Railroad companies that deliver coal to a number of South Carolina Electric & Gas and Progress Energy power plants are charging 50 percent to 100 percent more this year after their long-term contracts expired, said Dukes Scott, executive director of the State Office of Regulatory Staff.
If those rates are not changed, utilities could end up paying up to $100 million more to get the coal needed to make electricity to their plants, and much of that cost would be passed to consumers, Scott said.
In fact, SCE&G has already asked to pass the hike in fuel costs on to its 646,000 South Carolina customers, requesting permission from state regulators for a 4 percent increase beginning in May. The bill for a 1,000-kilowatt residential customer would go up by $4.52 to $118.72.
Scott wrote a letter to the federal Surface Transportation Board, asking the agency to review the cost increase in the five- and 10-year contracts. The board can resolve railroad rate disputes, especially in situations where there is little competition.
The coal has to be delivered by rail because the plants are too far from the water to use a barge and too much is needed to be brought by truck.
"It would take 650 trucks carrying coal round-trip daily from eastern Kentucky to equal the amount that can be brought into South Carolina by one-and-a-half trainloads daily," Scott said.
Workers at the Office of Regulatory Staff discovered the 50 percent to 100 percent increases while reviewing fuel prices for utilities. An increase was expected because of inflation and a rise in the cost of the trains' fuel, but numbers calculated by the agency show the hike in delivery prices should have only been between 15 percent and 27 percent, Scott said.
Scott doesn't know why railroads increased their rates so much. "I hope it's not just because they can. The high percentage of this increase just doesn't look right," he said.
SCE&G officials appreciate what the Office of Regulatory Staff is doing, spokeswoman Rhonda O'Banion said.
The utility is already considering legal action against several coal suppliers that didn't honor contracts with SCE&G when the price of coal went up significantly last year, forcing the company to pay higher prices for coal on the regular market, O'Banion said.
SCE&G will try to soften the blow for its customers by using any money it makes off the lawsuits to keep rates down. The utility is also spreading out the rapid increase in coal prices over two years of rate increases, instead of one, O'Banion said.
The dispute chiefly involves CSX and SCE&G, said Mike Hughes, a spokesman for Progress Energy, which has just one small coal-fired power plant in South Carolina.
Progress Energy uses coal to produce only about 21 percent of its electricity, but the steep increase has still hurt, Hughes said.
"It's still a big, big cost," Hughes said. "Transportation costs equal about a third of the total cost of delivered coal nowadays."