Utilities Once Again Eyeing Coal As Sustained Chill Prompts Spike in Natural Gas Prices

Buffalo & Pittsburgh SD40-3 #3604 is seen backing a cut of hopper cars under the Rosebud Mining Lady Jane coal tipple in Pennfield, PA in January 2012. Mark MacDougall photo

As the winter Polar Vortex and supply problems with natural gas drive prices to four year highs, some utilities are shifting back to coal as a power source to deal with the increased demand.

Coal's share of energy production in the U.S. might climb to 40.3 percent from 39 percent last year. And the U.S. is on track for its coldest winter in more than 30 years through January, giving rise to the less expensive energy source.

“The idea of coal disappearing is not an effective climate change policy,” said John Thompson, an analyst at the Boston-based Clean Air Task Force told Bloomberg News. “Coal use is growing.”

Although a number of utilities have switched from coal to natural gas in recent years thanks to drilling in the Marcellus and Utica shale, the Energy Information Administration reported that utilities pulled a record 287 billion cubic feet from storage in January. The low storage levels have put pressure on the utilities and energy companies to replenish the supply in storage. The Polar Vortex has also prompted some energy companies to lobby for extending the life of older coal-fired power plants to deal with further spikes in demand.

Despite a concerted campaign by environmentalists and public health experts to stanch its use, coal, the most plentiful and cheapest fuel in the world, is proving globally resilient. In the U.S., rising natural gas prices are prodding utilities to switch back to coal at levels not seen since 2011.

Now, Edison Electric Institute, the Washington-based trade group of U.S. investor-owned utilities, is turning to the latest series of cold snaps to bolster their lobbying of the Obama administration and state regulators to keep coal and nuclear generators alive.

“I’ve been advocating fuel diversity so you don’t get overly dependent on any one particular fuel source,” the group’s president, Thomas Kuhn, said during a Feb. 11 interview at Bloomberg News headquarters in New York. “On a regional basis we still want to keep that in mind.”

During the 2008 campaign, President Obama infamously declared in a videotaped interview that he would seek to impose regulations that would essentially bankrupt the coal industry. Cap and trade legislation that would've eventually driven the coal industry out of business cleared the Democrat-controlled house of representatives in 2009, but the legislation died in the senate. However, the Obama Administration has sought to implement much of Cap and Trade through piecemeal regulatory fiat using the EPA. In late 2013, the EPA announced a 'listening tour' on proposed new coal regulations that would skip most coal mining states.