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Basin Electric Power Cooperative
Kansas City Board of Public Utilities
Southern Minnesota Municipal Power Agency
Sunflower Electric Power Corporation
Tri-State Generation and Transmission Association, Inc.
Sikeston Board of Municipal Utilities
Arizona Electric Power Cooperative, Inc.
Arkansas Electric Cooperative Corporation
Arkansas River Power Authority
Associated Electric Cooperative, Inc.
The City of Grand Island
City Utilities
Colorado Springs Utilities
Dairyland Power
Great River Energy
Hastings Utilities
Heartland Consumers Power District
Lincoln Electric System
Lower Colorado River Authority
Missouri River Energy Services
Nebraska Public Power District
Silicon Valley Power
F U E L S A S S O C I A T I O N
2013/2014 Annual Report
WES
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S A S
S O C I AT I O N , I NC
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A N N I V E R S A RY
1974
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W E S T E R N
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About Us
A not-for-profit cooperative, Western Fuels Association
supplies
coal and transportation services to consumer-owned and
investor-owned electric utilities throughout the Great
Plains,
Rocky Mountain and Southwest regions. We currently serve a
wide variety of public power entities ranging from rural
electric
generation and transmission cooperatives to municipal
utilities.
Western Fuels Association provides its members with diverse
and extensive expertise in coal exploration, coal mining,
coal
procurement and transportation management.
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1
Selected Financials
Western Fuels Association, Inc. (In thousands)
Year Ended December 31 2013
Assets
Cash and cash equivalents $ 6,737
Investments available for sale 12
Accounts receivable:
Members 16,612
Affiliated companies 504
Other
Costs recoverable under coal purchase agreements (575)
Prepaid expenses and other assets 429
23,719
Investments in other organizations 575
Restricted investments in Western Fuels-Wyoming 34,010
Equipment and railroad properties, net 2,011
Furniture, office equipment and leasehold improvements, net
193
Total Assets $ 60,508
Liabilities
Accounts payable $ 16,720
Accrued interest payable 126
Advance collections for transportation costs 1,318
Notes payable
Capital lease obligations 1,010
Other notes payable
Deferred liabilities 773
19,947 Members Equity Initial membership fees 0
Patronage capital certificates 3,854
Per-unit retain certificates 2,564
Restricted equity in Western Fuels-Wyoming 34,010
Accumulated margin (deficit) 132
Unrealized gain on investments available for sale 1
40,561
Total Liabilities and Members Equity $ 60,508
Western Fuels Association, Inc. (In thousands)
Year Ended December 31 2013
Revenues
Total coal and transportation revenue $ 296,366
Cost of goods sold
Acquisitions
Transportation and delivery costs (289,233)
Total cost of goods sold (289,233)
Net operating revenue 7,133
Other income (expense)
Other income 783
Interest income 9
Annual membership fees 8
Interest expense (90)
Gain on sale of assets
General and administrative expenses (7,249)
Net margin (deficit) before income taxes 594 Income taxes
Net margin (deficit) 594 Investment in Western Fuels-Wyoming to
specific members 782
Unrealized gain (loss) on investments available for sale
Net Comprehensive Gain (Loss) $ 1,376
CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF
OPERATIONS
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CEO Message
Forty years ago, a circle of professional friends committed
themselves to the
advancement of rural electric cooperative interests in an
exceedingly challenging
business environment. They created Western Fuels Association,
Inc. (WFA), to
meet the need for long-term fuel supplies at consumer-owned
electric utility power
plants.
The details of the challenges to WFAs operations in 2014 are
significantly
different from those of 1974. But the founders legacy their
commitment to
deliver coal on a not-for-profit basis at the lowest possible
cost consistent with
sound business practices lives on. This year, we celebrate our
singular heritage
with a recollection of four decades of history.
While our founders could not have predicted the scale and manner
in which
WFA would evolve to meet member fuel supply needs, they would
share my pride
in this organization and our employees.
Fuel supply
WFAs primary responsibility is to deliver coal to its members
power plants
whether from mines managed by WFA or purchased from other coal
producers. By
providing these services our members are assured that the coal
they use to gen-
erate electricity for their consumer owners is affordable and
reliable. Coal remains
the nations consistently low-cost fuel supply and produces over
40 percent of the
electricity used in homes, business and industry throughout the
U.S. Sufficient
reserves exist to provide a reliable source of domestic energy
more than 200 years
into the future.
As was envisioned at the outset, Western Fuels coal acquisition
program
involves us in contractual relationships with a number of coal
producers. Most of
that coal originates from surface mines in the Powder River
Basin; the worlds most
prolific coalfield and a national treasure, though it's seldom
characterized that way.
Through management services agreements with Western
Fuels-Wyoming
(WFW) and Western Fuels-Colorado (WFC), WFA manages three
surface coal
operations in Colorado and Wyoming. The approximately 350
employees at the Dry
Fork, Colowyo and New Horizon mines supplied nearly one-third of
our members
annual coal requirements in 2013 and produced an additional 2
million tons for
sales to non-members.
Because WFA functions as both a coal buyer and coal seller, WFA
is uniquely
positioned in the coal industry. Our members benefit not only
from that market
knowledge, but also from our understanding of the cost to mine
coal, in evaluating
coal supply proposals. This translates to a better understanding
of the dynamics of
the thermal coal market as we are routinely in the market on
behalf of our members
for spot and long term coal purchases.
Mine Operations
Our coal mining operations are detailed mine-by-mine elsewhere
in the
annual report, however, two aspects merit mention here.
Lost Time Accidents are a familiar metric of employee health and
safety.
Western Fuels-Colorado employees at the New Horizon Mine in
Nucla, Colorado,
have worked more than three-and-a-half years without a single
Lost Time Accident.
In fact, there has been no reportable injury at New Horizon
within the last year!
Even though New Horizon is a small truck/shovel operation, the
fact the people
who work there can work that long without significant injury is
a testament to their
commitment to create a safe working environment for one another.
The Colorado
Mining Association recognized that accomplishment earlier this
year by awarding
New Horizon its small mining operation safety award.
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Western Fuels-Wyomings Dry Fork Mine enjoys an even longer
stretch without
a Lost Time Accident. Wyoming Governor Matt Mead recognized this
significant
achievement in awarding Dry Fork employees their first-ever
State Mine Inspectors
Small Mine Safety Award. Again this is a testament to people who
work together
committing to one another to create and maintain a safe work
environment. Their
commitment now extends to four-and-a-half years without a Lost
Time Accident
and almost two years without a reportable injury.
Western Fuels-Colorado only became responsible for operations at
Colowyo
Mine in the last few years. Over that time period they have
achieved a 40 per-
cent reduction in federal Mine Safety and Health Administration
citations. The
Colorado Mining Association (CMA), during its annual membership
meeting this
past February, recognized five innovative safety improvements
WFC has imple-
mented in Colowyo operations. Also at the meeting, a Colowyo
heavy equipment
operator, Robert Everette Jr, was recognized for having worked a
total of 30 years
at Colowyo without experiencing a single lost time accident.
Colowyo and Dry Fork mine employees have incorporated elements
of the
National Mining Associations CORESafety program into their
respective safety
processes. The goal of the CORESafety program is for the
industry to achieve
zero mine fatalities and a 50 percent reduction in reportable
injuries over the next
five years.
The second area I believe to be of great, but understated
significance, concerns
recent decisions by the WFW and WFC Boards of Directors in
authorizing the pur-
chase of new loaders. Loaders are the workhorse machines at the
mines and form
the backbone of coal production. The Boards decisions are an
affirmation of their
continued support and dedication to the associated mines to
increase productivity
and lower the cost of coal they consume.
Railroads
To meet soaring consumer electric-
ity demand during 2013/2014s harsh
winter, our members drew down coal
stockpiles to record low levels. With the
end of winter and the promise of bet-
ter weather, spring generally provides
an opportunity to replenish coal stock-
piles. However, 2014 is proving to be a
challenge.
We understand that harsh weather
conditions can disrupt rail, utility and mining operations
alike. But the current prob-
lem isnt related to coal production; its coal delivery. While it
would appear that WFA
is achieving above average success in our effort to replenish
member stockpiles,
we will continue our focus on rail logistics until each members
stockpiles reach
their target limits.
The BNSF Railway has committed itself to a 2014 capital budget
of $5 billion
for infrastructure improvements while adding 500 locomotives and
5,000 employ-
ees to improve productivity. This is happening because of
increased rail business
demand from nearly all aspects of BNSFs business units. But the
heightened
demand primarily is related to booming domestic oil production
from North Dakotas
Bakken oil field. The demand for oil transportation has exceeded
the capacity in
many areas of the existing trackage.
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Railroads do understand the importance of domestic thermal coal
production
and consumption to their bottom line and to their investors. We
know this because
they and the Association of American Railroads make substantial
contributions to
the work of the American Coalition for Clean Coal Electricity.
