Peabody Mine May Survive if Railroad Extension Built

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By Stephen Lee

A group of business and government representatives are exploring the possibility of keeping alive a troubled coal mine in northern Arizona.

The Kayenta mine, operated by Peabody Energy, appears likely to shut down at the end of 2019, when the nearby Navajo Generating Station is also scheduled to close. The two are linked because the power plant is Kayenta’s only customer. No rail line exists to ship the Kayenta coal to the outside world.

But now, a group of stakeholders that includes Peabody, the Bureau of Reclamation, and Rep. Tom O’Halleran (D-Ariz.) have come together to study the cost of building a rail extension to a Burlington Northern Santa Fe line 115 miles to the south.

The group’s first step is to identify what a project like this would cost, O’Halleran told Bloomberg BNA. That work is under way now.

“They’re kind of isolated,” O’Halleran said. “The infrastructure is all geared towards pushing two trains of coal a day to the power plant, and that’s not going to be available to them. But is a railroad tie feasible? How much time would it take to build? The delivery system is just not in place right now.”

Environmentalists said a rail extension was unrealistic.

“The coal industry is in a permanent decline, and investors have fled and aren’t coming back,” Bill Corcoran, western campaign director for the Sierra Club’s Beyond Coal campaign, told Bloomberg BNA. The Sierra Club has received funding from Bloomberg Philanthropies, the charitable organization founded by Michael Bloomberg, the majority owner of Bloomberg L.P., an affiliate of Bloomberg BNA.

Corcoran also pointed to recent public comments from Hunter Harrison, chief executive of rail giant CSX Transportation, about no longer investing in new infrastructure for coal.

Peabody spokeswoman Beth Sutton declined to comment on the rail spur, but said the company continues working with stakeholders that would allow NGS to stay open “well beyond 2019.” That includes “engaging a globally recognized firm to identify a new ownership structure,” Sutton said.

Gasification Plans Alive

O’Halleran also said the possibility of building a coal gasification plant to replace the Navajo Generating Station is on the table, corroborating statements made by Navajo Nation presidential spokesman Mihio Manus to Bloomberg BNA earlier this month.

Those comments have taken many industry watchers by surprise, in light of two recent high-profile stumbles in the coal gasification industry. Duke Energy’s Edwardsport coal gasification plant in Indiana cost $1.5 billion more than originally planned and still doesn’t run reliably, according to David Schlissel, director of resource planning analysis at the Institute for Energy Economics and Financial Analysis (IEEFA).

More recently, Mississippi regulators concerned about the rising costs of Southern Co.'s Kemper plant ordered the company last month to transition the plant to natural gas.

On Aug. 11, the IEEFA said coal gasified power at Edwardsport costs $64.40 per megawatt hour, compared to $44.37 at the Navajo Generating Station.

“The federal government should stop feeding fantasies about gasifiying or exporting coal and start investing in a diversified economic transition that has a plausible future,” Corcoran said.

To contact the reporter on this story: Stephen Lee in Washington at stephenlee@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

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