities. Central to the strategy of both phases is low-sulfur

coal .

c. Research Focus

This research examines the geographical, conceptual, and logistical linkages
between the low-sulfur coal deposits of the Powder River Basin in Montana and the
electric utility industry via the Great Lakes Shipping industry. The central question
researched is whether the increased demand for waterborne clean coal by lower lakes
utilities can be accommodated by current US ﬂag ﬂeet shipping capacity with its
competing commodities. In this context rail costs are compared to vessel ton-mile costs
and the controversy over the environmental impact of extended season navigation is
reviewed.

The eight state East North Central coal consumption region is the largest user of

utility coal in the nation. Total Share is about 33%. ENC is composed of Wisconsin,

5

Illinois, Indiana, Kentucky, West Virginia, Western Pennsylvania, Ohio and Michigan.
Low-sulfur Western coal is supplied to the region by rail and by water and because of
its low cost is expected to play- a major role in allowing midwestern electric utilities to
meet Phase I and Phase II compliance requirements. Compliance strategies will in part
require replacing an undetermined amount of currently used high sulfur coals from the
Appalachian and Interior regions with low-sulfur Western coal.

Western coals’ intermodal routing as examined in this study is rail delivery
to Superior with unloading to ground storage then reloaded to vessel with shipment
directly to the ultimate user or to a lower lakes dock that will receive the Western coal
and blend it with Eastern coal for ultimate rail delivery to a utility. Most Eastern utility
boilers are not designed to burn Western coal but by blending Western low sulfur with
Eastern mid-sulfur a technically and environmentally acceptable fuel results. Utility
Operations Divisions have been slow to acknowledge this but economic justiﬁcation in
terms of $/Btu is creating a substantial climate of change in an otherwise inertia-bound

industry.

11. STATEMENT OF THE PROBLEM.
a. Dry Bulk Shipment on The Great Lakes System.

Because of the operating efﬁciencies involved over the past 20 years larger ships
' with greater cargo capacity and greater speeds have been built to replace smaller vessels.
In fact, Lake vessels larger than 760 feet cannot continue beyond Lake Erie to the St.

Lawrence Seaway due to size limitations at the Welland locks. The availability of iron

6

ore, coal and limestone in the Great Lakes area has been responsible for the development
of one of the largest industrial concentrations in the world. Because of the low cost of
water transportation, iron ore and steel production are brought together very
economically.

Likewise the very existence of the many iron and steel dependent industries
situated on the shores of the Great Lakes are due largely to the availability of low cost
water transportation. Shipment by Great Lakes freighter is by far the cheapest form of
transportation available for the bulk commodities produced on or near to the shores of
the Great Lakes. Where possible electric utilities also tend to situate on Great Lakes
Shores and tributaries in order to take advantage of the economies associated with
waterborne transportation of coal. Although geographically, Duluth is 240 miles further
inland in a westerly direction and 450 miles further inland in a north-westerly direction
than Chicago, Duluth is only 93 miles further from the Atlantic Ocean than Chicago by
steamer. As a transportation system the Great lakes are well positioned to handle

enormous quantities of coal for export.

b. Shipment of Dry Bulk Commodities Will Increase.

While coal, iron ore, limestone and grain continue to be the major dry bulk Great
Lakes commodities, wood chips and particularly coal for export also have signiﬁcant
market potential. In 1991 the ﬁrst shipment of Western coal to Europe via the Great

Lakes occurred. Depending on a number of factors this could place further demands on

7

a transportation system that has the capacity in a very short time to become critically
stressed.

Additionally, the iron ore industry’s demand for higher quality ﬂuxed pellets will
require that limestone be transported north to the iron mines then shipped south again as
pellets to lower lake blast furnaces. Therefore, for iron ore, shipping needs will increase
even if iron ore demand remains stable.

Relatively abundant low-sulfur coal reserves exist in Appalachia as well as the
Powder River Basin (PRB) producing regions. Total Appalachian low-sulfur recoverable
reserves are approximately 12 billion tons, compared to Wyoming’s 68 billion and
Montana’s 120 billion tons. PRB coal is much more accessible, but transportation costs
play the pivotal role in determining delivered price per ton. Taking into account total
dry bulk cargo, this study is concerned primarily with that portion of PRB coal that
comes by rail from Wyoming or Montana, is transhipped at Duluth, and is brought
across the Great Lakes to midwestern utilities for power generation.

On average 10 to 12 million net tons of Western coal annually are shipped
through SMET to lower Lakes utilities. At the present time three 1000 foot lake boats
are dedicated to this task. During the mid to late 1990s as utilities respond to Clean Air
Act compliance requirements, waterborne coal demand could increase to as much as 40
million tons per year by the end of the decade (Ethan, 1992).

To accommodate this shift there must be either more ships or the shipping season
must be extended into the fragile winter period. This system is fragile, in that biologists

are concerned that the passage of large lake ships through ice-covered narrows and

8

shallows may disturb vital ﬁsh beds and the reproductive cycle of other critical organisms
in the lakes. The balance, then, is between cleaner air as required by law and the
increase in potentially disruptive ship trafﬁc on the Great Lakes as the shortage of

capacity requires an extended shipping season.

111. METHODOLOGY - A DETERMINATION OF SUPPLY AND DEMAND.

The approach of this study is to evaluate various government and industry
forecasts for increased demand for coal, iron ore, and limestone in the Great lakes basin
to the year 2000 and to compare the composite demand to current U.S. bulk ﬂeet
carrying capacity. In the context of the relationship between the electric utility industry
and the coal industry this study identiﬁes and analyzes the various factors that can impact
the need for increased Great lakes shipping and determines the extent of increased
demand.

The basic concept of this study is one of simple supply and demand. Fuel and
non-fuel minerals are in increasing demand by American utilities and by manufacturers,
but supply of vessels may soon be exceeded. In addition to analyzing demand factors
ﬂeet utilization rates have been obtained from the Lake Carriers’ Association and veriﬁed
through major shipping company personnel. Variations on the annual potential volume
transported are dependent on the number of trips each vessel makes per season which in
turn depends on the average length of trip and the length of shipping season.

Forecasting coal consumption patterns through the end of the decade depends

heavily on both rate of economic growth and compliance choices made by utilities. Each

9

choice is extremely sensitive to price, particularly the effects of transportation costs
which can cause different compliance strategies to come within a penny of each other.
At a certain point it makes economic sense for a utility to install costly scrubbers rather
than pay the price of shipping low-sulfur coal from distant regions.

Although 80 to 90% of Phase I decisions have already been made by utilities in
regards to scrubbing versus switching, blending, or buying allowances, the highly volatile
nature of the choices makes forecasting uncertain.

In preparing their own forecast for U.S. coal to the year 2000, the National Coal
Association quotes the Department of Energy’s Annual Outlook - 1988 thus: ”The
forecast levels of coal production and consumption represent expectations of what would
occur under a given set of assumptions. They do not provide unqualiﬁed predictions of
the future. If conditions change, the forecasts will be affected accordingly. The
uncertainty inherent in the forecasts contained in this report should be recognized, so that
they can be used in the proper context" (NCA, 1989a). The numbers arrived at here
after scrutinizing agency, industry, and consultant reports are based on logical
assumption concerning projected increase in demand for electricity.

In addition to coal demand, forecast values have also been examined for iron ore
and limestone consumption as well as the potential for moving new bulk commodities in
the Great lakes basin for the next decade. The forecast values used have resulted from
numerous conversations with sources in industry, academia, and State regulatory

agencies. The approach relied upon here draws on traditional economic policy analysis

10

and in general the techniques employed hinge on orthodox fact ﬁnding with no need for

proof or validation.

IV. ALTERNATIVES.
a. Coal Slurry.

After the Clean Air Act of 1970 it was expected that increasing amounts of low-
sulfur Western coal would be shipped to Midwestern utilities. As an alternative to rail
and water shipment coal slurry pipelines were anticipated as a way of reducing
transportation costs. Interest still remains in local slurry pipeline in some circles, and
it may indeed be economically feasible to develop this method of coal transportation
under some conditions and circumstances. There have been however certain fundamental
changes in the market since coal slurry was ﬁrst proposed by the Kennedy administration
in 1961.

The original economic conditions necessary to make such an enormous
infrastructural investment proﬁtable depended heavily upon rising world oil prices, which
did not continue to rise as expected. Also the mandating of scrubber installation in the
Revised New Source Performance Standards reduced demand for Western coal.

When slurry transportation was proposed there was a very distinct cost advantage
per ton-mile. Railroad’s however continually reduced rates while also refusing to grant
right of way for Slurry lines. Because of the Staggers Act which approved the entering
into of contracts between shippers and customers, rail rates today are lower than when

the economic advantages of coal Slurry were ﬁrst proposed. Utility contracting practices

11

have also changed. In the 19705 it was not uncommon for a 20 to 30 year contract to
be developed between a utility and a coal company. This was done to establish a stable
purchase rate and often was negotiated for the expected life of a utility (Kline, 1992,
1993). Now a 5 to 10 year contract is more the norm and this short life span is
unsettling to pipeline operators who need long term commitments before undertaking very
high capital outlays.

From an environmental regulatory standpoint it is not inconceivable that congress
would institute a signiﬁcant carbon tax on fossil fuels in order to curb demand and
encourage alternative fuels development. Such an uncertainty bodes ill for slurry pipeline
development. Also given the extremely high demand for water that slurry pipelines
require and the resultant contamination that occurs, it is not a certainty that slurry
pipeline transportation is an entirely benign technology.

Over the past 30 years railroads have lobbied furiously against slurry lines.
Although they have not changed their position, they now feel there is no longer a need
for this opposition. Presently there is very little activity in the marketplace for coal
slurry pipeline construction and the ﬁerce competition among intermodal shippers in the
Midwest does not make the construction of a pipeline running east from the Powder

River Basin a very appealing notion currently (Vasy, 1993).

b. Coal by Wire.
Although present economies of electrical transmission become cost prohibitive at

distances greater than 400 miles, burning coal at the mine mouth and sending the power

12

through high voltage lines to the Midwest is a potentially workable alternative to shipping
coal itself. To some extent this is being done already with power being supplied to the
West coast from PRB mine mouth generation. Using this technology as a model it is
conceivable that an enormous coal by wire unit could be situated at the head of the Lakes
i.e., Duluth, to be used to supplement power supply to the Midwest.

With such a facility, costs associated with generation and transmission of
electrical power would be offset somewhat by savings in fuel transportation costs. At
the present time though the national average capacity utilization factor for electric utilities
is about 46% and it is expected to increase to only 52% by the end of the decade (EIA,
1992a). Given this excess capacity and the highly reliable power supply and distribution
network already existing in the Midwest, the notion of a coal by wire facility is not
economically or politically feasible before the end of the next decade. EIA expects the
use of industrial steam coal to increase after 2010, and it is possible that a peak load
generating station could be built if coal transportation costs increase signiﬁcantly along

with a growing Midwestern demand for Powder River coal.

THE CLEAN AIR ACT AND THE ELECTRIC UTILITY INDUSTRY
CHAPTER 2.
I. INTRODUCTION.

For the present decade fossil fuels, and coal speciﬁcally, will remain as the
workhorse of steam electrical generation. This is due in part to the failure of cheap,
safe, and abundant nuclear energy to materialize as promised. Also hydropower
generation has peaked, and other forms of renewables have not been supported
sufﬁciently. Coal accounted for the largest share of domestic energy production in 1949-
1951 and again in 1982 and in 1984-1991. In the interim, ﬁrst crude oil and then natural
gas dominated domestic production.

In 1991 coal production totaled 22 quadrillion Btu. Dry natural gas production
totaled 18 quadrillion Btu and crude oil production totaled 16 quadrillion Btu. Even with
demand Side management modulating growth, U.S. demand for coal ﬁred electrical
energy is projected to keep growing at 2% per year for the foreseeable future.

Historically Lake Erie ports have always ied the lakes in U.S. ﬂag coal
shipments. This was so until 1987 when for the ﬁrst time Lake Superior shipments
exceeded Lake Erie shipments. Table 2.1 and Figure 2.1 depict this trend for the past
8 years. Detroit Edison is by far the largest single consumer of waterborne Great Lakes -
Western Coal. It is Edison’s quest to lower SO2 emissions that accounts for most of the
shift from high-sulfur Appalachian coal to low sulphur Western coal.

If other lower Lakes utilities follow Edison’s lead a shipping capacity problem

will likely develop. The magnitude of the shortage will depend on how the utilities react

13

14

to a number of factors brought about in part by the 1990 Clean Air Act Amendments.

The issues examined in this chapter are integral to assessing demand for Western coal.

Table 2-1. U.S. FLAG COAL SHIPMENTS.

 

(million net tons/yr.)

Year Total Coal ﬂLe Superior
1985 19.3 12.3 7.0
1986 20.5 12.3 8.2
1987 19.9 8.7 11.2
1988 18.3 8.2 10.1
1989 19.4 7.6 11.8
1990 19.9 7.6 12.3
1991 18.6 6.4 12.2
1992 18.0 7.2 10.8

Source: LCA Annual Reports

 

 

 

 

S
R
N
s

million net tons

 

‘i

 

 

 

 

U1985'1986'1987'1988'1989'1990'1991’1992’
tees-1992‘

Source: LCA Annual Reports

 

FIGURE 2-1. WESTERN COAL REPLACING ERIE COAL

16
II. TITLE IV OF THE CLEAN AIR ACT.

a. Market Approach versus Command and Control.

Since its beginnings in the early 19705 the EPA through the Clean Air Act has
regulated airborne emissions by issuing and enforcing strict guidelines. No allowances
were made for individual differences and those who failed to play by the often irrelevant
rules were punished.

"The adversarial relationship that now exists between environmentalism and
pollution control ignores the real complexities of environmental and business problems”,
Caleb Solomon quoting Carol Browner, head of EPA, in The Wall Street Journal, March
23, 1993, and continues ”the EPA...doesn’t often measure emissions...lt enforces
regulations spelling out what equipment a plant must have...based on old or over-
generalized information, and rarely allow for adjustment to individual cases. To what
extent the rules are actually reducing pollution at a given site-and whether they are doing
so in the most proﬁcient or efﬁcient way-are normally not at issue. Nor does the
regulated industrial company generally measure actual pollution. It focuses on the rules
it must meet".

What’s really new with the Amendments of 1990 is that instead of being assigned
rigid emissions limits, power plants have been allocated transferable emissions allowances
that are based on each plant’s annual average baseline fuel consumption from 1985-1987.
Each allowance gives the holder the right to pollute; to emit up to one ton of sulfur

dioxide annually.