Utilities, coal produc-
ers, railroads and their suppliers are working together to
ensure that Americas
electricity consumers continue to have a coal option for their
electricity generation.
Distressing disharmony
That there would be repeated failure by a forty-year succession
of Democratic
and Republican presidential administrations and U.S. Congresses
to craft coherent
policies at the intersection of this nations vital energy and
environmental interests
would have been beyond the imagination of WFAs founders. The
lost treasure
and opportunities for everyone involved undermines our national
interest. The
cost of continued irresolution is a national disaster not yet
fully appreciated by
the American people. Without a reasonable National Energy
Policy, utilities will be
unable to effectively plan the next generation of electricity
supply due to constantly
shifting definitions of what constitutes good stewardship of air
and water quality.
WFA members serve the interests of people who live in the rural
areas and
smaller cities and towns across the Great Plains, throughout the
Rocky Mountain
West and in the Southwest. Our employees live and work in those
same areas.
For many it is a lifestyle choice. They live where they do
because they enjoy the
many benefits the area provides them and their families. They
know firsthand the
degree to which their work activity is regulated to protect air,
water and wildlife.
That WildEarth Guardians feels it necessary to single out
western coal mining
operations as beneficiaries of lax federal regulatory oversight
is not only unfair, it
is an inaccurate characterization.
The disruption in energy markets and operations resulting from
the recent
cascade of federal regulations intended to improve air and water
quality in a com-
pressed timeframe seems sufficiently punitive to have engendered
the war on
coal rhetoric. Regulations have outpaced efforts to devise,
demonstrate and
cost-effectively implement use of technologies capable of
meeting the revised
standards, including those involving carbon dioxide emissions.
The utilities that have
made good faith efforts to get ahead of the CO2 issue have been
denounced by
the very entities that insisted the effort be made. The
consequence is a narrower
base of options for maintaining the supply of electricity our
nation needs while
significantly inflating electricitys cost to consumers.
I will close this years message with an echo of last year's
message: Western
Fuels Association enters our 41st year of continuous service to
its membership in
the manner its founders intended. In behalf of consumer-owned
utility interests,
Western Fuels leverages economies of scale to deliver both the
lowest delivered
cost of coal and the highest level of fuel supply advocacy with
the expertise acquired
through 40 years of service to that cause.
DUANE RICHARDS
Chief Executive Officer and General Manager
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Dry Fork Mine
In 2013, mine production of 5.4 million tons was down from 2012s
record
6.0 million tons of production, but it was more typical of
production going for-
ward. About two-thirds of Dry Forks coal production is shipped
by rail. Half of
that is delivered to the Missouri Basin Power Projects Laramie
River Station at
Wheatland, Wyoming, and the balance to Basin Electric Power
Cooperatives
Leland Olds Station near Stanton, North Dakota; the Lower
Colorado River
Authoritys Fayette Power Project outside LaGrange, Texas; and
PacifiCorps
Dave Johnston Plant near Glenrock, Wyoming. The remaining third
of mine
production moves by conveyor to Basin Electrics Dry Fork
Station, the adjacent
mine-mouth power plant that began operation in 2011.
Dry Fork Mine continues to enjoy one of the lowest stripping
ratios in the
Powder River Basin. Mine operations moved about 8.7 million
cubic yards of
overburden in 2013 at a 1.6:1 stripping ratio. Mined land
reclamation continues
apace with land disturbance. This years conversion of a CAT 789
haul truck
into a larger 44,000-gallon water truck, enables the mine to
water haul roads
with a single, road-wide pass. This enhances the mines ability
to control dust
and meet mine safety and environmental standards.
In July 2014, Wyoming Governor Matt Mead presented Dry Fork Mine
with
the Wyoming State Mine Inspectors Mine Safety Award for a small
mining
operation (operations with fewer than 500,000 man-hours in a
year). At about
Mine Highlights
As of the end of June 2014, Dry Fork Mine has operated 4.5 years
without a
lost time accident and almost two years without a reportable
injury.
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View of silos over reclaimed pond at Dry Fork Mine.
161,000 man-hours in 2013, this is the first time Dry Fork Mine
has received
this award recognizing its employees safety efforts. As of the
end of June
2014, Dry Fork Mine has operated 4.5 years without a lost time
accident and
almost two years without a reportable injury. In a further
commitment to the
health and safety of its employees, Dry Fork Mine has joined the
National
Mining Associations CORESafety Initiative.
New Horizon Mine
Operations at Western Fuels-Colorados New Horizon Mine were
dom-
inated by the closing and reclamation of the mines previous pit
and the
beginning of operations at nearby New Horizon North. Combined
production
in both locations totaled 209,602 tons in 2013.
Preparations for the move to New Horizon North began in the fall
of 2012
with a contractor removing and storing topsoil from a reclaimed
strip of an
adjacent former Peabody mining operation. A delay in issuance of
an interim
air-quality permit meant that once the permit was received in
August 2013,
there was a very compressed timeframe for moving and assembling
the
mining equipment and beginning to remove previously undisturbed
topsoil
for creation of the initial box cut prior to initiation of coal
mining. November
marked the first coal delivery from New Horizon North to
Tri-State Generation
& Transmission Associations Nucla Station.
There were no lost time accidents in New Horizon mining
operations
during 2013, extending a record begun on September 8, 2010.
Additionally,
there were no reportable injuries at the mine in 2013. New
Horizon received
two significant awards in 2013: the Colorado Mining Associations
Safety
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Award for a small mining operation and a Pollution Prevention
Award recog-
nizing innovations in the mines recycling program.
Colowyo Mine
2013 and early 2014 have been a time of transition for Western
Fuels-
Colorados Colowyo Mine. Safety continued as a top priority and
resulted in a
40 percent reduction in federal Mine Safety and Health Agency
citations over
the last several years.
Installation of a Cat MineStar equipment-monitoring system
during 2013
is paving the way for mining engineers to evaluate methods of
increasing
the efficiency of mine operations through acquisition of
real-time operational
statistics. The system tracks production and task training,
provides real-time
equipment tracking and monitors equipment health.
Underground Mining Solutions (UGM) began highwall mining using
its
proprietary ADDCAR Mining System coal recovery technology in the
South
Taylor Pit late in 2013. In nine months of operation, the
highwall miner produced
600,000 tons of coal for shipment to Tri-State Generation and
Transmission
Associations Craig Station.
Colowyo completed two decades of surface mining operations in
the
West Pit during 2013. Highwall mining coal recovery began here
in 2014 and
will continue into 2015 in preparation for reclamation of the
site.
Another milestone was reached in 2013, after South Taylor Pit
develop-
ment began in 2007 to create the 450-foot deep 4,000-foot long
boxcut, so
that the truck/shovel operation could transition into dragline
operations.
Work that continues into 2014 replaces the primary road that
provides
access to the South Taylor Pit, allows for reclamation of the
West Pit and
Backfill opeations at New Horizon Mine.
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Colowyo employees survey activity in West Pit.
reduces both the distance and grade along the route. Such
seemingly subtle
improvements (1000 feet shorter distance and a reduction in
grade maximum
from 11 percent to 8 percent) are expected to achieve
significant savings in fuel
consumption, equipment maintenance, and repair costs over the
life of the South
Taylor Pit.
Implementation of a Leadership Development Program has been a
primary
contributor to Colowyos 2013 safety accomplishments. Various
training modules
are used to promote supervisory leadership to enhance safety and
respect in the
workplace. Meanwhile a dozen practical procedures and processes
have been
incorporated into the Colowyo Safety Toolbox to guide safe work
behaviors.
During 2013, Colowyo shipped 2,170,950 tons of coal to the Craig
Station
and moved 22,736,000 cubic yards of overburden. As part of the
mines ongoing
reclamation program, 97 acres were regraded and topsoil was
replaced on 163
acres prior to seeding.
The Colorado Mining Association recognized Colowyo Mine with
seven awards
during its April 2014 annual conference. Equipment operator
Robert Everette Jr.
received individual recognition for working more than 30 years
without a lost time
accident. Another five awards highlighted innovative safety
improvements in mine
operations. The seventh was a Pollution Prevention Program Award
for enhance-
ments in waste handling.
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Western Fuels mining operations at Dry Fork, New Horizon and
Colowyo are
experiencing significant transitions as they prepare to meet
member needs well
into the future. The accumulated experience of the mine managers
and workforces
assures sustained value as the mines operate for the benefit of
particular members:
Tri-State Generation and Transmission Association (at Colowyo
and New Horizon)
and Basin Electric Power Cooperative (Dry Fork).
Dry Fork evolves
Western Fuels-Wyomings Dry Fork Mine
reserve consists of relatively low-Btu coal but
continues to enjoy one of the lowest stripping
ratios in the Powder River Basin (PRB). Dry Fork
has been ranked one of the top producers in the
PRB on a tons per man-hour basis, according to
the National Mining Association.
