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What a Rail Strike Could Mean for American Energy // ERCOT's Razor Thin Margins

What a Rail Strike Could Mean for American Energy

President Joe Biden signed an executive order on Friday to make an emergency board that will mediate between the 115,000 freight rail workers and the major railroads. 

"The railroads and their unions have been embroiled in a contract dispute since January 2020, with wages and health care benefits being major sticking points," reports Freight Waves. "The National Mediation Board (NMB), an independent federal agency that mediates labor agreements for the railway and airline industries, stepped in earlier this year to mediate, but negotiations are still at an impasse. As a result, NMB released the railroads and unions from mediation and a 30-day cooling-off period began in June."

Rail workers have been getting the short end of the stick. Not only are they understaffed and overburdened, but some have also seen their jobs shipped overseas. CSX has seen its attrition rate rise from 7% to 10% and has had to turn away customers. "They're losing employees at an alarming rate because they're not treating them as if they want to keep them," said Dennis Pierce, president of the Brotherhood of Locomotive Engineers and Trainmen. "Now they're having a hell of time hiring. The word has gotten out these are not attractive jobs."

And yet the industry has reported record earnings

In response to the news of Biden's executive order, Jonah Furman at Labor Notes said, "Got rail workers messaging me about how many of their coworkers are quitting...They can strike or they can quit, either way, you're not getting a functioning rail system by brutalizing these people."

Biden's order creates a three-person board made up of impartial appointees of his choosing. "The board will report to Biden within the next 30 days its findings on the issues surrounding the negotiations," Freight Waves reports. "The report’s recommendations could serve as a foundation for a voluntary agreement."

Rail makes for nearly a third of US freight. If the strike were to go ahead in a month, meaning in August, when it's hottest in much of the country, the grid could be pushed to its absolute limit. 

According to the Association of American Railroads, "In a typical year, U.S. freight railroads move around 1.7 billion tons across nearly 140,000-miles of the track, running through 49 states and the District of Columbia." 

When it comes to coal, US freight railroads, "moved 3.3 million carloads of coal, with each rail car carrying enough coal to power 19 homes for an entire year," in 2021. For crude oil: "the 91,152 carloads of crude oil originated by U.S. Class I railroads in 2021 was equivalent to around 162,000 barrels per day, or approximately 1.5% of U.S. production."

A strike would frustrate coal plants' ability to acquire fuel. In September of last year, America's coal stock was at its lowest level since 1978. And while the stocks have increased since then, coal plants are still in trouble. High natural gas prices haven't a swap to usually cheap coal because "[c]oal shipments have been delayed because of lack of train crews, lack of locomotives and cars, and because of mechanical problems."

West Virginia Public Broadcasting reported in April that John Ward, the executive director of the National Coal Transportation Association, "testified that 75 percent of power plants nationwide have less than 40 days of coal stockpiled. He said 20 percent of power plants have less than 10 days of coal on hand."

A prolonged strike would reduce available capacity across the country and further endangers the 2/3 of the country the North American Reliability Corp. reported as in danger of blackouts earlier this year. 

Pete Swan, a professor of logistics and operations management at Penn State told CNN that the staffing issues in the rail industry are huge. "It takes many months to train an engineer. They've been caught flatfooted. I would tell you labor relations in rail industry are the lowest I've ever seen, and they've been pretty bad before."

Both sides--labor and the rail companies--have welcomed the president's executive order for now. But Pierce said, "The members want to strike. No one should dismiss that."

ERCOT's Razor Thin Margins

Texas is still locked in a searing heatwave. Power plants can't catch a break to repair and recover during the sustained spike in demand.

“Things are going to break,” Michele Richmond, executive director of Texas Competitive Power Advocates, said. “We have an aging fleet that’s being run harder than it’s ever been run.”

And it's not just the heat that's driving up demand. Texas has seen a population boom and crypto mining has seen explosive growth in the state. It doesn't help that wind has been a fickle friend when it's needed most. 

According to Peter Lake, chairman of the Public Utility Commission of Texas, there have been six times this year when ERCOT has been “on the brink of rolling blackouts.” Reliability Unit Commitment, a process whereby ERCOT gets power plants to forestall repairs and maintenance to save the grid, has gotten Texas through the year. 

Yahoo! News reports that ERCOT "called for 2,890 hours of RUCs system-wide in the first half of this year. That’s more than triple the 801 hours in the first half of 2021, according to data from Ercot’s independent market monitor provided by Richmond. For all of 2020, there were 224 RUC hours."

ERCOT seems to be doing any and everything it can to keep the lights on--from wearing out their power plants to forcing Toyota to limit production. How long can it keep it up?

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