17
Title IV of the act is targeted speciﬁcally at stationary pollution sources, 80% of

which are coal burning electrical generation sites. Reaching the nationwide emissions
cap of 8.9 million tons of sulfur dioxide by the ;year 2000 is being done in two major
steps. For Phase I the EPA has distributed 5.7 million permits among the 110 worst
polluters. After December 31, 1994 it will be a violation of the Act for any of these
utilities to emit more SO, than the quantity for which they holds allowances.‘ Yearly
thereafter the annual allowable limit is reduced for all utilities. By January 1, 2000 all
remaining stationary sources will have come under regulation and an annual emissions
eap of 8.9 million tons of sulfur dioxide will have been reached nationally.2

Central to the workings of this strategy is the creation of a pollution market with
tradeable emissions credits where allowances can be bought, sold, auctioned and banked
from year to year. Because the market approach encourages ﬁrms with low-cost
pollution control technologies to clean up more, the overall costs of complying with the
statute through the implementation regulations are lower than the costs of complying with
the statute in the absence of the implementation regulations (ICF, 1992a). EPA costing

models Show that a well-functioning allowance trading system will reduce the costs of

 

'To encourage energy conservation and pollution prevention Title IV provides an
incentive. For each ton of SO2 emissions avoided by an electric utility through the use
of demand side management the utility will be given one allowance. A total of 300,000
allowances are available on a ﬁrst come ﬁrst serve basis until December 31, 2000.

”The statute also provides for a $2.4 billion continuous emissions monitoring program
which will ensure target levels are met. Under this requirement all units must be
equipped with continuous emissions monitors and must submit data quarterly.

18
the SO2 emissions reductions mandated by the statute in 1990 dollars by up to $13.8

billion, with total costs for the program ranging from $12.2 to $20.0 billion (ICF,
1992b).

Also unique to the 1990 amendments is the inherent reliance on the use of low-
sulfur coal rather than mandatory ﬂue-gas desulphuriza- tion. By deﬁnition low-sulfur
coal contains no more than 1.2 lbs of sulfur dioxide per million Btu. Although
substantial reserves of compliance coal exist in parts of Appalachia, Powder River Basin
low-sulfur coal is the least expensive to mine, but transportation costs become of strategic

importance.

b. Emission Control Options.

There are a number of options available for each individual utility to choose from
when seeking to comply with emissions allowances. Those who are geographically
positioned to receive low-sulfur coal by water have additional ﬂexibility in deciding their
fuel/emissions mix. Because this study is concerned with increased shipments of Western
coal on the lakes it is necessary to identify the various ways in which the waterborne
Western coal option can be inﬂuenced.

"Retail wheeling" has the potential for signiﬁcant impact on midwestern power
generation. Wheeling is the process whereby local utilities meet local peak power
demands by purchasing extra power from distant utilities. Federal law requires

intermediate producers to allow transmission of these wholesale purchases without cost.

19

With increased competition a strong attempt is being made at a retail application
involving direct purchases by end users from distant sources at reduced prices.

The traditional captive market of utility suppliers is thus coming under siege with
supplier pitted against more distant supplier. A landmark Michigan case will be decided
in November of 1993 that involves a group of large industrial consumers who have
banded together for high volume retail purchasing, bypassing higher priced local sources
(Beck, 1992).3 Should this developing effort be successful the potential interstate retail
ﬂow of electricity will result in either lower local rates or a total restructuring of the
generating pattern around the lakes. This is particularly true for Michigan which
artiﬁcially maintains a $/kwh rate well above the competitive power market rate while
at the same time being the Midwest’s leading consumer of Western steam coal.

Besides wheeling or switching to PRB coal, utilities who exceed emission
allowances have other options. In regions such as Illinois expensive smokestack
scrubbers have been installed in order to preserve local coal mining jobs. Scrubbing is
expensive because it does not rely on mere physical processes such as crushing and
washing, but on the maintenance of a large-scale chemical reaction requiring continuous
supervision.

A scrubber is a 70-foot test tube which on a typical day may consume 400 tons
of limestone and thousands of gallons of water to remove over 200 tons of 502. As

exhaust gases go up the smokestack, they are exposed to a lime or limestone solution that

 

3Final hearings occurred in October 1993 before a Michigan Public Service Commission
administrative law judge. Cases are numbered U-10143 and U-10176 and a ﬁnal ruling is due
out before the end of the year.

20

is sprayed in their path. Sulfur dioxide in the gas reacts with the spray and goes into
solution, from which it is later removed, dewatered, and extruded in the form of sludge,
which then must be disposed of.

Another way of reducing emissions is to switch to natural gas or to develop a
combustible blend of high and low-sulfur coal. The biggest uncertainty related to
switching and blending is the degree to which Eastern high and mid-sulfur bituminous-
only coal-ﬁred boilers will be able to accommodate natural gas or Western low-sulfur
sub-bituminous coals.

A ﬁnal basic way of meeting emission allowances is related to the development
of marketable pollution rights. Utilities may in fact opt to do nothing regarding pollution
abatement other than to purchase additional emissions allowances from cleaner
competitors either directly, through a broker, or the Chicago Board of Trade. For
downwind states, particularly New York and the New England area, this is a worrisome

feature of the Clean Air Act Amendments.

III. THE ELECTRIC UTILITY INDUSTRY.
a. Serving a Captive Audience.

The U.S. electric utility industry is composed of nearly 3,000 companies. Two
hundred and six of these are investor-owned and account for over 70% of the total
electricity generated in the United States (Figure 2-2). Additionally there are over 3,500
non-utility projects which produce more than five percent of total U.S. electrical power.

These are a result of the 1978 Public Utility Regulatory Policies Act (PURPA) which

21

opened the way for non-utility power producers and cogenerators to produce and sell
power to utilities at set prices, radically changing the notion that electric utilities should

be the only suppliers of electricity.

 

 

 

 

 

 

 

 

 

 

Source: Energy lnforrnation Administration.

 

Figure 2-2. U.S. ELECTRIC POWER GENERATION 1990.

22

Federal regulation of the electric utility industry is largely through the Federal
Energy Regulatory Commission under the authority of the Federal Power Act. Under
FPA, authority is limited to wholesale transactions and interstate transactions. FERC
shares responsibility for the national transmission grid system with industry groups such
as NERC and local authorities.

Most U.S. electric utilities have monopolies provided by State or local authorities
and are the only supplier of electric power within their service territories. In exchange
for the advantages provided by the franchise, utility rates are subjected to regulation by
state authorities who generally allow for prudently incurred expenses plus reasonable
proﬁts on invested capital. If as part or an overall emissions reduction strategy Western
low-sulfur coal is available at a lower delivered price, utilities who renew contracts with
suppliers of more expensive Appalachian coal may ﬁnd that their state regulatory
agencies will not judge their costs to prudently incurred.

This is especially true with the regulatory climate changing in the direction of free
market regulation. With this increase in competitiveness large customers are seeking to
purchase fuel from non-traditional sources. For example Wisconsin Electric Power
Company in the Fall of 1992 signed a 15 year contract for an annual purchase of 2
million tons of bituminous low sulfur (.9 lbs/MMBtu) coal from the Ratton Basin in New
Mexico, to be delivered by the Santa Fe and the Chicago North-Western Railroads to
Milwaukee. This purchase replaces a blend of Western Pennsylvania and Illinois basin

bituminous.

23

As the staid electric utility industry moves closer to January 1, 2000 their inherent
resistance to change may become a stampede off the beaten path. In this sense prudent
fuel procurement costs to meet clean air demands will cause more of them to look

seriously at Powder River Basin Coal.

b. Future Demand

Second only to weather, variations in economic growth exert the most inﬂuence
on demand for electricity. Because electricity is used in the production and consumption
of most goods and services, as well as directly by consumers, the demand for electricity
increases during times of high economic activity. Ten year trends however indicate that
increased emphasis on energy efﬁciency in the 1980s acted to curb demand for electricity
even as the economy expanded.

From 1970 through 1980, GNP grew at an average annual rate of 2.8 percent per
year, while sales of electricity grew on average by 4.2 percent per year. During the
19803, however, increased emphasis on energy efﬁciency led sales of electricity to grow
by 2.6 percent annually while GNP grew at an average annual rate of 2.7 percent. This
overall trend, illustrated in Table 2-2 and Figure 2-3 is expected to continue for the

19908 (EIA, 1992b).

24
Table 2-2. GNP GROWTH AND ELECTRICITY GROWTH 1970-2000

 

1970s 19805 1990s(e)
GNP 2.8% 2.7% 2.7%
ELECTRICITY 4.2% 2.6% 2.6%

 

 

AVERAGE

 

 

19705 19805 19903(E)
I % GNP - % ELECTRICITLI

 

Source: EIA, 1992a

 

Figure 2-3. GNP GROWTH AND ELECTRICIY GROWTH 1970-2000.

25

During the 19905 electric utilities have proposed 0 add 42,853 megawatts in new
units to their systems. Thirty six percent of this increase will be from coal. Annual coal
use by utilities for electricity production in the United States is projected to increase by
more than 124 million tons (16%) over the 1991-2000 period (NERC, 1991a). The
accuracy of this projection is to a certain extent a function of the degree of success of
the variety of ongoing conservation projects.

Conservation, or demand side management, includes programs designed to modify
the hourly, daily and seasonal variations in electricity demand for a utility, and to
generally increase the efﬁciency of production and consumption. Also included are
informational efforts, time of use and interruptible rate programs, and rebates to

customers for adopting more efﬁcient appliances and equipment.

IV. REGIONAL VARIATIONS IN EASTERN AND WESTERN COAL.

As with all minerals coal does not have much value as long as it remains in the
ground but really only has value when it is mined, transported and processed. As people
dig it out of the earth, purify and process it, Ship it, insure and ﬁnance it, make policies
and agreements to regulate its use, and stand up for its rights and its owners’ interests
in courts of law, jobs are created. Whether by rail, by road, by water, by pipeline, coal
in this country is marvelously available, cheap, safe, abundant. But also dirty.

Fossil fuel critics rightly argue that the burning of coal dumps toxics into the air,
water, and over the land. It also makes the nostrils smart, the eyes blur, the chest heave,

the earth wilt'and the waters bitter. Fish don’t like it, nor does old masonry, nor do our

26

neighbors to the north. But to date coal is America’s most cost effective source of
thermal energy and is directly responsible for setting modern households free from the
mundane tasks of daily existence. No more chopping wood and boiling water just to
take a bath, for instance.

How to make good use of the time we save is perhaps the overriding question in
this age of electricity; but a question not taken up here. Rather the question examined
here has to do with the future of coal’s movement on the Lakes and the regional

variations which inﬂuence that movement.

a. The Appalachian, Interior and westem Coal Regions.

Coal accounts for a greater share of U.S. primary energy production than any
other fuel, having surpassed petroleum in 1984. The federal Energy Information
Administration projects that 75 % of the new base capacity after 2000 will be coal-ﬁred.

Eastern coal production is concentrated in two geographic regions. In
Appalachia, the region contains very substantial quantities of mid- and low-sulfur coal,
particularly in Southern West Virginia and Eastern Kentucky. The second region
centered in Illinois, Indiana and Western Kentucky contains high-sulfur coal.

As noted, the spectrum of emission reduction alternatives is broad and only as
the full array of options are exercised over time will the picture for Eastern low-sulfur
coal markets become clear. It is anticipated that under acid rain legislation with

emissions trading, near-compliance mid-sulfur coals will have considerable value.

27
The Energy Information Administration expects Central Appalachian compliance

coal to be available at the mine for under $35 per ton in 1989 dollars through the early
2000’s. Large quantities of low-sulfur reserves also remain in outcrops on mountainsides
to be tapped by new small drift or punch mines, which can be opened today at a cost of
roughly $25 to $27 per ton. It should thus not be necessary to mine from very deep or
thin seams for years to come.

By contrast Western PRB coal has very low extraction costs and is available in
extremely large quantiﬁes. At minemouth prices of under $5 per ton, PRB coal is very
competitive on a delivered basis in some areas east of the Mississippi, and particularly

in the Great lakes Region.

b. Blending of Regional Coats

Besides implementation of CAA90 other major variables that effect patterns of
coal consumption include development of clean coal technologies and coal-based synthetic
fuels, the evolution of world coal trade, possible effects on coal mining employment from
technological and productivity changes, fossil fuel’s impact on global climate change.
To be compatible with future environmental goals, increased reliance on coal in the

Nation’s energy mix may hinge on the success of Clean Coal Technology initiatives‘.

 

‘ The DOE Clean Coal Program is a $5 billion joint effort of the Federal government
and private sector to encourage the rapid development of new technologies for emissions
control. Program structure includes 5 solicitations, III is underway and IV is being
sought. Companies involved include experienced and newcomers. A broad range of
technologies are being explored including sorbent injection, coal gasiﬁcation, nitrogen
oxide controls, and ﬂuidized bed combustion.

28

Detroit Edison’s experience has shown that when Western and Eastern coals are
blended it is possible to achieve emissions compliance at lowered costs and without
retroﬁtting. Out of this experience a very substantial interest in blending has developed
at four coal handling ports on the Lower Lakes in addition to the SMET facility located
in Superior, Wisconsin. These are Burns Harbor, Indiana; Toledo, Ohio; Conneaut,
Ohio; and Buffalo, New York.

As seen in Table 2-3 in the ﬁrst quarter of 1992 Michigan, Ohio, Indiana,
Illinois, Pennsylvania and New York received a total of 49.6 million tons of coal at
electric utility plants. Of this amount 33.3 million tons were mid- or high-sulfur while
only 7 million tons were low-sulfur coal of PRB origin (DOE, 1992a). Yet delivered

price per Btu is lower for waterborne Western coal.

29
Table 2-3. FIRST QUARTER COAL - 1992.

 

Origin of Coal Received at Electric Utility Plants - lst Qtr 1992

million net tom

 

 

Table 2-3.
ORIGIN or COAL RECEIVED AT ELECTRIC UTILITY PLANTS - 18T QTR 1992
million net tons

 

Michigan 4.2 ‘ Pennsylvania 10.1
Appalachian 3.2 Appalachian 10.1
Interior - Interior -
Western 1.0 Western -

Ohio 13.4 New York 2.4
Appalachian 13.3 Appalachian 2.4
Interior .005 Interior -
Western .013 Western -

Illinois 6.8
Appalachian .7 Total 49.6
Interior 4.2 Appalachian 30.6
Western 1.9 Interior 5.2

Western 7.2
Indiana 12.
Appalachian 1.0
Interior 7.4
Western 4.3

Source: DOB Quarterly Coal Report January-March 1992.

 

Source: DOE Quarterly Coal Report January-March 1992.

 

30

A market analysis done for Burns Harbor, Indiana by Resource Data
International, Inc. indicated that 1995 could see a potential for 19.4 million tons of
blended coal from the Burns Harbor facility with the year 2000 having a potential for
40.7 million tons of blended. Burns Harbor is geographically the most well suited for
a new blending facility; forty-ﬁve percent of all steam coal is consumed in its 4 state
hinterland.

Conneaut, Ohio is also prepared to convert to more blending capacity if long term
contracts with Eastern power plants are signed. Buffalo and Toledo are aggressively
looking for a share of the blended trade. Because a blending facility is market driven
ports have to be prepared to quickly adapt as contracts develop. Port Managers are
watching which direction utilities will take in order to comply with CAA90 (Seaway
Ravi—my, 1991). Whether increased Western coal for blending is supplied by vessel or
by rail will have much to do with transportation rates and possibly shipping season

restrictions.

WINTER NAVIGATION
CHAPTER 3.
I. THE EXTENDED SHIPPING SEASON.
a. Introduction.