Developed to provide supplemental coal for
the Missouri Basin Power Projects Laramie
River Station (LRS) at Wheatland, Wyoming,
Dry Forks production continues to serve as a
hedge, helping assure fuel price stability for the
power plant. While the mine continues to deliver on that promise
under Dave
Gauntner's management, Basin Electrics decision to construct Dry
Fork Station
on the property as a mine-mouth facility magnifies those
original advantages.
Because Dry Fork Station is specifically designed to use Dry
Fork Mine coal,
careful monitoring of coal quality during production often
enables the mine to cull
higher-quality coal for use at LRS and for sales into the spot
market while meeting
Dry Fork Stations day-to-day needs.
The mine and power plant are named Dry Fork because the Dry Fork
of the
Little Powder River runs through the property. Because of that,
water flows not
only on the surface but in several directions underground as
well. It long has been
an operations routine to dewater the coal in advance of mining,
not only to increase
its heating value but also to ease the work of the loaders used
to place coal into
haul trucks. A wet floor in the pit creates operational
difficulties and problems for
equipment. Wet coal also presents challenges in operation of the
mines preparation
plant.
In 2019, coal mining is expected to begin in Pit 1A a
re-orientation of the
current Pit 1, which is reaching the limit of its current mining
direction. Because the
geology in Pit 1A will make for even wetter mining conditions
than normal, extra
effort will be necessary to dewater the coal ahead of mining. As
a consequence,
mining engineers have budgeted for a program of dewatering the
coal further
ahead in time than is the current practice.
Colowyo recovers highwall coal
At 8,000 feet up in the Rocky Mountains south of Craig,
Colorado, Colowyo
Mine Manager Chris McCourt and his staff are engaged in mining
operations that
differ significantly from those in the Powder River Basin.
In the Powder River Basin (PRB), overburden is stripped back,
and seams of
coal, often more than a hundred feet thick, are exposed for
mining. At Colowyo,
12 seams of coal ranging from 18 inches to 18 feet thick are
separated by interbur-
den that tends to be harder than that encountered in the PRB. As
a consequence,
Colowyo operations not only shoot (blast) the coal, but the
overburden as well.
Mining has left highwalls exposed in Colowyos West and South
Taylor Pits
in the West Pit because pit advancement has come to an end and
in the South
Taylor Pit, as a consequence of boxcut completion. In both
instances, one can
easily discern the various strata of rock and coal across the
face of the highwall.
UGM has brought its ADDCAR highwall coal recovery technology out
West to
Colowyo. UGMs system incorporates a rotating drum on the
machines business
end similar to that of a continuous miner used in underground
operations to gouge
coal from the seam. The ADDCAR system replaces the shuttle cars
that haul coal
Meeting the Challenges of the Future
Dave Gauntner
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away from the continuous mining machine in an
underground operation with a series of cars
or conveyor belt flights that are attached to the
rear of the highwall miner (HWM). As the HWM
gouges up to 1,400 feet into the coal seam at the
base (toe) of the highwall, cars are added as the
miner pulls the one ahead deeper into the seam.
The HWM is operated from a two-story-tall
armored enclosure outside in the pit, along the
toe of the highwall. The operator is protected
inside the machine, which is a bit longer than one
of the ADDCAR conveyor flights. The operator
uses computer-based technology and video equipment to monitor
mining condi-
tions within the seam.
In the West Pit, the HWM is working its way along the F coal
seam and
leaving behind a series of seam-thick, rectangular mouse holes
from which
coal and the miner have been extracted. Each hole is separated
by a pillar of coal
approximately 13 feet wide. Once the miners work along the seam
is done, the pit
will be backfilled as part of the reclamation process to create
a ramp along which
the HWM will recover coal from the E seam, which now is high up
on the wall.
Over in the South Taylor Pit the boxcut has been completed and
awaits arrival
of a dragline to begin removing overburden to advance the pit.
Here UGMs HWM
will be used to mine a high-quality seam that now is halfway up
the highwall.
Initial dragline operations will backfill the South Taylor Pit
box cut to an elevation
permitting access to that seam by the HWM.
Combined use of the HWM and surface operations produce coal for
Tri-States
Craig Station, while permitting progresses so that mining can
begin in the Collom
Pit, the site of a nearby reserve.
Collom Pit operations represent the future of Colowyo
operations. Although a
mining permit has already been secured from the State of
Colorado, federal approval
is under further review with particular attention to the
environmental impact of
operations on sage grouse breeding grounds.
New Horizons challenges
Operating a truck/shovel mine within the
bounds of restrictive environmental permits
is proving to be an ongoing challenge for New
Horizon Mine Manager Rick Wolney and his
team on Colorados Western Slope, near Nucla
in the southwest corner of the state.
Over the last year, New Horizon has had to
operate under limited, temporary authorizations
prior to receiving final permits. That has impacted
the ability to assemble mining equipment and
begin preparing a new area of the reserve for
mining north of the original operations. This was coupled with a
delay in the air
permit that governs how many tons of overburden or coal can be
moved each day;
the number of miles traveled by haul trucks; the number of hours
dozers operate,
and the size and number of shots that can be made to loosen
overburden for
the mines hydraulic shovel to load into haul trucks.
As mining engineers developed their plans for accessing the
million-ton reserve
over the next five years, it became apparent that a drainage
draw which passes
through the middle of the property must be protected. Wetland
protection ultimately
will require an additional boxcut to access the 12 to 16 inch
thick Upper Dakota
coal seam and the 5 to 6 foot thick Lower Dakota on the north
side of the draw.
Meanwhile, final reclamation of the New Horizon 2 Mine is
underway. Final
overburden placement and grading, topsoil replacement and prime
farmland resto-
ration is continuing. These activities, when complete, will
begin the final reclamation
bond release period.
Chris McCourt
Rick Wolney
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1974
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Western Fuels Associations story ranks as nothing less than a
classic American response to a national crisis through application
of ingenuity, drive
and regional cooperation. Western Fuels calls itself the
national fuel supply cooperative. We have operated for 40 years on
a not-for-profit basis as
the nations only coal supply and transportation cooperative
supporting electricity generation by its member consumer-owned
utilities. Our operations
span the Great Plains, Rocky Mountain West and Southwestern
states. In its first decade of operation, Western Fuels emerged as
the nations
single largest purchaser and shipper of coal from Wyoming and
Montanas Powder River Basin (PRB), an area of such resource
abundance that in and
of itself legitimizes the claim of the United States as the
Saudi Arabia of coal.
Anyone younger than fifty years of age is unlikely to appreciate
the experience of the Organization of Petroleum Exporting Countries
(OPEC) oil
embargoes. Those economic cataclysms gave rise to the
energy-independence rhetoric that stokes energy, environmental and
foreign policy debates
to this day. The majority of the population residing on the East
and West coasts is likely unfamiliar with or never learned about
cooperatives as a form
of business. The energy crisis forced action, and in Western
Fuels case, cooperation became the business response.
OPEC embargoes
OPEC's oil embargoes served as the opening salvos in their
assertion of economic and political relevance in the 20th Century.
OPEC put the West
on notice that Middle Eastern geopolitics pose a national
security concern far from the oil fields. The economic and
psychological effects of volatile and
dramatically higher petroleum prices systematically riddled
Western economies where dependence on cheap oil had become endemic.
President Jimmy
Carter called for an energy policy response. The federal coal
reserves in Wyoming and Montana emerged as a critical area to meet
America's energy
needs. Domestic oil companies had years before secured leases to
the low-sulfur coal reserves in the PRB. They had not done much
with them in the
absence of sufficient economic incentive. OPECs embargoes
provided the catalyst. With electricity fast emerging as the
primary source of energy in
Our Story
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12
American homes, businesses, and industry, coal was the least
expensive domestic fuel available for electricity generation. There
was a sticking point,
however: petroleum is pervasive in the surface mining of coal.
Not only would the value of coal be driven higher in competition
with oil, the cost of
mining coal would rise on higher-priced production inputs. No
one understood this better than the oil companies with the federal
leases.
Western Fuels cooperative roots
The Depression-era experience of the Dust Bowl years gave rise
to an era of giant power. Building upon the experience of federal
dams constructed
for flood protection, water conservation and electricity
generation along the Tennessee, Colorado and Columbia river
systems, farmers, ranchers and
smaller communities along the Missouri River were promised
hydroelectricity on a preferential basis. Investor-owned utilities
had repeatedly demon-
strated their narrow focus on profitable population centers, all
but ignoring rural areas where the number of consumers per mile of
transmission line to
reach them rendered electricity service unprofitable.