The ﬁve Great lakes together with their connecting channels
and the St. Lawrence River provide a national and international route for the movement
of waterborne commerce to ports situated on the Great lakes as well as to costal and
overseas ports. Commerce on the Great lakes is primarily the movement of bulk
commodities. Connecting channels are the St. Mary’s River, Straits of Mackinaw, the
St. Clair River, Lake St. Clair, the Detroit River and the Welland Canal. During the
winter months, from January to March, interlake shipping is largely suspended.

From the point of view of commerce, downtime on the Great lakes transportation
system because of ice-over means less cash ﬂow to meet ﬁnancial obligations. Ice-over
results in wasted port facilities, unemployment, diversion of trafﬁc to alternate routes,
disrupts planning of services, and underutilizes shipping capacity. While ice control
technology has developed to address physical and safety problems of winter navigation,
the extent of environmental impacts of extended shipping have yet to be measured and
controlled to the satisfaction of the environmentalists.

There is a 20 year controversy between defenders of the environment and
proponents of industry. At issue is the ﬁght to allow dry bulk carriers the length of three
football ﬁelds to sail through three to six feet of ice in ecologically sensitive straights and

narrows .

31

32
Winter navigation increases ﬂeet carrying capacity by extending the length of the

shipping season by 60 to 90 days. There are actually two questions to be addressed with
winter navigation: determination of a season closing date and also of an opening date.
The question regarding a closing date has largely been solved by Corps of Engineers
decree. Opening date resolution appears to be near as well, depending on the strength
of the opposition.

The chief beneﬁt of extended lock operations is derived from reduced stockpiling
costs for ore, coal and stone. Savings are based on the interest costs of maintaining a
smaller stockpile. With a longer shipping season smaller stockpiles are required at both
shipping and receiving ends while assuring adequate iron ore and coal supplies during
winter freeze up. If stockpile inventories can be kept smaller, then fewer ﬁnancial

resources are tied up in non-productive assets.

b. Fixed Opening and Closing Dates Required by Shippers.

Historically navigation stopped during the winter season when ships could no
longer reach the locks. The closure was not required by law but by nature.‘ As the
needs of commerce increased so did pressure to lengthen or establish a predictable
shipping season. Until 1967 the duration of this shutdown was on the average from

December 15 to April 1.

 

’The natural red ores that made up the bulk of all shipments well into the 19605
contained enough moisture that they would freeze solid in the Lake boats or rail cars
making unloading impossible. Until the advent of taconite pellets mining itself shut down
for the winter.

33

Table 3.1 shows a range of 32 days in Shipping season length over the last 12
years. Industry and shipping concerns have continually requested a ﬁxed opening and
closing date arguing that being able to plan for an additional month of shipping activities
would eliminate or reduce winter stockpiling. The Corps of engineers has supported this
position. In a letter dated March 2, 1988 to the U. S. Fish and Wildlife Service the
Army Corp of Engineers notes that "...most of the beneﬁts for extending operation of
the locks results from reduction of winter stockpiling by the steel industry that are

required should an extended season not occur” (COE, DEIS 1988a).

34

Table 3-1. SOO LOCKS - OPENING/CLOSING DAYS OF NAVIGATION.

 

 

Year Open Close Season Length
1980 Mar 25 Dec 31 282
1981 Mar 23 Dec 31 284
1982 Apr 01 Dec 27 271
1983 Mar 29 Jan 01 279
1984 Mar 26 Jan 05 286
1985 Apr 01 Jan 02 277
1986 Apr 01 Dec 31 275
1987 Mar 22 Jan 15 300
1988 Mar 22 Jan 15 300
1989 Mar 15 Dec 28 289
1990 Mar 19 Jan 15 303
1991 Mar 21 Jan 10 296
1992 Mar 22 Jan 11 315

Source: COE FEIS 1989, p. 4-53

 

c. History of the Controversy.

Winter navigation on the Great lakes has a been an issue since at least the late
19605. At the center of the controversy has been the Federal lock facilities at Sault Ste.
Marie. Any commercial navigation desiring to pass between Lake Superior and the
lower Great Lakes must traverse the Soo locks. Cargo is primarily bulk commodities
including iron ore and taconite, coal, grain, Stone, and other miscellaneous commodities.

Beginning with the 1970 Rivers and Harbors Act Congress authorized a ten year
Demonstration Project to determine feasibility of operating the locks for as long as year-
round. The result was a Final Environmental Impact Statement issued by the responsible

lead agency, U.S. Army Engineer District, Detroit, in July 1977, proposing continued

35

year round operation in order to meet the needs of commerce. Congress did not approve
these recommendations, but the extensive information generated resulted in Draft EIS
Supplement I in October 1979: a compromise between environmental and commercial
interests with a proposed ﬁxed closing date of January 8 plus or minus 1 week.

With the expiration of the ten year demonstration period the Corps of Engineers
agreed that sufﬁcient information did not exist to rule out cumulative adverse impacts
associated with such a ﬁxed closing. For this reason additional extensive environmental
and monitoring studies were undertaken, consistent with the NEPA provision that
'unquantiﬁed environmental amenities and values may be given appropriate consideration
in decision making along with economic and technical considerations.” A formula of
degree freezing days was applied during this time to determine if locks would close
before January 8. The purpose of such a formula was to take into account environmental
as well as commercial criteria.“

After an expenditure by the Corps of nearly 6 million dollars for impact studies
Draft Environmental Impact Statement Supplement 11 was issued in March of 1988. This
DEIS further described the environmental impacts of season extension and proposed a
closing date for the Locks of January 31 plus or minus two weeks so as to meet the
reasonable demands of commercial shipping. Otherwise commerce and industry

dependent upon navigation would have to resort, during winter, to more expensive

 

“Daily recorded sub-freezing temperature lows are subtracted from 32 degrees F.
When 550 cumulatrve degrees are reached, and Lake Nicolet has ice from shore to shore
shipping must cease. The uncertainty of when these criteria would be reached in any

given season was unacceptable to the lake Carriers Association and to the needs of
commerce, COE agreed.

36

dependent upon navigation would have to resort, during winter, to more expensive
alternatives, such as stockpiling. Annual dates of lock operation were to be determined
based primarily on the reasonable demands of commerce but also with consideration
being given to ice, weather, and environmental conditions.

Draft Supplement 11 indicated that adverse environmental effects would indeed
occur in the St. Mary’s River area during the proposed period of extension, impact
however was deemed to be of only minor consequence. ”No signiﬁcant adverse effects
on ﬁsh and wildlife resources were observed although there were ﬁve years of year-
round navigation, and nine years of navigation to the end of January (1978)...there is a
wealth of ecosystem information available for this project. . .few environmental impact
studies have such a wide base of information" , (COB 1988b).

Various government agencies and environmental groups differ sharply with this
conclusion and the controversy continues until the present time. “My staff and our expert
witnesses, many of whom conducted the environmental studies for the Corps, have
concluded that there are signiﬁcant gaps in the data collected. '7 The concerns include:
”possibility of vessel induced sedimentation, resuspension of ﬂows, oil and hazardous
substance spills, increased drift of scston and benthos, change in ﬁsh natural physical
shelters, ﬁsh and wildlife disturbance, wetlands vegetation destruction or removal, and
the alteration of ﬁsh breeding and migration behavior" (COE, 1988c). Because the

majority of these environmental impacts would occur in Michigan, the primary agencies

 

7Contained in a letter from MDNR dated February 16, 1993. The quote to follow
is referenced in the letter.

37

with which the Corps of Engineers has coordinated are the U.S. Fish and Wildlife

Service and the Michigan Department of Natural Resources.

d. Opposite Conclusions from Incomplete Data.

In the early 19805 a portion of the analysis proposed by FWS was funded by the
Corps and major baseline studies were carried out by FWS on the St. Mary’s River. In
addition MDNR proposed studies and collected two years of extensive winter and
summer ﬁsheries baseline data on the St. Clair River, Lake St. Clare and the Detroit
River. In all, nearly 18 million dollars in studies were requested, about a third of which
was approved. This has set the stage for signiﬁcant controversy with both sides drawing
opposite conclusions from the same incomplete data. At the end of the studies the East
Lansing Field Ofﬁce of the U.S. Fish and Wildlife Service submitted several documents
listing numerous objections to an extended shipping season.

The following is a summary of their views: "none of these potential project
impacts will likely create immediate devastating effects on the system. Rather each of
these impacts will have subtle, long-term effects. For example, following the
Demonstration Program, during which the Navigation Season Was extended for a period
in the 19705 no catastrophic changes in ﬁsh and wildlife communities were observed.
This is not surprising given our present level of knowledge of large river and lake
ecosystems. Several authors have noted that impacts on ﬁsh community structures in
large rivers are often not observed for ten to twenty years following a major alteration

of the system, such as a large dam and reservoir" (COE, 1988d).

38
The Corps replied by afﬁrming their opinion that the program of study undertaken

had resolved the essential information problems related to environmental impact analysis
and that ”unidentiﬁed subtle, long term effects are not likely to occur” (COE, 1988d).
A Final EIS Supplement 11 (to the July 1977 Final EIS) was issued in September 1989
with a proposed ﬁxed season closing date of January 15.

This date varies from the draft proposal date of 31 January. The position taken
by the Lake Carriers’ Association in support of a January 15 closing probably was
inﬂuential in this regard. The Final EIS lists full compliance with as many as 15
relevant Federal Statutes as well as 5 separate Executive Orders and various Memoranda,
(COB, 1989). In the Fall of 1991 the Corps of Engineers signed a Record of Decision

establishing January ' 15 as the end of the shipping season.‘

e. Present Controversy.

March 21 plus or minus two weeks has been proposed as a ﬁxed opening date for
the start of the navigation season. The COE Draft EIS issued in February, 1993 relies
completely upon all previous studies to come to the conclusion that ”in an analysis of
opening dates, based on the demands and past usage of the shipping industry, the relative

insigniﬁcant adverse environmental impacts to the project area, and the optimal economic

 

“The State of Michigan opposes ﬁxed dates for opening and closing of the shipping
season, preferring rather that environmental criteria be employed (freezing degree days)
along with the need of commerce. The Govemor’s ofﬁce has threatened litigation if
environmental criteria are violated. In 1992 weather conditions were such that the issue
was not forced. In 1993 environmental criteria were violated but a technicality prevented
action from being taken.

39

beneﬁts, opening the locks on 21 March appears to be the optimal date and is therefore
the recommended proposed plan" (COE, 1993).

Ofﬁcially the shipping season opens April 1 though it usually takes several more
weeks for all of the river ice to melt. At the request of shippers the 45 mile long Saint
Mary’s River is regularly opened earlier by COE icebreakers. Prior to the March 21,
1993 opening, more than 20 carriers were waiting to move $36 million of cargo through
the locks and down the river. This amounted to 975,000 tons of iron ore and coal
destined to lower Lakes steel mills and electric generation facilities (Lansing State
Journal, 1993).

Environmental groups take strong issue with a March 21 ﬁxed opening date
because the conditions of navigation in March are very different from those prevailing
in early winter. March 21 is within the average time of maximum ice thickness on the
St. Mary’s River. Further, under the present proposal, only the needs of commerce are
used to justify early opening with no consideration being given for environmental impact.

Environmental groups charge that the draft EIS was written to justify the
proposal, and that it gives little objective analysis of alternatives (Shaeffer, 1993). The
Great Lakes Natural Resource Center of the National Wildlife Federation and the
Michigan United Conservation Clubs are requesting that opening date approximate the
time of natural ice-out on the St. Mary’s River below the Soo Locks and that the
determination be made by an inter-agency committee of representatives from state and
federal natural resource agencies. Likewise, Michigan Department of Natural Resources

has requested the state Attorney General to ﬁle a suit to Stop the action. The DNR

40

lawsuit though is opposed by Michigan Departments of Commerce and Transportation
who join with the lake Carriers’ Association in support of the economic beneﬁts of early
opening. The U.S. Department of the Interior has supported East Lansing FWS’S non-
concurrence of the plan and is considering referral to the Council on Environmental
Quality if mutually agreeable environmental criteria are not developed. "We believe that
the proposed early opening...is environmentally unsatisfactory and meets the criteria for
referral. . .based on its severity, geographical scope and the availability of environmentally
preferable alternatives” (Kevetski, 1993). Given the change of administration it is
possible that new baseline studies will be required before the Corps can proceed with a

ﬁxed opening date.

ANALYSIS OF U.S. FLAG FLEET DRY BULK CAPACITY.
Chapter 4.
I. Introduction.

This section examines current dry bulk carrying capacity of the U.S. ﬂag ﬂeet and
includes reserve capacity. The primary reference for this determination is the combined
Annual Reports of the Lake Carriers’ Association as well as telephone interviews with
shipping company representatives. LCA represents 98% of all U.S. ﬂag shippers on the
Great Lakes. Table 4-1 lists dry bulk freight moved in U.S. ﬂag vessels during 1992 by
month. Total volume was 93.5 net tons, or 83.5 gross tons. Excluded from this
calculation are iron ore transhipments, cement, potash, and liquid bulk. This is in

accordance with LCA ﬂeet utilization reporting.

41

42
Table 4-1. U.S.-FLAG DRY-BULK CARRIAGE BY MONTHS.

 

(million net tons)
1992 Navigation Season March 10, 1992 - January 19, 1993

 

12 1
4.7 .8

QOMMQDITY 3 1
5.0

2.1 .81 -

2 4

3

Iron Ore 1.2

Coal .02
Limestone .07
Salt -
Sand - . . . . . .
Grain - .11 .11 .09 .11 .08 .14 .16 .14 .11 -

1.6 -
.05 -

lt—ai-‘ib

I
O
N
O
to

TOTAL 1.3 8.2 11.3 11.7 11.3 11.3 10.1 10.5 9.6 7.3 .8

Year:1992

Iron Ore 51.
Coal 18.
Limestone, Gyp 22.
Salt
Sand
Grain l.

FJUJOIJ¢>O

SEASONAL TOTAL 93.5 Net Tons
83.5 Gross Tons

Source: LCA Annual Report 1992

 

There have been no new 1,000 foot vessels built for the lakes trade since 1981
when three 1,000 foot super-carriers were delivered. Because it is proprietary
information shipping companies will not discuss plans. lake Carriers’ Association
President George Ryan, however, is quoted in Sgway Review that when an additional
three million tons of cargo capacity are permanently needed, real planning for a new
1000 footer will begin (Seaway Review, Jan-Mar, 1991). Of course any ﬁnancial
equation for building a new vessel must factor in customer rates that can compete with

railroads.

43

a. Historical Overview of the U.S. Great Lakes Fleet.

The Great Lakes shipping industry has been in a pattern of ﬂeet replacement since
1855 when the locks at Sault Ste. Marie were opened. Over the years this replacement
has continued in response to changes in industrial activity. In the 19705 the U.S. ﬂag
ﬂeet launched a major new construction program. At that time the U.S. ﬂag ﬂeet was
composed of 240 vessels. Combined trip capacity was 2.8 million gross tons. Average
per vessel carrying capacity was 11,713 gross tons.