In the Dakotas, a strain of prairie populism emphasizing
agrarian self-sufficiency had already emerged. Farmers organized
themselves into cooper-
atives to help market the fruits of their labors and supply
themselves with the production inputs they required feed, seed,
fertilizer, fuel, etc. on a
not-for-profit basis. It seemed logical to extend this
experience of consumer-owned, democratically governed, cooperative
business to other challenges
electrical service prominent among them. Western Fuels founders
had deep experience in this approach to problem solving and doing
business.
By 1963 when it became apparent the era of giant power was
nearing its end, rural leaders perceived a threat to sustained
economic growth and
development. Having already organized themselves into
distribution cooperatives to deliver the federally generated
electricity to their farms, ranches
and communities, the distribution co-ops further organized
themselves into generation and transmission cooperatives (G&Ts)
to produce and deliver
the electricity needed to meet increasing consumer demand.
G&Ts like North Dakotas Basin Electric Power Cooperative,
Tri-State Generation and
Transmission Association in Colorado, and Cajun Electric Power
Cooperative in Louisiana were instrumental in creating Western
Fuels Association.
What follows is a brief history of the organization they created
and which, this year, celebrates its 40th anniversary.
Duane Richards
Chief Executive Officer and General Manager
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Ken Holum, Western Fuels Associations first General Manager,
keenly felt
his fathers helplessness upon losing three wheat crops to the
droughts of the
1930s. Operating the family farm in northeastern South Dakota in
the 1940s and
1950s stimulated in him a desire to improve conditions for rural
families. He helped
organize and manage rural electric cooperative organizations,
including his local dis-
tribution cooperative Northern Electric East River Electric
Power Cooperative
and the Mid-West Electric Consumers Association.
He served in the South Dakota Legislature from 1949-53 and in
1954 decided
to run for the U.S. Senate, even though it had been 18 years
since a Democrat had
held statewide office. He ran again in 1956, and his razor-thin
loss attracted the
attention of national party leaders. Then President-elect John
F. Kennedy appointed
him Assistant Secretary of the Interior for Water and Power
Development and when
he left the Department of the Interior at the end of the Johnson
Administration,
Holum opened a consulting business in Washington, DC.
Basin Electric Power Cooperative, Tri-State Generation and
Transmission
Association, the Lincoln (Nebraska) Electric System, Missouri
River Energy
Services, Wyoming Municipal Power Agency and Heartland Consumers
Power
District recognized that the upper Great Plains would need
additional electricity
generation capacity by 1977. They became partners in the
Missouri Basin Power
Project (MBPP) to build what would become a three-unit,
coal-fired, 1710 MW
power plant. They retained Ken Holum & Associates to
identify potential water and
fuel supplies for the power plant and acquire the land necessary
for its construction
in Wyoming or either of the Dakotas.
In his 1987 memoir, A Farmer Takes a Stand, Holum explains what
he saw as
the four keys to successful power plant siting for the MBPP.
There must be a substantial footprint of land available.
Abundant open space
nearly defines Wyoming and the Dakotas.
A coal-fueled power plant requires a long-term supply for the
never-ending
stream of coal feeding its boilers. Massive federal coal
resources were under
lease or available for lease in the Powder River Basin (PRB) of
Wyoming
and Montana.
Coal consumption would be so enormous that trucking would prove
to be
impractical. Either the facility needed to be close to a mine or
along a major
railroad. The Burlington Northern and Chicago Northwestern/Union
Pacific
railroads were expanding operations in the PRB.
Finally, there must be abundant water to create the super-heated
steam that
spins the generators turbines and for power plant process water.
That seemed
likely to be the greatest challenge in the arid West.
The MBPP partners wanted to take advantage of U.S. Rural
Electrification
Administration (REA) low-interest financing for their project,
but REA required
assurance of a dependable, long-term fuel supply. With OPEC era
energy markets
in turmoil, Holums difficult and frustrating assignment to nail
down a fuel supply
eventually led to the creation of Western Fuels.
Two events influenced the thinking of energy executives: The
OPEC oil embar-
go and a federal court decision in Sierra Club v. Morton, a
lawsuit that stopped all
leasing of coal on public lands, Holum wrote. The energy
companies began to
say and think a BTU of coal in Wyoming is as valuable as a BTU
of oil in Kuwait.
They were waiting for the new higher oil-indexed prices they
anticipated and were
refusing to make quotations.
With Cajun Electric Power Cooperative experiencing the same
predicament
in securing its fuel supply, Holum was convinced that the
ability to bring a large,
collective demand to market would help both the MBPP and Cajun
Electric strength-
en their bargaining positions. In 1974, he explored the concept
of a fuel supply
cooperative with Cajun manager Merl Burgin during the National
Rural Electric
1974IN THE BEGINNING
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Cooperative Associations (NRECA) annual meeting. When the two
shared their
idea with Tri-States executive vice president, Wendell Garwood,
and Basin
Electrics general manager Jim Grahl, both were intrigued.
Although Cajuns
Board of Directors was divided on whether to participate,
Tri-States president,
Everett Chesney, Basin Electrics president, Art Jones, Grahl,
Garwood, Holum,
and Wheatland, Wyoming attorney Don Sherard began hammering out
details.
With their focus on western coal resources, they settled on
Western Fuels
Association as the name for their Wyoming not-for-profit
corporation and elected
Chesney as President and Jones, Vice President. Garwood served
as secretary-trea-
surer and Sherard as corporate counsel. Holum was named general
manager while
maintaining his independence as an energy consultant.
Basin and Tri-State agreed to finance Western Fuels with loans
to be reimbursed
once coal deliveries began earning margins. In the language of
cooperatives, a
margin represents revenue above current expenses. Cooperative
member-owners
impose a margin on themselves through direct democratic
participation in their
cooperative.
When Cajun Electric joined the two founding members in November,
it was
time to structure a Board of Directors.
Class A members provide initial capital and sign contracts with
Western Fuels,
agreeing to use the Association for all future fuel
requirements. They get two seats
on the Board. Burgin and Cajun president Alfred Bubba Robinson
joined Jones
and Grahl (Basin Electric) and Garwood and Chesney (Tri-State)
as Directors.
Members who enter into an agreement to purchase coal from WFA
are Class
B members and have a single seat on the Board. Class C members
pay annual
dues and are kept abreast of Western Fuels activities in
anticipation of future fuel
requirements or other services.
Coal supply contracts
Once the MBPP decided on Wheatland as the site for the Laramie
River Station,
Wyoming Governor Stan Hathaway told Holum he wanted to help the
power plant
secure the fuel it required. Western Fuels began receiving coal
supply offers and
signed its first contract with Sunoco Energy Development Company
for 60 million
tons to be delivered over 20 years.
Other contracts and companies soon followed: Carter Oil Co.
(later Exxon
U.S.A.) at 73.5 million tons over 25 years and; Kerr-McGee Coal
Corporation for 16
million tons over 5 years; Shell Oil (Triton Coal Company) at 60
million tons and 15
years; and Mobil Oil Corporations Energy Mineral Division with a
50 million ton,
20-year commitment.
Upon execution of the coal supply contracts and a corresponding
Fuels Supply
Agreement with MBPP for the Laramie River Station, Western Fuels
was officially
in business.
At the energy companies insistence, early coal contracts
contained provisions
for reopeners to align prices with the current market in the
event that elaborate
escalation provisions failed to fully capture the cost of
production. At the time,
the REA and some of Basin Electrics members preferred
fixed-price contracts. It
wasnt very many years before those market price reopeners cut
the other way
to benefit Western Fuels members.
The pivotal years
By 1979, Western Fuels membership had expanded beyond Basin,
Tri-State,
and Cajun Electric to include the Kansas City (Kansas) Board of
Public Utilities
(KCBPU), Sunflower Electric Power Cooperative, Plains Electric
Generation
and Transmission Cooperative, Sikeston (Missouri) Board of
Municipal Utilities,
North Carolina Membership Corporation, and municipal utilities
in Springfield and
Independence, Missouri, and in Rochester, Minnesota.
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At the time, Board President Everett Chesney opined, In a real
sense, the
requirements that led to Western Fuels creation have been
satisfied. We can
supervise our existing contracts, manage our trains, keep our
bills paid as they
come due, and say to ourselves that having done that, weve
accomplished our
mission. After completing this initial phase, Western Fuels
members then chose
a more expansive path. They decided to develop the cooperatives
first mining
operation, pursue additional coal supply responsibilities, and
involve the Association
in governmental affairs at the national, state, and local levels
in hopes of guiding
energy and environmental policy.
The roster of early employees reflects those decisions. Bob
Norrgard left the
St. Paul Bank for Cooperatives to become Manager of Finance and
Administration.
Lloyd Ernst, with his Basin Electric experience in managing
socio-economic mitiga-
tion for the Laramie River Station, became manager of
operations. Orren Beaty, a
Holum colleague at Interior, handled federal and state
legislative relations. Cameron
Engineers Don Deardorff opened the Lakewood, Colorado, Office of
Engineering
and Exploration. Fred Palmer moved his office from Duncan
Weinberg Palmer &
Brown to supervise contracts and other legal matters as general
counsel.
Western Fuels was not forecast to earn its first margin until
1981. It happened
sooner, in six years rather than seven, with a net margin of
$1,306 in revenue
above $66 million in operating expenses. It would have been
difficult to have hit
our non-profit goal more precisely, Holum quipped.
When Holum retired on March 1, 1985, the board of directors
named Fred
Palmer to replace him as general manager.
The economic environment in which we operate is in acute
distress, Palmer
said at the time. 1982s dramatic recovery in financial markets
bypassed rural
America, heavy industry, and the minerals and energy sectors.
Palmer called on
those doing business with Western Fuels to preserve long-term
profitable rela-
tionships in exchange for a short-term diminution of profits. He
and Manager of
Corporate Affairs Hank Walters began an aggressive program to
achieve lower
contract prices under prevailing market conditions using the
very contract reopeners
that had been designed to justify higher prices.
Cajun Electric, Southern Minnesota Municipal Power Agency
(SMMPA),
Basin Electric, and Tri-State realized lower fuel costs from
those efforts. Litigation
settlements benefited Cajun Electric and SMMPA. An appeal of
federal royalty
rates reduced fuel costs for Deseret, a rural electric
distribution cooperative along
the Colorado Utah border. Refinancing activity lowered costs for
Plains Electric.
Transportation negotiations yielded rate reductions and price
stability for Sunflower.
New rail contracts resulted in lower-cost deliveries for
KCBPU.
Western Fuels celebrated delivery of its first 100 million tons
of coal supply at
the end of 1988. More than 85 percent originated from Powder
River Basin surface
mines and relied on the Burlington Northern railroad to haul the
coal.
Things pivot the other way
In 1995 two events motivated the board of directors to move
Western Fuels
headquarters from Washington, DC, to Denver, Colorado. There
were disconcerting
changes in the Illinois Basin market, triggered by changes in
the Clean Air Act and
the shifting role of competing fuels, that impacted operation of
the Brushy Creek
Mine for the benefit of Sikeston and Kansas City. Additionally,
both Cajun Electric
and Deseret were experiencing financial turmoil that cast their
futures in doubt.
Deregulation of electricity markets contributed to Cajuns
problem. Absence of
significant load growth within Deserets service territory
contributed to its financial
issues. The combination of these potential financial challenges
for the mine and
members threatened a third of Western Fuels business.
Most senior staff made the move to Denver while CEO Fred Palmer
remained
behind in a small office suite in NRECAs headquarters building
in order to maintain
Western Fuels Washington presence.
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The subsequent bankruptcy of Cajun Electric and financial
reorganization at
Deseret, coupled with changes in operation of the Brushy Creek
Mine, confirmed
its necessity.
Palmer retired as general manager/CEO in 2000, and Bob Norrgard
succeeded
him as General Manager.
Evolution to the next stage
Dramatic spikes in natural gas prices in the early 2000s induced
fundamental
changes in the way financial markets perceived coal and coal
transportation services
to be commodities. Recognizing the concentration of market power
in the Powder
River Basin the principle source of Western Fuels coal the board
of directors
believed their fuel supply cooperative needed to develop new
procurement skills
and strategies. They hired Duane Richards as general manager/CEO
in mid-2004.
Ten years later, Richards focus remains on delivering benefits
to WFA mem-
bers. As he sees it, the organization they created in 1974 has
evolved in its ability
to apply unique knowledge of coal markets, because Western Fuels
is both a
buyer and seller of coal and a constant presence in the
marketplace in behalf of
one member or another. With responsibility for railcar
maintenance and logistics,
the knowledge Western Fuels brings to the table in negotiation
of transportation
agreements is greater than that of any one member.
Like Holum before him, having grown up on a rural electric
cooperative system
in Minnesota, Richards understands the fundamental strength of
consumer-owned
business. Working with an investor-owned utility earlier in his
career proved to
him that potential benefits to ratepayers dont often happen if
they cost investors
capital.
Every decision we make whether by the board of directors or the
man-
agement team and staff is in pursuit of consumer benefit.
Whether its a rail
rate case, routine coal supply negotiation, change in mine
operations or the way
we manage our railcar fleet, our effort is focused on achieving
the lowest possible
cost consistent with sound business practices, Richards says.
Through our mem-
bers, Western Fuels serves the electricity consumer at the end
of the line. They
arent simply a customer to us or a source of revenue that
consumer owns us.
Through their democratically elected representatives on their
local cooperative or
municipal utility board, all the way up the chain, they control
this one of a kind fuel
supply business. I feel that responsibility to our
consumer/owners every day.
WESTERN FUELS AND Rail Operations
Securing transportation of coal from mines to member power
plants is a critical
component of Western Fuels operations.
In 1978, railroad incentives for shippers to own their own cars
resulted in an
order for the first 242 railcars bearing the WFAX ownership
designation. The board
authorized hiring employees to manage railcar maintenance,
schedule unit-train
shipments, oversee car loading at the mines and assure coal
quality for optimal
power plant boiler performance.
Jim Kaufman oversaw railcar maintenance from Alliance, Nebraska.
Rod Wolf
handled relations with the mines and railroads at Gillette,
Wyoming.
Leveraged leasing was used in 1979 to add 452 railcars to the
growing WFAX
fleet for service to the Missouri Basin Power Projects Laramie
River Station (LRS),
Kansas City (Kansas) Board of Public Utilities Nearman Station
and Cajun Electric
Power Cooperatives Big Cajun #2.
To achieve maximum flexibility in using WFAX trains at various
member power
plants with different coal-dumping systems, in 1983 Ortner Rail
Car Company
received Western Fuels order for a pool train of 115
specially-built cars unique
in U.S. rail operations.
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The pool train could be bottom dumped like traditional gondola
cars or through
dumpers using rotary-couplings that enabled coal to be unloaded
out of the tops
of the cars. The train quickly became a favorite among rail fans
stuck at crossings
and used to staring at 110 identically colored (usually black)
cars rolling by. Ortner
painted horizontal yellow, orange and red stripes along the cars
sides, earning it
the nickname "The Rainbow Train". The racing stripes soon became
a theme for
the Deseret-Western Railway and Escalante-Western Railway
equipment as well.
By late 1985, the WFAX fleet consisted of 745 cars. The Alliance
office
was closed to take advantage of a new PLM Railcar Maintenance
facility at Bill,
Wyoming. Fleet management was transferred to Wolf and the
Gillette office at that
time. As of today, Western Fuels owns and maintains 1,700
railcars comprising over
15 unit-train sets and continues to manage the fleet through the
Gillette office.
Escalante-Western Railway
After executing a 1982 coal supply contract with SF Coal
Corporation to supply
Plains Electrics Escalante Generating Station west of
Albuquerque, New Mexico,
Western Fuels began to operate a 43-car (now 52-car),
rotary-dumped unit train for
the 42-mile journey along the Lee Ranch Spur from the power
plant to the mine.
Under the initial arrangement, Atchison Topeka & Santa Fe
Railroad (ATSF)
employees operated the three remanufactured diesel locomotives
while Western
Fuels staffed an equipment maintenance and repair shop. It
proved to be ineffi-
cient for the train to leave the power plant and enter a short
stretch of the ATSF
high-speed east-west mainline, only to be diverted onto the Lee
Ranch Spur a
short distance east. Construction of a 4.5 mile
Escalante-Western Railway Spur
connecting the Lee Ranch Spur to the power plant loop remedied
the problem.
In 1986, Western Fuels employees became certified engineers and
conduc-
tors, replacing the ATSF crews. Their productivity in continuing
to perform diesel
and electrical maintenance reduced crew size, enhanced
coordination of operations
and resulted in lower member costs.
Transportation contract negotiations
Generally, Western Fuels seeks a long-term agreement with price
stability
throughout each year of a rail transportation contract and a
rate reduction if it
seems warranted. Achieving these goals has been an ongoing
challenge. To ensure
that members receive the lowest possible rates, it has been
necessary for Western
Fuels to file formal complaints with regulators at the Surface
Transportation Board
(STB).
Little is served in recounting and reciting the series of
negotiations, settle-
ments, and decisions that have found for one side or the other
over the 40 years
of Western Fuels existence. Western Fuels efforts to deliver
coal to its members
at the lowest possible cost consistent with sound business
practices, is a key
measure of success in service to its members. Therefore WFAs
laser-like focus
on the cost of rail transportation can hardly come as a
surprise.
RAILROAD Advocacy
Coals delivered price has two components: the price of its
purchase and the
price for delivery to the power plant. Of the two, the price of
delivery is generally
higher. This is because it is often subject to less competition
as a consequence of
either the mine, the power plant or both being served by a
single railroad.