To capitalize on the economies of scale offered by the opening of the Poe lock
in 1969, thirteen 1,000 foot self unloaders were built in the ensuing years with per trip
capacities ranging from 52,000 to about 63,000 gross tons (up to an additional 5,000 tons
have been carried in open water when transiting the Soo lock was not required). In 1992
the U.S. ﬂag ﬂeet was composed of 66 vessels, of which 57 haul dry bulk cargo. Total
gross ton carrying capacity was 1.9 million ton, with an average vessel capacity of
around 33,000 tons (LCA, 1970, 1992). ,

Signiﬁcance of the 1000 footers cannot be overemphasized since, stated another
way, the economy of scale made possible by the Poe Lock accommodation of 1,000
footers would require the largest non-Poe class vessel to complete two and one half
voyages just to equal the hauling power of a single 1,000 footer.

All told, between 1972 and 1982, 31 new ships were added to the LCA ﬂeet. At
the same time 16 older vessels were lengthened and/or converted to self-unloaders. This
' ﬂeet modernization was largely geared to meet the transportation needs of the iron

mining industry’s expansion of taconite processing facilities in Minnesota and Michigan.

44
The full ﬂedged recession that took hold of the U.S. economy in 1982 resulted

in a year where the combined U.S. and Canadian ﬂeet moved only 43 million tons of
iron ore, the lowest since 1938. Correspondingly, capacity existed in the lakes ﬂeet,
and this naturally led to the scrapping of older, less productive vessels.

Between 1982 and 1987, 52 vessels were slashed from LCA’s roles. The larger
self-unloading vessels survived but the standby ﬂeet shrank. As of April 1993 the
standby ﬂeet consists of one ship, the John Sherwin, with a mid-summer capacity of
31,500 gross tons.

In 1982 Shipments of major bulk commodities fell to the lowest total since 1938
as the foreign steel onslaught continued combined with the general economic recession
and the substitution of lighter materials in the auto industry (Table 4-2). Inspite of
depressed iron ore tonnages the ﬂeet’s modernization/expansion program of the 19705
and 19805 doubled the average loading for iron ore. It was this increase in efﬁciency
that was largely responsible for the ﬂeet’s ability to adjust to decrease in demand, while

Stabilizing mid- season active ﬂeet at around 60 vessels.

45
Table 4-2. COMBINED GREAT LAKES BULK COMMERCE.

 

(million net tons)
includes Canadian tonnage

Iron Ore Coal Stone Grain Total
YEAR (Gross tons)
1900 18.6 8.9 ---- 5.6 33.1
1905 33.5 24.4 ---- 6.1 63.7
1910 42.6 26.5 ---- 5.8 74.9
1915 46.3 26.2 3.8 11.1 87.4
1920 58.5 26.4 7.8 6.7 99.4
1925 54.1 28.1 11.3 13.3 106.9
1930 46.6 38.1 12.4 9.8 106.9
1935 28.3 35.3 12.1 7.4 83.1
1238 _19_.3 34.6 8.2 10.7 72.8
1940 63.7 49.3 14.9 9.6 137.5
1945 75.7 55.3 16.3 18.7 166.0
1950 78.2 57.6 23.4 9.3 157.5
1955 89.2 53.4 29.7 10.8 183.1
1960 73.1 46.7 27.2 14.1 161.1
1965 78.6 54.6 30.8 21.9 185.9
1970 87.0 49.7 38.5 23.8 199.0
1975 80.0 39.2 37.7 24.5 181.4
1976 86.6 37.5 38.2 23.5 185.5
1977 67.1 39.0 37.2 26.0 169.3
1978 88.9 37.8 39.6 32.1 198.4
1979 92.1 45.8 37.0 28.9 203.8
1980 73.0 41.3 28.0 31.5 173.8
1981 74.9 39.1 24.6 28.2 166.8
1282 3Q 36.8 15.1 28.3 118.7
1983 52.1 36.6 18.4 28.8 135.9
1984 57.3 43.1 23.2 28.2 151.8
1985 52.2 36.3 25.0 20.1 133.6
1986 45.6 36.3 27.2 20.2 129.3
1987 55.1 37.7 33.2 22.3 148.3
1988 61.0 40.5 35.5 19.1 156.1
1989 59.6 39.5 35.1 15.0 149.2
1990 61.5 38.0 33.8 15.8 148.8
1991 57.4 35.3 27.6 18.6 138.9

Comm from LCA Annual Ramrts.

 

b. Fleet Composition.

Corps of Engineers vessel classiﬁcation consists of 10 classes. Classes five
through ten are reserved for dry bulk carriers while classes one through four are for
cement carriers and tankers. In the dry bulk carrier division, classes eight through ten
are Poe sized vessels. Subdivisions within these classes further break down vessels based

on length as seen in Table 4-3.

Table 4-3. Vessel Classiﬁcation.

 

CLASS LENGTH
I 735’ to 1013’
II 680’ to 730’
111 less than 680’

 

Class III vessels are 680 feet in length and with mid-summer capacities of
between 5,500 to 24,000 gross tons. Class III cargo’s can be sand, grain, salt, or
cement, petroleum in tankers, or small loads of coal, limestone and iron ore.

Class 11 vessels are generally between 680 and 730 feet in length and have
capacities ranging roughly from 24,500 to 37,200 gross tons. Class II cargo generally

consists of coal, limestone and iron ore.

47

Class I vessels, Poe class, range from 731 feet up to 1013.5 feet in length.9
Vessels of this size generally haul only iron re and coal although on rare occasion a load
of limestone will be transported.

When a vessel is returning to port without cargo it must take on water as an aid
to proper navigation. This travel without payload is referred to as ballast time. Because
of ﬂexibility in haulage, Class III vessels require less ballast time between loads and
consequently rates can be kept low. It is on the long hauls that class III’s become
prohibitively expensive unless they are able to ﬁnd suitable backhaul.

Because of the large demand for backhaul cargo to Duluth, it is cheaper to bring
a load of limestone from Rogers City to Duluth than to bring the same load from Rogers
City to Saginaw Rates for Class I and 11 vessels are based on sailing time from loading
port to loading port plus vessel operating costs. Of the 57 vessels that moved 96 million
net tons on the Lakes in 1991, less than one in ten had cargo going north. Rates are thus
based on running in ballast while returning to loading port.

In 1992, 31 vessels were of Poe class. These 31 vessels provided 1,308,297
gross tons. These 31 vessels account for 77% of the total active dry bulk ﬂeet capacity.
Total available dry bulk capacity in 1992 was 1,797,058 gross tons.

Table 4-4. accounts for all available vessels whether active, inactive, enrolled,
disenrolled, or active non-member. In 1992 active dry bulk U.S. ﬂag capacity was

1,710,488 gross tons. An additional 86,574 gross tons of capacity is registered but not

 

9Although COE Class VII vessels range from 700 to 730 feet in length they are also
considered as Poe class vessels in the LCA ﬂeet roster as are two of the Class VI
vessels.

48

active. Since these vessels are available there tonnage is included in Table 4-4 totals as

part of total dry bulk capacity.

49

Table 4-4. VESSELS ENROLLED IN LCA FLEET - 1992

 

Class

10
10
10
10
10
10
10
10
10
10
10
10
10

\O

oooooooooooooooooooo

\I\I\I\I\I

Enrolled Vessel

Paul R. Tregurtha
Stewart J. Cort
Indiana Harbor
Edwin H. Gott
Presque Isle
Mesabi Miner
Columbia Star
George A. Stinson
Edgar B. Speer
Burns Harbor
James R. Barker
Oglebay Norton

Length

1013p
1000p
1000p
1004p
1000p
1000p
1000p
1000p
1004p
1000p
1000p
1000p

W.J. McCarthy, Jr. 1000p

Roger Blough

Lee A. Tregurtha
Charles M. Beeghly
Philip R. Clarke
Arthur M. Anderson

Armco

St. Clair

Reserve

Cason J. Callaway
Kaye E. Barker
John G. Munson

Joseph L. Block

H. Lee White
Middletown
Edward L. Ryerson
American Mariner

858p

826p
806p
767p
767p
767p
770p
767p
767p
767p
768p

728p
704p
730p
730p
730p

GRT

36,360
32,930
35,923
35,592
24,199
34,729
35,923
34,569
34,620
35,652
34,729
35,652
35,923

22,041

14,672
16,285
12,342
12,342
12,448
27,482
12,358
12,310
11,949
15,179

14,956
14,499
13,206
12,170
15,396

Mid-Summer
Capacity
G.T.

61,000
58,000
61,390
62,200
52,000
59,000
61,500
59,000
62,200
61,000
59,000
61,000
61 ,3Q

778,680

43,900

29,100
31,000
25,300
25,300
25,500
39,560
25,500
25,300
25,360

25 ,550
277,470

37,200
30,577
24,600
27,500
31,779

151,647

Year’

1981
1972
1979
1978
1973
1977
1981
1978
1980
1980
1976
1978
1977

1 972

1978
(1981)
(1982)
(1982)
(1982)

1976
(1983)
(1982)
(1981)
(1976)

1976
1974
(1982)
1960
1980

Table 4-4 cont.

6
6

O\O\O\O\

MMMMMMMMMMMMMM

LIILIILIILIIO

Adam B. Cornelius
Charles E. Wilson

Total Poe Capacity

Buckeye

Herbert C. Jackson
Courtney Burton
Wilfred Sykes

John J. Boland
George A. Sloan
Richard Reiss
Calcite II

Myron C. Taylor
F .R. White Jr.
Crispin Oglebay
William R. Roesch
J. L. Mauthe

Sam Laud

Joseph H. Frantz
Buffalo

Wolverine
American Republic

Active - Not LCA Registered

3 Straight-decker grain haulers

680p
680p

698
690
690
678

639
620
620
605
604
635
620
630
647
635
61 8
635
630
635

50

15,674
13,862

11,691
12,292
11,422
11,701

12,557
9,706
9,790
8,188
8,233

11,689
8,421
9,640

11,472

11,619
9,589

11,619

10,037

12,158

27,340
29,260
56,600

1,308,297

23,200
24,800
22,425
21,513

148,525

20,109
15,800
15,173
12,650
12,450
24,100
15,600
19,700
21,400
23,407
13,600
23,407
19,700
24,279

260,986

49,280

ACTIVE DRY BULK CAPACITY (gross tons)

ENROLLED - INACTIVE

Elton Hoyt 2nd
Paul Thayer

J. Burton Ayers
Robert C. Norton
Samuel Mather

698
630
620
620
61 1

10,970
9,640
8,796
8,421
8,798

22,300
19,700
15,670
15,600
13,300
86,574

TOTAL DRY BULK CAPACITY (gross tons)

l 973
1 973

(1980)
(1975)
(1981)
(1957)

(1953)
(1967)
1964
(1961)
(1956)
1978
(1973)
1973
1952
1975
(1965)
1978
1974
1981

1,710,488

(1980)
1973
1943
1943

(1974)

1,797,058

Table 4-4 cont.

Cement Carriers and Tankers

3 .I.A.W. Iglehart 501
3 Alpena 519
2 Crapo 402
2 EM. Ford 428
2 Paul H. Townsend 447
4 Medusa Challenger 552
2 Gemini 432
1 Saturn 384
3

Michigan/Gt. Lakes 529

TOTAL COMBINED FLEET CAPACITY (gross tons)

Compiled from LCA Annual Reports

p = Poe class

* parenthesis indicates year vessel was modiﬁed.

51

9,460
8,018
4,769
4,538
4,302
6,967
5,854
3,903
5,318

12,300
15,265
8,900
7,100
8,400
11,300
7,860
5,550
10,150
86,825

1965
(1991)
1927
1956
1953
(1967)
1978
1974
1982

1,883,883

 

52

There are also 7 disenrolled inactive LCA member vessels that are not of Poe
class. These 7 vessels are presented in table 4-4a but tonnage is not counted in Table
4-4. As mentioned, only one vessel, the John Sherwin, is able to be an economically
productive dry bulk carrier. The others are either cement carriers, or in the process of

being sold for scrap.

Table 4-4a. DISENROLLED VESSELS OWNED BY LCA MEMBER FLEETS.

 

Enrolled Vessel Length Capacity Last Operated
GRT .
John Sherwin 806’ 31,500 (1981)
William A. Reiss 622’ 18,800 (1981)
Robert C. Norton 620’ 15,600 (1980)
Irvin L. Clymer 552’ 11,850 ~ (1990)
Nicolet 535’ 11,536 (1990)
#J.B. Ford 440’ 7,400 (1985)
#Lewis G. Harriman 350’ 6,300 (1980)

102,986 Total disenrolled tonnage
- 71,4§§ Total not feasible
Disenrolled, available dry bulk 31 ,500

Compiled from LCA 1992 Annual Report

# Both the Ford and the Harriman are cement carriers.

 

' 53
c. Dry Bulk Fleet Utilization Rate for 1992.

The 1992 season shut down on January 9 for Lake Superior and January 19
for Lake Michigan. Head-of-the-Lakes trade resumed on March 22. By April 1, there
were 30 vessels in service which represented 52 % of capacity. Total active ﬂeet peaked
in June with 55 ships at 91% utilization. On December 1, 51 vessels were still in service
representing 85% of per trip capacity. The 1992 shipping season was thus 315 days in
length during which time 83.5 million gross tons of cargo were moved. Calculations
used to determine speciﬁc ﬂeet averages for 1992 are displayed in Table 4-5, which in
turn become determinates of utilization averages for ﬁve of the past six seasons (Table

4-5a). For 1992 the ﬂeet capacity utilization rate was 78.9%.

Table 4-5. 1992 FLEET AVERAGES.

 

Total dry bulk tonnnage for 1992 = 83.5 million gross tons

Average utilization rate for 1991 s 78.9%

D bulk carrying capacity -,x 1.13 million gross tons
ngal actual capacity used - 1.40 million gross tons
Average number trips per vessel 8 i323 - 59.64
Average number days per trip = 5%124 - 5.3

Source: LCA 1991

 

54
Table 4-5a. 1987 - 1992 FLEET AVERAGES.

 

total average carrying
YEAR dry bulk utilization capacity trips/year days/trip

1987 88.1 77.9% 1.80 62 4.80 (300)
1988 94.7 89.4% 1.80 59 5.09 (300)
1989 information not available

1990 92.7 91.0% 1.80 57 5.36 (303)
1991 86.5 82.8% 1.77 59 4.99 (296)
1992 83.5 78.9 1.78 60 5.28 (315)

 

As noted, the economy of scale made possible by the Poe class vessels is
integral to the efﬁciency of the Great Lakes transportation system. It is of interest
therefore that while total ﬂeet rate was at 79% in 1992, Poe class utilization rate was
84%, while the period of May through December was at 91%. Of equal interest is the
same period in 1991 when Poe vessel utilization was at 99%. In fact In 1990 additional
mid-summer thousand-footer capacity would have resulted in a half million more tons of
Western coal being shipped (Ethan, 1993). Figure 4-2 illustrates ﬂeet dry bulk capacity.
Table 4-6 presents a breakdown of vessel capacity by vessel class according to weighted

average.

55

 

U.S. Flag Fleet

March 1992 - January 1993

Gross Tons/Yr
(Millions)
.2; i 5‘. "

‘

 

MAMJJASONDJ

Compiled from LCA Reports.

 

Figure 4-2. UTILIZATION OF CAPACITY

56
Table 4—6. DRY BULK CAPACITY UTILIZATION - 1992 by Vessel Class.

 

(MONTH)
CLASS I 4 5 6 7 8 9 10 ll 12 1 AV!
X (13) 62% 100% 100% 100% 100% 100% 100% 100% 100% 39% 91%
IX (1) 100% 100% 100% 100% 100% 100% - - - 60%
VIII (10) 40% 100% 100% 100% 100% 100% 100% 100% 100% 31% 87%
VII (5) 84% 100% 100% 100% 100% 100% 100% 100% 100% 63% 95

In 1992 seasonal weighted average utilization rate for Poe vessels
was 89% while in the peak shipping season from May through.December
weighted average rate was at 98%.

VI (7) 13% 87% 87% 57% 57% 57% 44% 44% 44% 44% 53%
V (20) 33% 62% 65% 65% 65% 64% 70% 70% 66% - 54%

Seasonal weighted average utilization rate for vessel classes VI
and V was 54% with weighted average May through December rate of
64%.

Dry Bulk Capacity Utilization In 1991
By Vessel Class

 

(NORTH)
CLASS I 4 5 6 7 8 9 10 11 12 1 8V!
X (13) 70% 100% 100% 100% 100% 100% 100% 100% 100% 54% 92%
IX (1) 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
VIII (10) 34% 82% 91% 91% 91% 100% 100% 100% 100% 29% 82%
VII (5) 45% 100% 100% 100% 100% 100% 100% 100% 100% 43% 89%

In 1991 seasonal weighted average utilization rate for Poe vessels
was 88% while in the peak shipping season from May through December
weighted average rate was again at 98%.

VI (7) 29% 87% 87% 71% 57% 87% 87% 85% 85% 29% 70%
V (20) 13% 79% 79% 75% 75% 79% 79% 79% 79% - 64%

Seasonal weighted average utilization rate for vessel classes VI
and V was 65% with weighted average May through December rate of
78%.

Compiled from LCA data

 

57

By viewing vessel classes in this manner the nature of capacity shortage
becomes apparent. Table 46 illustrates that excess capacity exists primarily in the
smaller vessels, with nearly no excess Poe class capacity except for early season and late
season.10 To meet the needs of commerce as tonnage increases through the end of the

decade, better use will have to be made of available capacity throughout the season.

d. Summary.
From the foregoing analysis we see that total dry bulk per-trip capacity is
1,797,058 gross tons with an additional 31,500 gross tons that is disenrolled, but

available.

Total Dry Bulk cargo for 1992 was 83.5 million gross tons with a seasonal
utilization rate of 78.9%. Fleet capacity at 100% utilization is 83.5/.789 = 105.8

million gross tons, excluding disenrolled vessels.

Having made this determination it now remains to analyze the ﬂow of dry bulk
cargo on the Great lakes through the end of the decade and then to integrate these

ﬁndings with ﬂeet capacity.

 

10During the extended shipping season from 15 December to 15 January or closing,
the development of navigationally signiﬁcant ice has a net effect of reducing total annual

shipping capacity.

AN INVENTORY OF LAKESIDE POWER PLANTS.
CHAPTER 5.
I. Introduction.

Western coal is not used for metallurgical purposes because it is lower in Btu
content, but it does produce cleaner steam generated electricity because it is lower in
sulfur. After implementation of the Clean Air Act of 1970, increasing amounts of low-
sulfur Western coal were shipped to Midwestern utilities. Between 1970 and 1990
Western region coal increased at an average rate of 12 percent per year compared with
rates of less than 1 percent for Appalachia and less than 2 percent for the Interior
Region. In 1990 over one-third of the Nation’s coal production came from Western
mines as compared with only 6 percent 20 years earlier (EIA, 1992c).

Total U.S. coal production in 1992 totaled 1,016 million net tons. Of this
amount 913 million net tons were consumed domestically with 88% of this total going
for electrical generation. Table 5-1 is adapted from a National Coal Association
publication and shows that while over half of all coal shipments to electric utilities were

by rail, the Great Lakes haulage was a mere 1.1%, (NCA, 1992b)".

 

“If NCA ﬁgures were accurate, total lakes tonnage would amount to about 9.5
million tons (994 x .87 x .011), rather than the 18.6 million net tons, or roughly 2% of
total as reported by the lake Carriers Association for 1991.

58

59
Table 5-1. COAL SHIPMENTS TO UTILITIES - by Mode of Transportation.

 

Tram, Conveyor

1' C '—'- - 1-. :s°_3 -5
1986 57.9% 14.7% 1.3% 1.2% 11.3% 13.6%
1987 57.9% 14.6% 1.3% 1.2% 11.0% 14.0%
1988 58.5% 13.6% 1.2% 1.2% 10.8% 14.6%
1989 58.1% 14.3% 1.5% 1.1% 11.2% 13.8%
1990 58.5% 14.8% 1.2% 1.0% 10.1% 14.4%
1991 58.9% 14.9% 1.1% 1.0% 9.7% 14.3%

Compiled from National Coal Association data.

 

To enjoy the economic advantage of waterborne shipping over rail shipping
midwestern utilities must be sited on the lakeside. Transhipment costs from rail to vessel
at Duluth is $2.00 to $2.25 per ton (Ethan, 1993) and it would be at least this much
again for a midwestern utility to tranship to an inland destination. Thus only those

utilities with generating units situated directly on the Great lakes or their waterways can

economically receive Western coal by water.

II. THE US POWER SUPPLY GRID AND WESTERN COAL.

The U.S. power supply grid is divided into 9 major regions (10 if Alaska is

included). The principle coordinating body for these regions is the North American

Electric Reliability Council (NERC). The council board is composed of 26 electric

60

utility executives and their meetings are attended by observers from the U.S. Department
of Energy, the Federal Energy Regulatory Commission, and the various utility industry’s
associations. The members of the 10 Regional Councils are individual electric utilities
from all ownership segments of the industry. A very comprehensive database is
maintained by the Reliability Council and it was this data for 1985-87 which EPA relied
on in formulating CAA90 emissions allowances.12

The Great Lakes Region of NERC is made up chieﬂy of the East Central Area
Reliability Coordination Agreement (ECAR). Member states which border the Lakes
include Indiana, Ohio, Michigan and Pennsylvania. A second district, Northeast Power
Coordinating Council (NPCC) includes the State of New York. A third district, Mid-
America Interconnected Network (MAIN) includes Illinois, Wisconsin, Minnesota, and
the Upper Peninsula of Michigan.

In order to arrive at current and projected Western coal consumption levels the
three NERC regional executive directors were contacted. From information they provided
and uSing the EIA publication ”Inventory of Power Plants in the United States 1990”
individual coal ﬁred units were identiﬁed. Further contacts were then established with
the various utility fuel supply managers and speciﬁc units were reviewed with them in
relation to their use of waterborne western coal.

The ECAR annual report indicates that coal ﬁred units produced 87% of the
Region’s electricity (NERC, 1991c). Of the three regions, only Michigan (ECAR) and

Wisconsin (MAIN) have generating units located on the water that are using Western

 

12In spite of the competition that would be fostered by granting more open access to
transmission lines by distant utilities the Council opposes such action on the grounds that
imbalance would develop between local rates and maintenance costs and reliability would suffer.

62

coal. At roughly eleven million tons per year Michigan is the largest consumer of
Western waterborne coal. Wisconsin Power and Light is second at one million tons.
Presently neither New York, Pennsylvania, Indiana, nor Ohio coal ﬁred units have plans
to use any Western coal. As EPA rules have unfolded many test burns have been carried
out as individual electric utilities struggle with retroﬁt strategies to meet the tight

schedule of Phase I compliance.

III. BLEND, SWITCH OR SCRUB DECISION FACTORS.

In determining appropriate fuel mix utilities must consider relevant economical,
technological, and institutional factors. The dominant forces in these three domains are
I) delivered price per Btu, which includes transportation as well as extraction costs, 2)
sulfur, moisture, and Btu content - a major factor in determining the feasibility of any
given plant to convert to or blend low sulfur coal, 3) political climate - including

corporate and union interests.

a. Delivered Price.

Western coal transportation costs can make up from 75 % to 95 % of delivered
price while Appalachian coal is in the range of 30% to 35%. Due to slow-rising
production costs what PRB coal loses in transportation cost it makes up for in extraction
cost. Because of this differential, utilities increasingly look for ways to cost effectively
switch or blend at more of their locations.

The current mine-mouth price for Western coal varies between $4.50 and

$5.00 per ton. This contrasts with Appalachian low sulfur that has a spot price of $23.00

63
per ton and which is projected to rise to $33.00 (in 1990 dollars) by 2010 (EIA, l992d).

Presently Lake vessel price is at about a half cent per ton mile compared to rail costs of
l to 1.2 cents per ton mile (Ethan 1992). CNW Railroad has indicated that their coal
delivery cost is as low as 7.5 and 10 mills per ton mile when using utility owned railcars
(Vasy, 1993).

Intermodal routing of Western coal to the lower Lake utilities is by rail
delivery to Superior and vessel to a lower lakes port. Rail distance from Billings, MT
to Superior, W1 is 1018 miles. Detroit, for example, is an additional 726 miles.

To illustrate the role played by transportation costs in fuel choice an example
from Consumer’s Power is useful (Snyder, 1993). Rail delivery of Eastern low sulfur
coal (.68 lbs. sulfur per MM Btu) from Toledo to Consumer’s Muskegon plant is $1.40
to $1.50 per million Btu. From Toledo to Muskegon by Great Lakes the cost is $1.25
to $1.30 per million Btu. While delivered price of PRB with a .4 sulphur content is
$1.12 per million Btu. Figures released in the DOE Quarterly Coal Report for January -

March 1992 are slightly higher (see Table 5-2). The point is, while Appalachian coal
by water is cheaper than Appalachian coal by rail from Toledo to Muskegon, low sulfur

Powder River coal delivered from the mine to Muskegon by water is lower still.

Table 5-2. ORIGIN OF COAL RECEIVED AT ELECTRIC UTILITIES.

64

 

JANUARY-MARCH 1992, 1991

 

 

 

State of Destination Receipts Sulfur Price

State of Origin 1,000 short tons Content ($/MM Btu)
1992 1991 1992 1991 1992 1991

MICHIGAN 4,215 4,210 .69 .70 1.59 1.69
KENTUCKY 1,322 1,697 .77 .77 1.78 1.78
MONTANA 96 153 .36 .34 1.14 1.50
PENNSYLVANIA 394 325 1.12 1.11 1.55 1.56
WEST VIRGINIA 1,470 1,471 .68 .64 1.67 1.77
WYOMING 933 564 .32 .36 1.10 1.15

Source: EIA Quarterly Coal Report, Jan-March 1992.

 

65

b. Characteristics of Fuel.

Technological capability of power plants are effected by fuel characteristics in
several ways. Because boilers are constructed with a particular fuel in mind
substitutability depends on variance in ash and moisture content, Btu and sulfur levels.
Blending of Western with Appalachian coal has proven to be most successful but boiler
age is also an important factor. Without varying degrees of modiﬁcation the older
1950’s and 1960’s vintage units have problems accepting lower Btu fuel. Even with
modiﬁcations idiosyncratic features make it impossible to predict ability to blend or

switch.

c. Political Climate.

Another factor is local mining interests. Those utilities whose states are coal
producers are caught between wanting to lower costs per kilowatt hour by burning low
sulfur Western and keeping local miners working. There is much interest from unions,
and governments at all levels regarding how ﬁnal fuel blends will be worked out. It is
partly for this reason that individual utilities are guarded concerning how much
information they are willing to share.

It is the general opinion of analysts that presently it is very difﬁcult to know
the real tradeoffs being made by utilities with regard to fuel mix strategy. The interests
of local and regional coal producers, as well as employee unions and state legislative
action all impact on utility decisions. Further, the increased costs of cents per kilowatt
hour which are passed on to consumers as a result of having a more expensive fuel

source is not of importance for most residential consumers. With industrial consumers

66

it is altogether another Story. It is precisely at this point that we may see a signiﬁcant
increase in the demand for Western coal as utilities become more cost conscious in an
attempt to ward off competition brought on by the move to delimit transmission access.

As an example of the effect of non-cost factors on fuel mix decisions, Illinois
is a case in point. The State of Illinois mandates that locally produced coal be burned
ﬁrst. To meet CAA90 requirements scrubber technology is employed. While more
expensive, scrubber technology is seen as the price to pay for securing regional mining
and related employment. Wyoming on the other hand has ﬁled suit in Federal district
court protesting the Illinois rule as a violation of interstate commerce.

The forces involved in fuel mix determination are numerous and powerful.
Understandably, the guarded positions maintained by the majority of fuel supply
managers is thus reﬂective of the posturing which is going on across the board as the

practical outworkings of the Clean Air Act are being decided.

IV. STATUS OF WESTERN COAL USAGE BY LOWER LAKES UTILITIES.
a. Western Coal is Presently Not Competitive in New York State.

Five of the eight power companies in New York burn coal. Of these ﬁve only
Niagara Mohawk has units Situated on the Lakes. The newest is the 700 MW Sommerset
Plant which has an operational scrubber and which burns Pennsylvania coal received by
unit train. In the Rochester area is an old 50 MW plant on Lake Ontario. There are no
plans to burn Western coal at this location. A third plant is Dunkirk located on Lake
Erie with three units totaling 500 MW. All were built in the 1950’s. Presently Dunkirk

units 3 and 4 will switch to Appalachian Low Sulfur for Phase I compliance.

67

Dunkirk’s fuel requirement is about 1.4 million tons per year. Western coal
test burns indicate that a 70/30 Eastern/Western blend would be required to use PRB
coal. This would represent less than a half million tons annually. Presently waterborne
Western costs are coming down but are not yet competitive with rail delivered costs of
Appalachian low-sulfur. Superior Midwest Energy Terminal has indicated that they are
working to overcome this barrier but another obstacle is lack of a proper unloading/
handling facility at Dunkirk.

A fourth facility composed of 6 generating units, the 800 MW Huntley plant,
is a candidate for Western waterborne coal but being located on a Great Lakes tributary
cannot receive large lake boat deliveries. Transhipment costs would seem to rule out
Huntley.13 An additional concern in New York is Non-Utility Generation (NUG)
capacity which currently is 20% of total supply and goes up to 40% in the summer when
overall demand drops. Originally NUG’s were guaranteed 6 cents per kw hour. This

is above utility cost of generation.

b. Allegheny Electric Coop Does Not Rule Out Transhipments.
In the State of Pennsylvania there is only one power company that has service
territory on the Lakes. The single facility actually located on the Lakes however was

shut down several years ago. This was the 120 MW Front Street facility in Erie.

 

‘3 Regarding emissions trading, because of prevailing winds there is a tendency to
sell rights to the East but not to the West. Trading tends to be looked at as a right to
pollute without lowering emissions, and as sanctioning continued emission levels by
purchasrng another regions rights. This regional impact works at cross purposes with
delivering cleaner air, the purpose of CAA90.