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Mining coal in the Powder River Basin (PRB) is relatively low
cost because of
thick seams and thin overburden. Because clean-air policy favors
low-sulfur coal,
PRB producers believed the combination of economic and
regulatory attractiveness
would make them prime beneficiaries of a utility turn to Western
coal. However,
the market for PRB coal is constrained by the transportation
rates offered by the
carriers serving the area mines. The combined effects of limited
rail access to PRB
mines and the deregulatory climate in Washington, DC, enabled
railroads, using a
variety of techniques, to harvest economic rent created by the
increased value of
Western coal.
Early on, the railroads charge for hauling Wyoming coal to Texas
represented
75 percent of its delivered cost. On hauls to Kansas,
transportation was well over
half the coals delivered cost. Even on a short haul within
Wyoming, transportation
represented 40 to 50 percent.
In 1982, Burlington Northern, without prior negotiation,
unilaterally filed a tariff
that dramatically changed the formula for escalating the cost of
coal delivery. On
behalf of three affected members, Western Fuels filed suit in
Wyoming Federal
District Court charging BN with breach of contract and violation
of antitrust laws.
It took two years, but the lawsuit was settled out of court and
the contracts
extended well into the future. WFAs new general manager, Fred
Palmer, had
managed the litigation as general counsel. The experience left
him convinced of
three things: Railroads 1) when able to do so, will
differentially price their service; 2)
allocate markets among themselves, and 3) have the ability to
influence the relative
cost of power charged by utilities that compete with one another
for customers.
Western Fuels and others began making arguments before the
Interstate
Commerce Commission (ICC) concerning the railroads market power.
By way
of example, Western Fuels and other shippers protested the
railroads refusal to
share with them savings achieved through increased productivity.
The ICC agreed
that the savings should be shared. The result was a lower
delivered price of coal.
Railroad Deregulation
The Railroad Rehabilitation and Reform Act of 1976 had set the
stage for vir-
tual deregulation of railroads. In passing the Staggers Rail Act
in 1980, Congress
believed regulation had been achieved. In fact, the railroads
were only partially
deregulated, because the Act forced reliance upon the ICC for
captive shipper
protection.
A round of rail industry consolidation and mergers in the
mid-1990s ignited
Western Fuels member frustrations over the railroads tactical
pricing for captive
shippers. When the ICC considered the merger of the BN and
Atchison Topeka
& Santa Fe railroads, Western Fuels asked the railroad and
ICC to grant certain
trackage rights. When neither was responsive, Western Fuels
joined Consumers
United for Rail Equity (CURE) to work with other shippers of
bulk commodities in
seeking to amend transportation law and effect meaningful
regulation for captive
shippers.
The railroads continued dismissal of captive shipper concerns
and the absence
of timely, effective ICC regulation convinced Congress to
terminate the agency in
1995. In its place, it created the Surface Transportation
Board.
Continued deterioration of rail service led Western Fuels in
1997 to help form
a broader coalition of shippers to pursue rail regulatory reform
by Congress. Called
the Alliance for Rail Competition, ARC continues its efforts to
ensure reasonable
rail transportation rates to this day. Western Fuels leadership
and participation in
ARC and the Western Coal Traffic League affords its members
additional leverage
in focusing the STB on the various financial and service issues
that confront a
broad-based coalition of shippers, not simply those delivering
coal.
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expanding industry on local units of government. Once $160
million had been col-
lected, the taxation was to cease. When it didnt, Western Fuels
and the Wyoming
Mining Association challenged the state attorney general and in
1987 prevailed
before the Wyoming Supreme Court, saving electricity consumers
$16 million in
1988 alone.
Late in the first Bush Administration, a push for deficit
reduction led to a pro-
posal for a BTU tax to achieve environmental objectives.
Although dismissed by
environmental activists as just another pleading by a special
interest, Western
Fuels opposed the tax because of its impact on consumers.
As Board President Charles Underwood explained in 1992, Western
Fuels
and its member/consumer-owned utilities do not simply speak for
coal or seek
to defend consumer-owned utilities investment in billions of
dollars of coal-fired
electric generation facilities, although we do both of these
things. Rather we unite
our voices on behalf of the people who use the electricity we
generate the con-
sumers who actually own the utility that serves them.
The newly elected Clinton/Gore Administrations advocacy of the
BTU tax lent
it an aura of political inevitability. The shock upon its defeat
shifted the momentum
to do something about fossil fuel use to the states.
Doing something about CO2
The focus on carbon dioxide began in 1988 with NASA scientist
Jim Hansens
testimony before a U.S. Senate sub committee. Hansen told the
senators that his
study of computer-based climate models convinced him that the
planet was seeing
the first signs of human-caused warming. He prescribed severely
curtailing CO2
emissions.
Former Manager of Communications and Advocacy Ned Leonard
recalls how
quickly Fred Palmer grasped the threat to his members. If theyre
going to control
CO2, he remembers Palmer saying after reading the sub committee
proceedings,
theyre going to have to do something about fossil fuels. They
wont tax auto
BTU TAX, EXTERNALITY &
Climate-Change Advocacy
Like it or not, General Manager Ken Holum explained in
1978, we have found ourselves to be one of the organizations
attempting to get the ear of government decision makers.
We support legislative and executive branch decisions that
achieve conservation and best possible use of resources.
We are committed to environmental protection, but we are
equally
concerned about the costs paid by consumers and consider
it to be essential that the nations energy needs be met from
domestic resources. We deplore activities that will inevitably
lead
to energy shortages and increase costs without
counterbalancing
benefits to the environment or conservation.
Thats it Western Fuels Associations advocacy mission as
understood within
the organization, and as often, misperceived by its
opponents.
Coal taxes
When the coal boom began, Wyomings legislature apportioned a 2
percent
slice of its 10.5 percent coal-severance tax to mitigate the
impact of the rapidly
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emissions because every driver instantly will see it and punish
the politicians who
vote for it. Theyre going to come after the coal plants because
theyre a point
source, already regulated, and few people know how dependent
they are upon
coal for their lifestyle. Electricity was the most important
source of energy in the
residential, commercial, and industrial sectors of the economy
and more than
half was generated by burning coal.
The strategy for the necessary advocacy program was simple:
promote the
role of coal-based electricity and defend its use.
Environmental externalities
Environmental externalities at first seemed to be an arcane
economic theory.
Various costs of using electricity are not captured in the price
consumers pay, its
advocates claimed, leading to inefficient markets and
environmental degradation.
Externalities became a tool in state proceedings when regulators
weighed the
merits of competing resource plans. The threat to fossil fuels
and coal in partic-
ular soon became apparent.
Although the costs of clean air and clean water mitigation
already were captured
in the price consumers paid for coal-based electricity,
externality proponents placed
a thumb on the scale. They advocated limiting CO2 emissions to
prevent global
warming even though CO2 was not among pollutants enumerated by
Congress in
the Clean Air Act.
Western Fuels first intervened in California, arguing that
national energy policy
dictated the switch to coal as a way to assure energy
independence and that in
a good-faith response, Western Fuels members had built some of
the cleanest
and most efficient power plants in the world. Now they were to
be penalized for
doing so. Western Fuels subsequently confronted efforts to
impose environmental
externalities in Colorado, New Mexico, Minnesota, Illinois,
Kansas, North Dakota,
Arizona and Texas.
Promoting coal-based electricity
Fred Palmer joined the National Coal Council in 1991 and was
asked to chair
a working group that would prepare a report on coals image. In
January 1992 the
Council dispatched its findings, Improving Coals Image: A
National Energy Strategy
Imperative, to Energy Secretary James Watkins. In an
accompanying cover letter
the Council chairman stated, That coal has a poor image is
indisputable. Although
it is our most abundant energy fuel, it enjoys little public
awareness or appreciation.
The Council believes coals negative image impedes sound energy
strategy.
Western Fuels joined the Denver-based Center for the New West
later that
year and commissioned a report ascertaining the direct
investment in coal and the
size and economic impact of utility investments in coal-fired
power plants west
of the Mississippi River. Two studies by Resources Data
International bolstered
the Centers report, Energy, the Environment, and Global Climate
Change: A New
Economic Perspective.
The report led Western Fuels to tap physicist Mark Mills to help
make the
case for coal-based electricity. Mills published Sustainable
Development and Cheap
Electricity (October, 1992), an evaluation of the impact of
lower electricity prices
on the U.S. economy and U.S. carbon dioxide emissions. Does
Price Matter? fol-
lowed in January, 1995 and stressed the importance of cheap
electricity. That led
to the joint publication of Coal: Cornerstone of Americas
Competitive Advantage
in World Markets (March, 1997) by Western Fuels, the Center for
Energy and
Economic Development, and the National Mining Association. It
was followed by
the uncannily prescient The Internet Begins With Coal (May,
1999).
Advocacy on climate change
In addition to promoting the benefits of coal-based electricity,
Western Fuels
began making a case that a higher atmospheric concentration of
carbon dioxide
would yield overlooked benefits.
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When introduced to the work of U.S. Department of Agriculture
research
scientist and physicist Dr. Sherwood Idso through his book
Carbon Dioxide and
Global Change: Earth in Transition, the Western Fuels Board of
Directors decided
to finance a video production that would make the research more
accessible.
The Greening of Planet Earth drew upon research explained in
Idsos book and
incorporated interviews with ten botanists, agronomists,
tree-ring researchers,
meteorologists, and other university and government scientists
concerning their
findings about CO2s environmental benefits.
The video premiered in October 1992 before 200 delegates
representing 10
nations at an international coal conference in Washington, DC.
Word of mouth
increased demand. Advertisements offering promotional copies in
New Republic,
National Review and American Spectator moved it into wider
circulation.
The politically charged months running up to the first United
Nations Conference
on Environment and Development in Rio de Janeiro and subsequent
meetings
in Japan, South Africa and elsewhere convinced the board of the
need for an
ongoing examination of global warming research. It seemed that
each conference
to decide international climate policy was preceded by a
crescendo of just-released
research findings publicized to compel United States and United
Nations action.
Western Fuels began financing a quarterly magazine called World
Climate
Review, edited by Virginia State climatologist Pat Michaels, a
PhD associate profes-
sor of climatology at the University of Virginia. Its first two
editions were included
with a copy of The Greening of Planet Earth in a 1993 Earth Day
Kit delivered to
every member of Congress and asking, Is the future of U.S.
Energy Policy worth
60 minutes of your time?
After eleven editions, World Climate Review was reconstituted as
the World
Climate Report monthly newsletter. In 1996, Western Fuels began
publication of
an annual state of the Climate Report which was released each
Earth Day.
In his 1995 Earth Day speech at George Washington University,
Vice President
Al Gore declared Western Fuels to be political extremists. Paul
and Anne Ehrlich
in Beyond Science and Reason described the WFA as special
interests no
different in kind from the American Tobacco Institute. The Des
Moines Register
characterized WFA as a $400 million consortium of coal interests
pouring mil-
lions into a campaign to perpetuate the myth that there is no
such thing as global
warming.
Secretary of the Interior Bruce Babbitt told listeners of a
nationally syndicated
radio program, The oil companies and the coal companies in the
United States
have joined in a conspiracy to hire pseudo scientists to deny
the facts and to begin
raising political arguments that are essentially fraudulent.
What they are doing is
un-American in the most basic sense.
Proving otherwise, Western Fuels May 1997 campaign explaining
the linkage
between proposed climate-change policy and Iowas reliance on
coal-fired elec-
tricity resulted in organizations representing more than 10,000
Iowa businesses,
and 160,000 Iowa farmers and labor union members, signing an
open letter to
Congress, President Bill Clinton and Vice President Gore. When
it appeared in The
Des Moines Register, New Republic, Weekly Standard and Roll
Call, the Registers
editorial board conceded, There is no painless solution to
correcting a mistake
weve perpetuated for more than a century.
In November 1998, The Greening Earth Society, an organization
created by
Western Fuels, produced a video sequel, The Greening of Planet
Earth Continues:
The Promise for the 21st Century and Beyond, further amplifying
Idsos work with
appearances by 15 additional researchers.
Palmer appeared on the MacNeil-Lehrer NewsHour, Nightline,
Dateline, and
@Issue. The high water mark had been hit.
After President George W. Bush declared no interest in helping
ratify the Kyoto
Protocol, bipartisan opposition to designating CO2 a pollutant
emerged in the U.S.
Senate and House of Representatives. Western Fuels' formal
advocacy on the
climate-change issue came to an end.
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23
WESTERN FUELS-ILLINOIS:
Brushy Creek Mine and Liberty Coal
Western Fuels Associations first significant expansion in
operations came with a
decision to finance, construct and operate a coal mine in
southern Illinois to meet
the needs of municipal utility members at the Kansas City,
Kansas, Board of Public
Utilities (KCBPU) and Sikeston, Missouri, Board of Municipal
Utilities (SBMU).
In 1977, WFA secured a 20-year lease in the #6 Illinois coal
seam near Harco,
Illinois. The coals moderate sulfur content made it suitable for
use at Kansas Citys
older power plants, the Kaw and Quindaro Stations. The design of
SBMUs new
235 MW power in plant in Sikeston would accommodate the mines
product.
Western Fuels-Illinois (WFI) was incorporated to supply 1.2
million tons of coal
per year using continuous miner/room-and-pillar mining methods
in the 5.5 foot
-thick seam. Lacking experience in underground mine development,
WFI hired
Buddie R. Morris and Sons to construct and operate Brushy Creek
Mine through
two subsidiaries: Midwest Mining and Construction, and Kennellis
Energies.
The mine was dedicated on May 30, 1980, with U.S. Senator Paul
Simon
(D-IL) in attendance. WFI began coal deliveries to KCBPUs
Quindaro Station along
the Illinois Central Gulf Railroad (ICG) and later used a
combination of the ICG
and Missouri Pacific Railroad (MoPac) for shipments to the Kaw
Station. SBMUs
deliveries began in December using the ICG.
A nationwide strike by the United Mine Workers of America halted
production
in March 1981. When work resumed in June, the use of continuous
miner sec-
tions increased from two to three. Brushy Creeks production
capacity exceeded
KCBPUs and SBMUs annual requirements for coal burn. A
combination of member
and non member sales enabled the mine to surpass its design
capacity in 1984.
Brushy Creek made a cameo appearance in the 1984 presidential
campaign
when Vice President George H.W. Bush brought an entourage of 60
media
representatives to record his tour of the facilities and his
lunch underground
with mine workers.
Shrinking demand for electricity and the economic downturn a
year later idled
the mine again. WFI held the mine in ready-to-run status for
nearly eight months
in 1985 and 1986 while pursuing efforts to improve its economic
viability through
a combination of lower-cost transportation and high
productivity.
When negotiations with the ICG broke down, WFI sought permission
from
the Saline (Illinois) County Commission to increase truck
traffic for a 26-mile run
to Marion, where WFI built a coal-loading facility alongside the
Crab Orchard &
Egyptian (COE) short line railroad. Once a loader filled enough
gondola cars to
comprise a unit train, COE hauled it to a junction with the
MoPac, which could
make deliveries to both cities without ICG involvement.
The effort to achieve additional production cost savings for the
cities benefit
required litigation with Kennellis Energies. The 1987 settlement
created a limited
partnership called Marion Coal Sales, that enabled Kennellis to
benefit from high
productivity through sales of what WFI regarded as coal surplus
in excess of the
cities needs.
In 1988, all-rail deliveries were restored under a new
transportation agreement
with the ICG and MoPac.
When Buddy R. Morris Jr. died in mid-1991, WFI worked with his
heirs
and arranged for the mine to be operated by WFI through a new
entity, Brushy
Creek Coal Company (BCCC). At first, changes in electricity
markets triggered by
amendment of the federal Clean Air Act created price pressure on
Brushy Creeks
production.
Brushy Creek was idled again in May when coal demand in 1996
only drew
upon half of the mines designed capacity. WFI began preparing
for the mines
closure and for reclamation of the surface facilities.
Even so, Brushy Creek would be one of southern Illinois last
coal mines to
close. Governor George Ryan displayed tenacity in his desire to
keep coal mining
alive. A new entity, Liberty Coal Company (LCC), proposed
beginning operations
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24
By 1978, the Uinta/Piceance Basin was already the site of
extensive oil-and- gas
development. Given the nations energy crisis, oil shale reserves
along the Western
Slope seemed ripe for development. Rural electric distribution
cooperatives along
the Colorado/Utah border realized that if such energy intensive
operations materi-
alized, they would dramatically increase demand for
electricity.
Moon Lake Electric Cooperative of Roosevelt, Utah, acquired coal
leases and
made preference-right lease applications for thick seams of
reserves near Rangely,
Colorado. WFA was asked to evaluate the feasibility of
developing the resource as
a fuel supply for a new power plant.
Supervised by Don Deardorff, WFAs Office of Engineering and
Exploration in
Lakewood, Colorado began an extensive drilling program on Moon
Lakes proper-
ties; prepared a geologic report; developed a preliminary mine
plan, and reviewed
coal transportation alternatives. WFA began consulting federal
and state officials
and initiated an environmental impact analysis. Meanwhile, local
distribution coop-
eratives created Deseret Generation and Transmission Cooperative
to plan what
became the Bonanza Power Project.
An obvious alternative for Deseret was to site its power plant
near the coal
reserve in a classic mine-mouth configuration. While there was
no politically pal-
atable way that Colorados Governor Dick Lamm as a Carter
Administration ally in
its moral equivalent of war could forestall development of the
coal reserve, the
governor opposed construction of another coal-based power plant
in Colorado.