68

While there is currently no waterborne Western coal being burned in Pennsylvania at
least one Electric Coop has indicated that in the past they have received Western
transhipments from Lake Erie and would not rule out doing so in the future depending

on pricing.

c. Ohio is Still Looking but has Closed One Facility Because of CAA Requirements.

All units located on the lakes in Ohio are operated by either Centerior Energy
Corporation or by Ohio Edison. There are signiﬁcant low sulfur reserves in West
Virginia of 1.2 to 1.6 compliance coal that can be shipped up the Ohio River. Centerior
is taking some of this but currently does not plan to use any Western coal through the
end of the decade.

As of January 1993 Ohio Edison made the decision to close down their only
facility located on Lake Erie, The Edgewater (Lorain) facility which has a capacity of
171 MW. After a test burn there using Western coal which had arrived by river route
Ohio Edison purchased emission allowances from ALCOA in the summer of 1992. With
the purchase of these allowances and by closing the Edgewater plant they have
overcomplied with Phase I and will bank the excess. Since the effects of overcompliance
are cumulative Ohio Edison hopes to meet Phase II requirements in the year 2000

without the need for many additional adjustments.

(1. Indiana Utilities Currently Receive Low Sulfur Coal via Rail.
Northern Indiana Public Service Commission has three plants located on lake

Michigan that are coal ﬁred. The Dean H. Mitchell station includes 4 coal ﬁred

69
generating stations that have a capacity of 465 MW, plus a 17 MW gas ﬁred facility.

Total burn is about 1,000,000 tons per year. Eighty percent of this is PRB and 20% is
low sulfur WVA. The Bailey Station burns high sulfur coal and has installed a new
scrubber that is operational. The Michigan City Station burns a total of 1,000,000 tons
per year at 3 separate units with combined capacity of 469 MW.

By 1995 a decision must be made whether to bring sulfur content down to 2.5
pounds of sulfur per million Btu’s as required by State Implementation Plan, or to go as
low as 1.2, in which case an 80/20 PRB/WV A mix would be used. Otherwise a 100%
2.5 Illinois seam would be used. At the present time all of the Western coal comes by
rail and the three plants located on the water do not plan to construct facilities that would

accommodate self unloaders.

e. Wisconsin’s New Mexico Contract Creates Surplus Vessel Capacity.

Waterborne PRB Coal consumption among the three separate Wisconsin
utilities with generating units on the Lakes is 1,000,000 tons annually. Of these,
Wisconsin Electric Power Company’s Sheboygan generating unit has 800MW’S of
capacity but does not have facilities for vessel deliveries and burns PRB coal delivered
by CNW Railroad out of Chicago. Wisconsin Public Service Corporation’s Pulliam plant
has 250MW’s of capacity and burns 770,000 tons of coal annually. Western coal use
currently is minimal but the goal is to convert to 100% PRB. Pulliam can receive coal
either by rail or by water.

Wisconsin Electric Power Company has 1050MW’S of capacity at their South

Oak Creek plant which is situated on Lake Michigan. In the Fall of 1992 after

70

competitive bidding a 15 year contract was signed to purchase annually 2 million tons
of bituminous low sulfur (.9 lbs/MMBtu) coal from the Ratton Basin in New Mexico.
Delivery is by Santa Fe Railroad to Chicago, and CNW to Milwaukee. Prior to this
switch Oak Creek was burning a blend of 2/3 Western Pennsylvania and 1/3 Illinois
bituminous. By switching to New Mexico coal excess vessel capacity of up to 1.3
million tons has been created.

The Port Washington and Valley plants are also situated on the Lakes with
combined capacity of 600MW. These two facilities burn 600,000 tons of Appalachian
bituminous medium sulfur coal which at 2.4 lbs/mmbtu meets Phase I compliance
requirements. Three of nine units located in Marquette, Michigan currently burn one
million tons of Montana PRB coal annually. There is potential for up to 200,000
additional tons to be blended for consumption by the remaining six units there, depending

on the outcome of test burns.

f. Michigan has Already Complied.

Michigan has had a 1% sulfur content requirement since 1973. Detroit Edison
has been burning Western coal since 1976. At the current level of approximately 10
million tons per year Edison has adjusted to the 802 requirements of Phase I and will
have to make only a few changes for Phase II. Demand for Western coal by water may
increase slightly, but it is noted that Detroit Edison currently receives 3.5 million tons
per year by rail with plans to increase to 4.1 million tons. Pricing variations in rail
versus water shipment will be an important factor in determining future transportation

modes.

71

Consumer’s Power has two plants that burn Western coal. The Muskegon
plant consumes 450,000 tons per year with a 50 to 60% blend with low-sulfur Eastern.
The other facility is located near the mouth of the Saginaw River and burns 100,000 tons
per year. Due to the draft requirements of a fully loaded 1000’ vessel the Saginaw plant
coordinates shipments of Western coal with Detroit Edison. In this case, after half the
load is dropped in Detroit, the vessel can then enter the Saginaw River where the other
half of the load is dropped.

Detroit Edison uses between 40%, 60% and up to 100% Western coal as
needed. Even with lower sulfur and lower Btu and higher moisture, Detroit Edison’s
experience has shown that Western coal can be burned without retroﬁtting if the proper
blend is used. One analyst has indicated that Should Ohio, Pennsylvania and New York
choose to blend as Detroit Edison has done each state could require up to 3 million tons

of Western coal per year.

g. Present Usage Level Veriﬁed.

Based on information provided by the utility fuel supply managers and
conﬁrmed by the Superior Midwest Energy Terminal manager, present consumption level
of waterborne Western coal is thus approximately twelve million tons per year. This
compares roughly with Lake Carriers’ 10.8 million tons of Western coal and National
Coal Association extrapolations of 9.5 million tons.

In an industry that extracts over one billion tons of coal annually 12 million
tons is of very minor consequence. A comprehensive 1992 study conducted by the U.S.

Geological Survey which estimates effects on coal transportation rates as a result of

72

Federal coal leasing policy does not even mention a Great lakes coal transportation
network (Watson, 1991). Not so however for those regional power suppliers whose

strong commitment to reliability depends on this plentiful flow of clean low cost coal.

V. A DOZEN DIFFERENT VIEWPOINTS.

In addition to personal contact with fuel supply managers various external
sources have been consulted in arriving at an estimate of Western coal consumption
through the end of the decade. About the only agreement among analysts is the notion
that the limitations of 1995 and 2000 have many individual utilities still looking at the
Western coal option. To date no consensus has emerged; neither with regards to
increased use of PRB coal, nor the increased percentage of that amount which may come

through the Lakes. This point is illustrated in the following cases.

1. The Oak Ridge National Laboratory in conjunction with the University of
Tennessee has developed a linear programming model for analysis of coal
switching as a result of CAA90 requirements. Though the biggest gains are
with the PRB region their ﬁnal report of September 1992 indicates that the
information most difﬁcult to estimate is the delivered price of different coals
and thus which regions will Show increases or decreases in production. Their
study concludes that of critical importance to MidWestern demand for both
high- and low-sulfur Appalachian coal is the availability and delivered cost of
low-sulfur coal from the Powder River Basin. Another major consideration

is the ability of Appalachian producers of low-sulfur coal to expand production

 

73

at prices comparable to present levels. If they cannot, they will lose potential

markets to PRB and also to scrubbed high-sulfur coal, (Hillsman, 1992).

§eaway Review reported on a 1990 study indicating that coal consumption in
Illinois, Indiana, Wisconsin and Michigan is expected to grow at an average

annual rate of 2.4% over the next ten years (SeawayReview, 1991).

This is in contrast to a 1991 North American Electric Reliability Council of
an expected 1.3% annual growth in electricity demand for the ECAR region
with a corresponding 1% annual increase in coal demand through the year

2000 (NERC, 1991b).

Some analysts feel that because of early installation of scrubbers by
Midwestern utilities the Central Region will receive an increasing share of its
coal from mines in the Interior Region with nearly all the share gained by

Central producers lost by Appalachian producers.

Others look for central Appalachia to meet most of the increased demand for
low-sulfur coal east of the Mississippi River at a lower overall delivered cost
than that of Western low-sulfur coal. This is because of high transportation
costs associated with long haulage distances and additional costs and problems

posed in the conversion of existing plants to burn subbituminous coal.

 

74

6. From a cost standpoint, however, the delivered prive of low sulfur Western
coal in Michigan was less that two thirds the proce of Appalachian coal on a

per Btu basis (DOE, 1992b) as shown in Table 5-2.

Table 5-2. ORIGIN OF COAL RECEIVED AT ELECTRIC UTILITIES.

 

JANUARY-MARCH 1992, 1991

 

 

 

State of Destination Receipts Sulfur Price
State of Origin 1,000 short tons Content ($IMH Btu)
1992 1991 1992 1991 1992 1991
MICHIGAN 4,215 4,210 .69 .70 1.59 1.69
KENTUCKY 1,322 1,697 .77 .77 1.78 1.78
MONTANA 96 153 .36 .34 1.14 1.50
PENNSYLVANIA 394 325 1.12 1.11 1.55 1.56
WEST VIRGINIA 1,470 1,471 .68 .64 1.67 1.77
WYOMING 933 564 .32 .36 1.10 1.15
Source: EIA Quarterly Coal Report, Jan-March 1992.
7. Part of the cost differential seen in table 4.3 is due to geographic location of

inland power plants that lose the cost advantage of waterborne transport. Fuel
procurement specialists indicate that some of the differential is a result of
commitments to long-term coal contracts. For example Detroit Edison’s
Monroe facility has contracts exceeding 5 million tons of Appalachian coal.
These expire in 1994 and 1995 (EIA, 1991a), as seen in Table 5-3. Based on

boiler modiﬁcation costs, fuel ash and Btu characteristics, and storage and

75

handling facilities, the decision could be made to replace these with Western

Contracts.

8. Railroads are very optimistic concerning the volumes of Western coal that will
be required East of the Mississippi. The Burlington Northern for example
estimates an increase of 60 million tons over the next 10 years. Should
demand reach this level, economies of scale will certainly weaken the ability

of the Great Lakes transportation system to compete for future volumes (Beck,

 

1992).

9. In 1992 virtually all of the 12 million tons of Western coal that went on the
Lakes were transhipped by Superior Midwest Energy Terminal. The SMET
forecast through the end of the decade for increased Western coal is in the
range of twenty to twenty-ﬁve million tons, excluding possible exports. This
is a revision downward from last years estimate of 25 to 30 million tons by the

year 2000 (Ethan 1992, 1993).14

10. Another independent consultant feels strongly that whether through Duluth,
Chicago, or barged down the Mississippi, 35 million tons per year will be an

absolute maximum from all Western sources, with an absolute maximum

 

"Export potential through the St. Lawrence Seaway System is signiﬁcant but is of
no consequence for purposes of this study unless future shipments involve U.S. flag Lake
vessels. Such activity would involve transhipment of eargo to ocean going vessel in the
St. Lawrence Seaway and would require vessels eapable of traversing the locks through
the Welland canal.

76

increase of 15 million tons from the present tonnage coming across the Lakes

by the year 2000 (Price, 1992).

11. A market analysis done for Burns Harbor by Resource Data International, Inc.
indicated that 1995 could see a potential for 19.4 million tons of blended coal
from the Burns Harbor facility with the year 2000 having a potential for 40.7

million tons of blended (Seewey Review, 1991).

12. The strategically located KCBX Terminals Company in Chicago has an active
market strategy for increasing Western low sulfur tonnage yet ofﬁcials believe
that the market is far from mature. Their attitude best summarizes the current
indecisiveness: "I don’t think the market will stabilize with all the chess
pieces placed on the board until 1995 when we get into phase one of the Clean
Air Act regulations. Once the compliance strategies are set we will see a
more deﬁned arena. Both the utilities and their suppliers will be in a test

pattern until then" (Seewey Review, July/Sept 1992 pages 23-25).

Meanwhile perhaps the best we can do is to look at increased coal usage in the
Midwest region as a function of economic growth with the understanding that a growing
economy consumes more energy and vice versa. Such an approach does not take into
account any net increase of waterborne Western coal as a result of the Clean Air Act

Ammendments but does provide a base for looking at the adequacy of the dry bulk

77

carrying capacity of the U.S. ﬂag Great Lakes ﬂeet from which growth estimates for

Western coal can easily be made.

 

ANALYSIS OF DRY BULK CARGO

Chapter 6.
I. TRENDS IN DEMAND FOR DRY BULK CARGO ON THE GREAT LAKES.

Ninety-four percent of all cargo on the Lakes is dry bulk cargo and 97% of
dry bulk cargo is made up of coal, limestone and iron ore (LCA, 1992). This chapter
will analyze this big three trade with the goal of determining future demand through the
end of the decade. Since this research is concerned with unintended consequences of the
Clean Air Act the major effort is focused on exploring the relationship between the
electric utility industry and coal supply.

In 1992 total coal movement on the Lakes by U.S. ﬂag vessels totaled
18,776,036 net tons. Of this amount 10,791,702 net tons was Western coal which came
through Superior, Wisconsin. Another 7,984,334 net tons entered the Lakes by way of
the four loading ports on Lake Erie and a very small portion entered Lake Michigan at

Chicago.

a. Increase of Coal Consumption can be Tied to Increase of GNP.

Over the last 20 years GNP growth has averaged 2.6% annually. On one hand
a recent study by the The Energy Information Administration considers 2.6% to be a
high growth rate producing the highest energy demand while 1.8% is considered a low
growth rate corresponding to sluggish industrial activity, high unemployment and low
levels of travel. The EIA base case assumes a mid-level trajectory for world oil prices,

and sets GNP annual growth at 2.2 % with electricity growth closely paralleling GNP at

78

 

79

2.0%. Attempts are made to take into account conservation and efﬁciency trends as well
as current legislation (EIA, 1992e).

National Coal Association on the other hand expects the growth rate for real
GNP through 2000 to be at 2.3 percent. NCA is quick to point out that during the
expansion phase of the industrial cycle, demand for electricity may exceed rate of
economic growth. This has indeed been the trend in the past as we saw earlier in
Chapter 1. From 1970 to 1980 GNP grew at an overall rate of 2.8 percent per year.
During that time sales of electricity grew on average by 4.2 percent annually. During
the 1980’s increased emphasis on energy efﬁciency led sales of electricity to grow by 2.6
percent per year while GNP grew at an average annual rate of 2.7 percent (EIA, 1992b).

NCA’s average annual growth in electricity demand forecast through the year
2000 for the East North Central region is also 2 % but steam coal consumption is forecast
to grow at a rate of 1% annually as a result of below average growth in generation,
increased nuclear generation and inroads by gas (NCA, 1989b).

By comparing Energy Information Administration forecasts with National Coal
Association forecasts a conservative estimate of annual increase in coal consumption
ranges from 1.0% to 2.0%, as depicted in Table 6-1. If either of these rates of growth
are accurate there will be no shipping capacity shortfall from the standpoint of coal’s

contribution to total demand.