Utah Republican Governor Scott Matheson green-lighted
construction of the
proposed 800 MW coal plant just 30 miles west of Rangely and
across the border
on the high-desert floor in Utah. With that, Western Fuels-Utah
(WFU) was incor-
porated to construct and operate the coal mine and the
transportation system that
would connect it to the power plant.
WFU purchased lease rights for a mine with annual production of
2.7 million
tons of federally owned coal. Until both 400 MW units were
operating, mine
production would remain at half that rate. As a consequence, the
Bonanza Power
on the property in the deeper and thinner Illinois #5 coal seam.
The Ryan admin-
istration provided $1.95 million in grants, $1.25 million in
low-interest loans, and a
guarantee for 80 percent of a $3.3 million loan to get LCC
operations under way.
Nubay Mining was hired to develop operations in the 48 to 51
inch-thick seam
using a single super unit consisting of two continuous miners,
four battery-driven
ram cars and two double-boom roof bolters. LCC trucked part of
its production
to nearby Tarex Construction, Inc., and shipped the remainder
over the Canadian
National Railroad to the Tennessee Valley Authority.
Nonetheless, the absence of
a robust market for the mines production and difficult geologic
conditions drove
LCC out of business within a few years.
Visitors to the former Brushy Creek Mine site might find it
difficult to discern
that a mine once operated there. Grassy hillsides cover what
were once coal slurry
ponds from which 600,000 tons of carbon were recovered for sale
to the Southern
Illinois Power Cooperative. The mine slope is filled in; the
mine shaft and all bore
holes sealed. The rotary breaker, mine buildings, physical
plant, slurry ponds
and a mound of mine waste have disappeared. The rail loop has
been torn out. A
19.5-acre freshwater pond provides waterfowl and fish habitat,
while the reclaimed
mine site is home to populations of turkey, deer, quail, rabbit,
geese, duck, hawks,
beaver, coyotes and a family of bobcats.
WESTERN FUELS-UTAH:
Deserado Mine/Deseret-Western Railway
Western Fuels Associations experience in overseeing construction
and man-
agement of Brushy Creek Mine in southern Illinois encouraged WFA
management
to play a larger role in developing another underground mine,
this time on the
Western Slope of the Rocky Mountains.
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25
Projects first phase involved an underground mine producing 1.35
million tons of
coal per year. However, the coal mine and transportation system
were scalable to
handle twice that production.
Developing Deserado Mine seemed straight forward; however, the
means for
transporting its coal production was not. The absence of
available trackage for rail
transportation resulted in consideration of various
transportation alternatives. Lack
of an adequate source of water necessary to slurry coal by
pipeline to the power
plant would mean possible construction of a dam and reservoir.
The difficulty of
obtaining permits for the operation of coal trucks along county,
state and federal roads
would necessitate dedicated haul roads. An overland conveyor
system emerged
as the preferred alternative.
WFU contracted with Stone & Webster Engineering Corporation
for design
of the transportation system and with Ford Bacon &
Davis-Utah for design of the
mines surface area and facilities. North American Mining
Consultants studied the
mines feasibility and developed an underground mining plan. WFA
supervised
production of a four-volume environmental assessment.
Deseret-Western Railway
Environmental permitting experience with the Trans-Alaska
Pipeline System
impacted the Bonanza project. To minimize disruption of caribou
and other big-game
migration, Alaska pipeline designers had incorporated a series
of raised wildlife
crossings. The Deserado-to-Bonanza conveyor system might
similarly impact elk
and antelope. Revisiting their options, designers calculated
that building a 30-mile
conveyor system for relatively low capital cost but with high
ongoing costs of
operation and maintenance was comparable to a railroad with high
initial capital
cost offset by lower O&M costs.
What came off their drawing boards was the 35-mile
Deseret-Western Railway,
powered by relatively inexpensive off-peak electricity from the
power plant for
overnight delivery of the power plants daily fuel supply. Two
electric locomotives
would use an overhead catenary system to pull a 35-car coal
train.
Landmark socioeconomic impact mitigation
Western states experience of energy boom growth similarly
impacted the
Bonanza Power Project. In an effort to avoid the hodgepodge of
trailer and RV parks,
traffic congestion and additional strain on public services that
turned life upside
down in other Western boomtowns, WFU drew upon Basin Electrics
positive
experience when it built the Laramie River Station outside
Wheatland, Wyoming.
WFU negotiated with the mayor, town council, and Rio Blanco
County
Commission to craft a landmark socioeconomic-impact-mitigation
agreement
designed to avoid forcing higher taxes on local residents or
undermine the areas
quality of life.
Deserado Mine operations
Mine operations began using a single continuous miner operating
during a
single shift. Late in 1985, that single shift became two and
early in 1986, a third
continuous miner unit was added. At midyear, a fourth began
mining coal. Then the
four continuous miner units began working two shifts per day to
prepare a panel
for inserting a longwall system. Mine personnel swelled from 90
in mid-1985 to
300, 18 months later. By November 1986 WFU had mined its first 1
million tons.
The hourly workforce voted for the United Mine Workers of
America to serve as
their exclusive bargaining agent with WFU. Three months of
negotiation, including
a two-month strike, led to a three-year contract between WFU and
Local #1984 in
May 1988. The union negotiated a third contract for five years
prior to expiration
of the three-year contract.
Sustained high productivity was a key in controlling Deserets
cost of coal.
Nonetheless, the G&T began to feel severe financial pressure
having financed
its project under totally different economic circumstances and
in anticipation of
dramatic load growth. Instead, the electricity market in the
Rocky Mountain West
experienced rapid erosion by 1993. Natural gas prices plummeted
under provisions
of the North American Free Trade Act which deemed Canadian
imports to be
domestic production.
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26
While consumers benefited from lower-priced energy, the
situation raised
havoc in electricity markets. The fickle nature (or absence) of
U.S. energy policy
placed Deseret at risk. Oil shale development could not go ahead
in a lower-cost
market for oil and natural gas. Deseret cut 1995s coal
production in half and made
a decision to idle the mine for three and a half months.
Deserado Mine fire
Barely six weeks back into operation, early in the afternoon of
January 31,
1996, a welders torch ignited methane gas far underground in the
longwalls
tailgate section. The resulting fire forced the mines immediate
evacuation.
The conflagration pulsed for days. Underground and on the
surface, men and
women from Deserado Mine and nearby mines mobilized alongside
government
representatives and contractors in a heroic struggle to contain
and extinguish the
fire. Under extreme winter conditions, WFA employees George
OHara, Dave
Anderson and Steve Powell supervised round-the-clock drilling
operations in an
effort to thread a drill-bit into a small target hundreds of
feet underground so that
carbon dioxide could be pumped to the coal face to smother the
blaze.
After a week, it was decided to permanently seal a portion of
the mine. There
had been no loss of life or serious injury during the mines
evacuation and the effort
to save it. Tens of millions of dollars worth of mining
equipment including the
longwall system and three continuous miner units were left
behind a permanent
seal.
With three and a half years of coal reserves remaining in the D
Seam and
another 40 years in the B Seam, Deserado Mine soon resumed
production using
continuous miner units until a new longwall could be designed
and installed.
Deseret completed its financial restructuring in 1997. Debt
forgiveness by
the Rural Utilities Service and an infusion of new money from
the National Rural
Utilities Cooperative Finance Corporation dictated that all
assets of the Bonanza
Power Project be moved under one roof in case of future
financial difficulty. As a
consequence, WFUs ownership interest in the mine and railway was
transferred
to Deseret, which then withdrew its membership in WFA.
WESTERN FUELS-WYOMING: Dry Fork Mine
Western Fuels-Wyoming (WFW) initiated Western Fuels third mining
venture
through development of a surface coal reserve northeast of
Gillette, Wyoming,
as a low-cost supplemental supply for Missouri Basin Power
Projects (MBPP)
Laramie River Station.
In 1987, Phillips Coal approached Western Fuels to explore the
possibility of
joint participation in mining a 270 million ton reserve of
relatively low Btu coal with
one of the lowest stripping ratios in the Powder River Basin
(PRB). Thick seams of
coal lay near the surface at the potential mine site and were
overlain by relatively
thin layers of soil and rock (overburden). This meant coal could
be exposed for
mining at much less cost and effort than is typical elsewhere in
the PRB.
In February, 1989, a Phillips affiliate North Gillette Coal
Company (NGCC) and
WFW formed a limited partnership called Dry Fork Coal Company
(DFCC). Mining
got under way in August, 1991, with WFW serving as DFCCs general
partner and
NGCC as a limited partner, meaning NGCC would share in the mines
revenue
without actual involvement in mining.
WFW was able to become Dry Forks sole owner when Phillips
Petroleu