 

80
Table 6—1. GROWTH IN COAL DEMAND ON THE LAKES THROUGH 2000.

 

(million net tons)

 

 

 

Actual Estimatﬂ
Cog! Shipments 1985-1992 2931 Shipments 1&3-2000
M 2-0_%
(NCA) (EIA)
1985 ' 19.7 l993e 18.9 19.2
1986 18.6 1994c 19.2 19.6
1987 19.9 1995c 19.4 20.0
1988 18.3 1996c 19.6 20.4
1989 19.4 1997c 19.8 20.8
1990 19.9 1998e 20.2 21.2
1991 18.6 1999c 20.4 21.6
1992 18.8 2000c 20.6 22.0

Complied from LCA Annual Reports.

 

b. Increase of Coal Consumption According to some Industry Experts.

As of August 22, 1993 Western coal shipments were 142,949 tons below the
corresponding year’s total (Skilling’s, 1993). It is not likely that a large increase will
occur in the remainder of 1993. For the period 1994 through 2000 however Western
coal might well increase in the higher range as expected by Ethan (20 to 25 million tons)
and by Price (27 million tons maximum) from the 1992 total of 10.8 million tons.
Reaching 20 to 27 million tons over 7 years (1994 - 2000) would require annual growth

rates of 9.2% and 14.0% as seen in Table 6-2.

81
Table 6—2. EXPERT OPINION - WESTERN COAL TONNAGE INCREASE

 

1994 - 2000

(million net tons)

Annual Increase
9.2% 14.0%

1987 11.2 19946 11.8 12.3
1988 10.2 19956 12.9 14.0
1989 12.2 19966 14.1 16.0
1990 12.3 19976 15.4 18.2
1991 12.2 19986 16.8 20.8
1992 10.8 19996 18.3 23.7
19936 10.8 20006 20.0 27.0

The equations for these determinations are as follows:
10.8(1 + r)7 = 20, and 10.8(1 + r)7 = 27

Compiled from LCA Annual Reports.

 

If Western coal does increase at the above rates it will likely be at the expense
of Lake Erie coal haulage, especially after January 1, 1995 when the push will begin to
meet Phase II emissions requirements. While Table 6-3 shows Erie (Appalachian) coal
continuing to grow at a 2% rate through the end of the decade, it also shows an
increasing substitution of Western coal beginning in 1995 at a 15 % replacement rate and
stabilizing in 1998 at a 45% replacement rate. This range has been arrived at after

consultation with various industry personnel.

82
Table 6-3. LAKE ERIE COAL REPLACED BY SUPERIOR COAL 1992-2000.

 

(1,000 net tons)

2.0% Annual Increase After Replacement

1992’ 7.98 %

19936 7.98 x 1.0 = 7.98
19946 8.28 x 1.0 = 8.28
19956 8.42 x .85 = 7.16
19966 8.56 x .75 = 6.42
19976 8.71 x .65 = 5.66
19986 8.86 x .55 = 4.87
19996 9.01 x .55 = 4.95
20006 9.16 x .55 = 5.04

 

* From Table 2-1.

 

83

Table 6-4 and Figure 6-1 show combined adjusted annual Erie coal increases
with the two higher levels of increase from Table 6-2 to reach a ﬁnal determination for

the four different rates of annual increase of waterborne coal through 2000.

Table 6-4. ANNUAL INCREASES FOR ALL WATERBORNE COAL.

 

1994 - 2000

(million net tons)

1.0% 2.0%

 

(NCA) (EIA) 9.2% + Erie 14% + Erie

19936 18.9 19.2

19946 19.2 19.6 11.8 + 8.1 = 19.9 12.3 + 8.1 = 20.4
19956 19.4 20.0 12.9 + 7.2 = 20.1 14.0 + 7.2 = 21.2
19966 19.6 20.4 14.1 + 6.4 = 20.6 16.0 + 6.4 = 22.4
19976 19.8 20.8 15.4 + 5.7 = 21.2 18.2 + 5.7 = 23.9
19986 20.2 20.2 16.8 + 4.9 = 21.7 20.8 + 4.9 = 25.7
19996 20.4 21.6 18.3 + 5.0 = 23.1 23.7 + 5.0 = 28.7
20006 20.6 22.0 20.0 + 5.0 = 25.0 27.0 + 5.0 = 32.0

Source: Lake Carrier’s Association Annual Reports.

 

84

 

Annual Growth of Coal Demand

   

S
.5.
‘6
c
§
5 14% Growth
9.2% Growth
2% Growth
1% Growth

 
     

1993 1994 1995 1996 1997 1998 1999 2000

 

Figure 6-1. ESTIMATED GROWTH OF COAL DEMAND.

85
II. IRON ORE WILL INCREASE, THEN RETURN TO PRESENT LEVELS.

For over 100 years the largest bulk commodity on the Lakes has been iron ore
which has accounted for more than 50 percent of all cargo carried by U.S. ﬂag lakers.
Cyclical highs and lows have been characteristic of annual bulk tonnage, but until the
upheavals of the 19808 the iron ore industry had experienced 25 years of fairly steady
growth. In 1979 the ore ﬂoat topped 106 million long tons (Kakela, 1993).

In 1982 the economic recession coupled with materials substitution and foreign
competition combined to lead to the painful downsizing of a serious overcapacity that
existed in the domestic iron and steel industries. Between 1980 and 1988, 55% of iron
mining jobs were lost and 41% of U.S. iron ore pellet capacity had been eliminated as
mines and mills aggressively restructured to become competitive with any producer in
the world on a per ton basis (Kakela, 1993).

The heroic cost reduction efforts by domestic ore and steel producers paid off.
The challenges of the 1980s were met by increasing productivity while reducing excess
capacity and manpower. As a result demand for domestic pellets stabilized, grew 3 little
at the end of the 805, and is now forecasted to pick up through the mid-nineties.

As seen in Table 6-5 and Figure 6-2 iron ore demand is forecasted to swell
beginning in late 1993 and to peak in 1995 before returning to present levels in 1999.
This 15% (8.7 million ton) increase in pellet production will translate directly into an

equal increase in demand for vessel capacity for the mid-nineties. Because this capacity

 

86

is not expected to be sustained, iron ore demand taken alone will not lead to a need for

increase in vessels. ‘5

Table 6-5. U.S. IRON ORE PELLET PRODUCTION THROUGH 2000.

 

(million net tons)

 

1985 52.4 19936 60.5
1986 41.1 19946 64.0
1987 50.4 19956 66.0
1988 61.3 19966 65.0
1989 62.9 19976 61.6
1990 60.5 19986 60.5
1991 60.7 19996 56.0
1992 57.3 20006 58.2

Source: Kakela (1993 p.50)

 

 

‘5 Since 96% of all cross Lakes trade with Canada is by Canadian vessel Table
6—7 does not include any Canadian tonnage. Also excluded is the average annual 5.6
million tons of ore that are transhipped on the Cuyahoga River.

87

 

 

701

 

65-

 

 

 

 

Million net tons/yr
U!
‘l'

 

 

4o-
85 as 87 88 w 90 91 92 93994e95e96997998e999009

 

Figure 6—2. IRON ORE PELLET DEMAND THROUGH 2000.

While the forecasted rise in iron ore shipment through 1996 does reﬂect pent-
up demand as the economy comes out of recession, the drop in demand that follows
(1997-2000) is more than cyclical variation. This drop represents a permanent reduction
in pellet demand as a result of the impact of mini-mill technology.

With the mini-mills becoming progressively more efﬁcient at producing high
quality ﬂat-rolled thin-slab steel from scrap they are expected to encroach ever more into
the historic market of the integrated steel mills. While total demand for raw steel is not
expected to decrease, the mini-mill recycling of scrap is expected to account for this
permanent decrease in demand for waterborne pellets. By the year 2000 iron ore

capacity is expected to be reduced by 10 to 12 million tons and production is forecasted

 

88
to be at roughly 1992 levels (Kakela, 1993). The ﬁnal result of this shift will be to ease

pressure on the Great Lakes ﬂeet.

III. MULTIPLE USES OF LIMESTONE.

Limestone is an essential commodity in modern life, not only going into
highways and sidewalks, but also as a basic component of the steelmaking process. In
this sense limestone is a part of every refrigerator, bridge, highrise and automobile.
Limestone is a highly regional commodity in that trucking costs limit distribution to about
thirty miles. For example it is cheaper to ship limestone three hundred miles from Port
Inland in the U.P. to Detroit, than it is to truck limestone the 60 miles from Toledo to
Detroit (Siekierski, 1993).

In terms of dry bulk commodity tonnage on the Great Lakes, limestone is
number two. In 1992, 22.1 million tons were shipped. Among the six loading ports on
the Lakes there is presently 10 million tons of excess capacity that resulted from a
shrinking of demand in the 19805. As this shrinking demand began, competition became
so ﬁerce that the limestone trade association was dissolved. Consequently there is no
detailed aggregate reporting of Great Lakes limestone other than annual net tonnage
reported by Skilling’s and by the Lake Carrier’s Association.

On average roughly half of all limestone is used in chemical applications
(metallurgical, scrubbers, manufacturing, etc.) and the other half is used as construction
aggregate. Since 1987 annual stone shipments have been consistently strong as the
economy recovered from recession and after stabilizing with the downsizing of the

domestic iron and steel industries.

 

't
.l

89

Situated on the Lakes, in the vicinity of quarry operations, are over a dozen
lime plants where typically two tons of stone are required to produce one ton of lime.
These plants account for about half of all metallurgical uses of limestone.

Another metallurgical use of limestone is for smokestack scrubbing as a way
of meeting Phase I and II sulfur emissions requirements. Two and a half tons of
limestone are required to remove one ton of sulfur. With a total reduction requirement
of 10 million tons by 2000, 12.5 million tons of limestone would be required to scrub
away even half of the 10 million tons. Industry specialists indicate that Phase I
requirements have not caused much increase in scrubber technology use. Impact of
Phase II requirements are presently too far off. As other technologies such as ﬂuidized
bed combustion become cost competitive, limestone demand will be increased.

With the recent passage of the Highway Bill and other proposed construction
stimulus packages non-metallurgical uses for limestone could burgeon. Industry
personnel expect increased reliance on crushed limestone for construction ﬁller as a result
of shortage of new supplies of gravel.

Waterborne limestone is price competitive only if ﬁnal destination is less than
thirty miles inland from the port of delivery. Otherwise inland quarries shipping by
truck can deliver at a lower cost. Chicago, Detroit, Cleveland and Buffalo are the only
major metropolitan areas located on the water. Their demand will be signiﬁcant but as
a percentage of the total growth, will be limited. The Great Lakes limestone industry
has a capacity of 33.5 million tons per year. Some shipping experts however do not
expect demand to rise above where it was in 1988-89 by the year 2000, unless shipping

capacity increases to accommodate a larger steel industry.

 

90

Given the transitory nature of all of these factors a conservative estimate of
growth in demand for limestone was used by the limestone industry, i.e., a rate that
closely follows the twenty year average GNP growth rate of 2.6%. Michigan Limestone
Operations, which handles 40% of the stone trade, indicates that in an expanding
economy metallurgical use of limestone grows with GNP but at a lesser rate, while non-
metallurgical uses grow with GNP but at a much greater rate. Thus a growth rate equal
to GNP growth is realistic. James Young, Vice President of Operations and Marketing
for Presque Isle Corporation, and Jerry Siekierski of Specialty Minerals Inc. concur.

Limestone growth is represented in Table 6-6 and Figure 6-3.

91

Situated on the Lakes, in the vicinity of quarry operations, are over a dozen
lime plants where typically two tons of stone are required to produce one ton of lime.
These plants account for about half of all metallurgical uses of limestone.

Another metallurgical use of limestone is for smokestack scrubbing as a way
of meeting Phase I and II sulfur emissions requirements. Two and a half tons of
limestone are required to remove one ton of sulfur. With a total reduction requirement
of 10 million tons by 2000, 12.5 million tons of limestone would be required to scrub
away even half of the 10 million tons. Industry specialists indicate that Phase I
requirements have not caused much increase in scrubber technology use. Impact of
Phase II requirements are presently too far off. As other technologies such as ﬂuidized
bed combustion become cost competitive, limestone demand will be increased.

With the recent passage of the Highway Bill and other proposed construction
stimulus packages non-metallurgical uses for limestone could burgeon. Industry
personnel expect increased reliance on crushed limestone for construction ﬁller as a result
of shortage of new supplies of gravel.

Waterborne limestone is price competitive only if ﬁnal destination is less than
thirty miles inland from the port of delivery. Otherwise inland quarries shipping by
truck can deliver at a lower cost. Chicago, Detroit, Cleveland and Buffalo are the only
major metropolitan areas located on the water. Their demand will be signiﬁcant but as
a percentage of the total growth, will be limited. The Great lakes limestone industry
has a capacity of 33.5 million tons per year. Some shipping experts however do not
expect demand to rise above where it was in 1988-89 by the year 2000, unless shipping

capacity increases to accommodate a larger steel industry.

92

Given the transitory nature of all of these factors a conservative estimate of
growth in demand for limestone was used by the limestone industry, i.e., a rate that
closely follows the twenty year average GNP growth rate of 2.6%. Michigan Limestone
Operations, which handles 40% of the stone trade, indicates that in an expanding
economy metallurgical use of limestone grows with GNP but at a lesser rate, while non-
metallurgical uses grow with GNP but at a much greater rate. Thus a growth rate equal
to GNP growth is realistic. James Young, Vice President of Operations and Marketing
for Presque Isle Corporation, and Jerry Siekierski of Specialty Minerals Inc. concur.

Limestone growth is represented in Table 6-6 and Figure 6—3.

 

93
Table 6-6. ESTIMATED LIMESTONE TONNAGE THROUGH 2000.

 

(million net tons)

Actual Estimated

YEAR YEAR 2.6% Growth
1985 21.0 19936 22.7

1986 21.0 19946 23.3

1987 26.2 19956 23.9

1988 27.9 19966 24.5

1989 27.2 19976 25 . 1

1990 26.0 19986 25.7

1991 24.4 19996 26.4

1992 22.1 20006 27.1

Based on LCA Reports

 

94

 

 

 

 

 

35
30
g 25‘
t
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’2
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1993'1994'

 

Figure 6—3. ESTIMATED LIMESTONE TONNAGE THROUGH 2000.

95
IV. FLUXED PELLET PRODUCTION AND LIMESTONE CONSUMPTION.

Beginning in 1987 mines in Minnesota and northern Michigan began ﬂuxing
iron ore pellets with limestone at the mine sites rather than at the steel mills on the
Lower Lakes. This ﬂuxing process burns off about half the limestone and what remains
becomes added to downbound cargo weight. In essence half of this stone is shipped
twice (Beck, 1991a,b).

In 1992 about 10% of the total limestone shipment went to produce the 40%
of iron ore pellets that were ﬂuxed. Some experts believe that in the next several years
there may be a market for 75 to 80% of all pellets to be ﬂuxed. Such a doubling would
result in a 10% increase in total limestone shipment with half of this 10% increase being
added to downbound cargo weight. Table 6—7 illustrates this by adding ﬂux increase to
the annual limestone growth estimates from Table 6-6. By assuming that the 80%
growth rate will begin in 1993, Table 6-7 portrays ﬂux growth at a slightly faster rate
than will actually occur. Even under these conditions, total available vessel capacity is

not signiﬁcantly effected.

96
Table 6-7. LIMESTONE GROWTH - 80% Fluxed Pellet Production.

 

(million net tons)

2.6% . 80% Flux (downbound)

Year Growth + Increase Total 1/2 of Flux
*

1992 22.1 + 2.21 = 24.3 +1.1 = 2.54
19936 22.7 + 2.33 = 25.0 +1.2 = 26.2
19946 23.3 + 2.46 = 25.8 +1.2 = 27.0
19956 23.9 + 2.54 = 26.4 +1.3 = 27.7
19966 24.5 + 2.50 = 27.0 +1.3 = 28.3
19976 25.1 + 2.37 = 27.5 +1.2 = 28.7
19986 25.7 + 2.33 = 28.0 +1.2 = 29.2
19996 26.4 + 2.16 = 28.6 +1.1 = 29.7
20006 27.1 + 2.24 = 29.3 +1.1 = 30.4

* 92 iron ore x 10% Lstone 92
93 iron ore (X) Lstone 93

 

IV. SAND, SALT AND GRAIN.
The combined four year average for sand, salt and grain taken from Table 6-1

is 2.2 million net tons annually. This is assumed to be a constant amount throughout the

forecast period.

Chapter 7 presents various combinations of dry bulk demand that are set

against vessel capacity through the end of the decade.

TONNAGE VERSUS CAPACITY
Chapter 7.
1. TOTALS.

As noted, total dry bulk ﬂeet capacity is 105.8 million gross tons. Converted
to net tons we get: 105.8 x 1.12 = 118.5 million net tons. This includes all registered
tonnage plus non-registered active vessels, but not the 31,500 gross tons of the John
Sherwin that is available but disenrolled capacity from Table 4-4a. LCA personnel
indicate that the John Sherwin is indeed ready to go into service when needed.

In Table 4-5, and as was calculated in Chapter 4, we saw that average trip
length per vessel in 1992 was 5.28 days and that each vessel averaged 60 trips per
season. Because of the great variations in individual transits, these ﬁgures are not
adequate for determining entire ﬂeet movement, but are useful to estimate additional
annual tonnage capacity that would be added to the ﬂeet if the 31,500 gross tons of
disenrolled capacity were activated: 31,500 x 60 = 1,890,000 gross tons. This in turn
becomes 2,286,900 net tons of additional capacity which when combined with the 118.5
million net tons of active capacity pushes the U.S ﬂag dry bulk capacity to 120.8 million
net tons.

Table 7-1 is a composite presentation of all anticipated dry bulk tonnage to the
year 2000. The ﬁve columns under ”Totals” represent combined annual totals of dry
bulk cargo. Columns A-D differ from one another only in terms of the amount by which
coal increases, while column E represents high limestone growth and high coal growth.

This table shows that active vessel capacity of 118.5 million net tons is exceeded only

97

 

98

in the ﬁnal year of the high coal growth forecast, column D, and in years 1996, 1998,

and 2000 of column E, high coal and high limestone growth.

 

99

Table 7-1. DRY BULK COMPOSITE.

 

YEAR

19936
19946
19956
19966
19976
19986
19996
20006

(million net tons)

19936
1994c
19956
19966
19976
19986
19996
20006

119.1

(Coal
Growth
NCA EIA 9.2% 14% Iron ore Limestone
(includes Erie) Low High
18.9 19.2 19.5 19.5 60.4 22.7 26.2
19.2 19.6 19.5 19.5 64.0 23.3 27.0
19.4 20.0 19.8 19.9 66.0 23.9 27.7
19.6 20.4 20.1 23.2 65.0 24.5 28.3
19.8 20.8 20.5 24.7 61.6 25.1 28.7
20.2 21.2 21.7 26.7 60.5 25.7 29.2
20.4 21.6 23.1 29.1 56.0 26.4 29.2
20.6 22.0 24.6 31.6 58.2 27.1 30.4
TOTALS
A. .B (I I) E
NCA EIA 9.2 % 14 % High Limestone
Estimate Estimate Coal Coal High Coal
104J2 104g5 10448 10448 108:3
108.7 109.1 109.0 109.0 112.7
111.5 112.1 111.9 112.0 115.8
111.3 112.1 111.8 11449 11837
108.7 109.7 109.4 113.6 117.2
108.6 109.1 110.1 115.1 118.6
105.0 106.2 107.7 113.7 116.5
108.1 109.5 112.1 122.4

SSG

2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2

 

100

If ﬂeet size is further adjusted to include total available carrying capacity of
120.8 million net tons it is apparent that there will be no shortage of vessel availability
throughout the entire forecast period with the exception of a single case in the year 2000.

This relationship is depicted in Figures 7-1 through 7-3.

 

101

 

 

 

 

 

 

 

 

 

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1993 1994 1995 1996 1997 1998 1999 2000

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|- Iron Ore

Compiled from LCA Data

ESTIMATED TOTAL DRY BULK DEMAND.

1

 

Figure 7-

million net tons/year

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120+
118‘
116-
114‘
112-
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102

 

 

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Dry Bulk

1996 ‘nyl 1995 ‘HXXS 1997 ‘KXNS 1999 £KXX)

 

Figure 7-2. HIGH DRY BULK DEMAND VS. TOTAL DRY BULK CAPACITY.

103

Dry Bulk - High Coal and High Limestone

 

 

 

 

 

 

 

 

 

 

 

Total Capacity

Dry Bulk

 

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104
II. NUCLEAR REACTOR LICENSING AND COAL CONSUMPTION.

By the year 2036 all of the 111 commercial nuclear power reactors in the U.S.
are scheduled for relicensing. The coal transportation relationships in this study are
based on the assumption that existing facilities in the Great Lakes States will be
relicensed. The Nuclear Regulatory Commission however has not yet issued criteria for
relicensing nor have they indicated for how long the new relicensing period will be. This
creates a major uncertainty regarding future demand for waterborne coal.

In the states bordering the Great Lakes there are 39 nuclear units which
generate over 32,000 MW of power. Of these, eleven are strategically located within
the geographical proximity of the Lakes themselves and could receive coal by water if
necessary.

As illustrated in Figure 7-3 however, the relicensing schedule
for all U.S. facilities indicates that only one license will expire during the entire forecast

period of this study.

 

105

 

 

Reactor License Expiration

0006070910111213141516171820212223242526-33
2000- 2033

We! of Licenses
0 n 5 a a

 

 

 

Source: NRC Information Digest, p. 48.

 

Figure 7-3. NUCLEAR REACTOR LICENSE EXPIRATION DATES.

The single nuclear power license that expires in the year 2000 is the 67 MW
Big Rock reactor in Michigan (NRC, 1993). The next expiration in 2007 is the 755 MW
Palisades reactor which is also in Michigan, followed by the 470 MW Ginna reactor in
Rochester, NY, and the 605 MW 9 Mile Point reactor in Oswego, NY., both of which
occur in the year 2009 (EIA, 1992, 1991b).

After the year 2010, if all or a portion of these 11 strategic units are not
relicensed and they are converted to coal ﬁred generators, waterborne demand for both

Western and Appalachian coal will be greatly affected. It should be noted though that

 

106

through the end of the forecast period, relicensing will not play an important role in coal

consumption and vessel availability.

 

CONCLUSIONS
CHAPTER 8.
I. SUMMARY.

If this investigation were structured as a piece of classical scientiﬁc research
with the formulation and proof of a hypothesis, the null hypothesis might read:
”Increased dry bulk cargo through the 1990s will not exceed U.S. ﬂag ﬂeet shipping
capacity." Through a series of forecasts, projections, and analytical narrative the
researcher would set about to prove or disprove this statement, and would be 90 to 99%
certain of his accuracy, assuming his model was without error.

Because of the complex applied nature of this research question, however, a
yes or no conclusion is of less value than the richer shades of meaning that an equally
analytical but insightfully more fertile qualitative study can provide. As for the question
at hand, from a strictly analytical viewpoint, the null hypothesis is proved. There will
be no signiﬁcant Great Lakes vessel capacity shortfall through the year 2000. In fact it
is only in the year 2000, under the very highest cargo growth scenario, that dry bulk
demand actually exceeds shipping supply, and then only by a mere 1.6 million net tons
(assuming the model holds).

From the viewpoint of rationality, however, what often looks good on paper
does not actually work in the real world. While there seems to be sufﬁcient excess
capacity in the U.S. ﬂag ﬂeet throughout the 19905, there may not actually be enough
excess to provide a realistic and reasonable cushion. Foul weather, labor strikes,
mechanical breakdowns, and so on, all interfere with the shipper’s ability to maintain

dispatch schedules and to provide for cost-effective cargo ﬂows.

107

 

108

Excess capacity does exist, but primarily with the smaller vessels and it is
precisely these vessels that are not much involved in Head-of-the Lakes trade because of
economy of scale. It is simply not efﬁcient for a smaller vessel to move in two and a
half trips what a single Poe class vessel can move in one trip.

This analysis has in fact made clear that when U.S. ﬂag ﬂeet capacity is
examined by individual class it is evident there is a growing shortage of P06 class
vessels.

Table 4-6 shows that from May through December in 1992 and in 1993 Poe
class vessel use was at 98% of capacity. While this is a commendably efﬁcient
operations rate, it is also an indication of just how narrow is the excess capacity margin
and how very little room there is to accommodate expansion of the dry bulk trade. Thus
it does appear that an additional 1000 footer or two may be required in the 90s, but from
the numbers generated in this study it is not clear when.

In addressing this issue it would be very shortsighted to rely simply on graphic
relationships and to ignore standard industry practice. In the shipping industry, as with
any enterprise, capital investment in new ship construction depends on real or anticipated
growth in business volume. As referenced in Chapter 4, LCA President George Ryan
has indicated that 3 million tons of sustained excess cargo is the critical volume necessary
for new thousand foot construction. With this in mind, cases A, B and C from Table 7-2
(low coal growth and low limestone growth) will conservatively require one new
thousand foot vessel by early 1995 at the latest to meet dry bulk shipping demand, with

a second vessel being needed in 1996 for case C. Likewise cases D and E (high coal and

109

high limestone growth) will conservatively require additional 1000 foot capacity in 1994,
1995, 1998 and 2000.

This analysis shows that steadily rising limestone and coal volumes will more
than make up for the expected sinking demand for iron ore in the late nineties. Lead
time for new vessel construction is 2 to 3 years and there are currently no vessels under
construction. If a new ship were to be constructed using existing speciﬁcations, the
earliest delivery time will be toward the end of the 1995 season. The apparent capacity
shortfall that will result indicates that industry has erred on the side of caution, opting
to have too little capacity rather than too much. This inability to provide service could
work to the advantage of the railroads by providing them with the opportunity to siphon
off and retain increased coal haulage on existing lines while using the extra capital to
lower rates overall and further increase market share.

Furthermore, given what will likely be the marginal ability of the U.S. ﬂeet
to meet cargo capacity demands, it is likely that the winter navigation season will see
increased trafﬁc throughout much of the 19903 as shippers struggle to fulﬁll
transportation contracts pending new ship construction. A short term solution is to see
if better use can be made of P06 class vessel capacity in the month of April when there
is considerable surplus capacity, as well as in early January before signiﬁcant ice-over
conditions occur. By doing this, late March sailing can be avoided when winter ice is

thickest and the potential for environmental damage is greatest.

 

1 10
II. LIMITATIONS.

The forecasts for the major dry bulk commodities examined in this study
represent expectations of how demand may change given a certain set of circumstances
and assumptions. They are of course not intended to be considered as unconditional and
categorical predictions of future conditions, but rather represent best estimates based on
extensive study of the literature and numerous contacts with industry and government

experts. If conditions change, of course outcomes will change accordingly.

III. RECOMMENDATIONS FOR FURTHER STUDY.

a. Winter Navigation Issues.

While the portion on winter navigation certainly is not intended to imply a
causal relationship between shipping and Great Lakes ecosystem deterioration, it can
rightly be considered as a good overview of the salient issues surrounding the
controversy. As such the background information developed in Chapter 3 might serve
as a starting point for those interested in working toward a compromise between two very
important competing concerns.

The beneﬁts of extended season navigation are mainly to meet the needs of
commerce and, according to the Corp of Engineers, in particular the needs of the
integrated steel mills. At issue is the feared loss of competitive economic position in the
world market if winter stockpiles exceed or fall below some undisclosed level. In
preparing its environmental impact statements, the Corp chose not to address this very
basic concern by noting that it was beyond its level of expertise. This matter should be

more closely investigated. Perhaps by developing a strategic materials ﬂow proﬁle for

 

111

each individual mine and mill, an improved coordination between the needs of commerce

and the concerns of environmentalists could be realized.

b. Second Poe-Sized Lock.

The Lake Carriers’ Association has long been a champion of the need for a
second Poe lock and continues to request Congress to fully fund the project. A fast-track
schedule for planning and construction has been urged since time to completion, if begun
soon, would not be until early in the next decade. As the ﬁnancial health of Great Lakes
economy improves fuller utilization of Poe-class vessels will be required. Furthermore,
economic growth could be signiﬁcantly limited without additional locking capability
sufﬁcient to handle additional trafﬁc.

The LCA contends that the needs of commerce demand a second lock, that
federal funds should pay for it, and that no further environmental damage is to be
expected as a result. The growth projections developed in this present study might be
used to further evaluate the need for a second Poe lock and perhaps help to focus the

debate concerning the environmental impact of such an undertaking.

6. Emissions Trading and Transmission Access.

Free market environmentalism in the form of emissions trading is a new
development in environmental economics and holds much promise for emissions
regulation. This too needs to be tracked to see how well the theory will work in practice

and what the impact will be on emissions strategies as Phase II approaches.

 

112

Likewise, if the push for retail wheeling of electric power is successful, the
implications will be far-reaching. While wholesale wheeling has been around for some
time, retail wheeling is new and has the potential to greatly change the way electric
utilities do business. It seems likely that monopoly utilities will eventually be required
to provide transmission access to all buyers at fair prices. When this happens, distant
utilities with lower delivered power costs will force local utilities to lower their costs,
or else face a reduction in demand for locally generated power.

Emissions trading alone, or retail wheeling alone, will have an impact on the
complex relationship that exists between the electric utility industry, the coal supply and
transportation industries, and the regulatory community. The compounded impact of
these two developments occuring together will likely result in the break-up of long
established patterns of interaction in favor of new and hopefully more efﬁcient
relationships. Thus both of these developments need to be kept in focus through

additional research and analytical policy impact studies.

6. Short-Term Future Studies - Rolling Forecasts.

In a few years it will be worthwhile to carry out an intermodal transportation
analysis that compares costs per ton mile for an all rail transportation route versus a
combined rail and vessel route from the Powder River Basin to a designated lower Lakes
port. The dynamics of rail transportation are becoming much more cost competitive with
the developing trend of unit trains that are composed of customer-owned, light weight
aluminum coal cars. As mentioned, in order to account for new technologies, policy

changes, and economic conditions it is prudent and reasonable to periodically reexamine

’. 9' “In.

 

E!"

113

all of the relationships highlighted in this study, perhaps every 3 to 5 years. Better to
invest in a sort of rolling forecast rather than to become wed to a certain set of longterm
outcomes whose unreliability may actually vary directly with their distance from the

present.

 

BIBLIOGRAPHY

 

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