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January 27, 2014

States closer to western mines have lower coal costs

Graph of expenditures on out of state coal in the power sector, as explained in the article text
Source: U.S. Energy Information Administration Form EIA-923, Power Plant Operations Report

In 2012, the top-five states for total expenditures on out-of-state coal delivered to the electric power sector each spent more than $1.5 billion. Texas spent the most for out-of-state coal, followed by Illinois, North Carolina, Georgia, and Michigan.

Out-of-state coal delivered to these states includes both lower-priced western coal and higher-priced eastern coal. Coal produced in the East is generally high-energy-content coal from both surface and underground mines in the Northern Appalachian, Central Appalachian, and Illinois basins. Coal produced in the West is generally from large surface mines in the Powder River and Uinta basins.

While the greatest difference in total dollars spent among these states was 20% (between Texas and Michigan), the greatest difference in total coal receipts was 107% (between Texas and Georgia). The average delivered cost of coal received was greatest between North Carolina and Texas (96%).

The configuration of power plants and environmental equipment, long-term contracts between power plants and coal producers, and changes in business strategies for companies all factor into the decisions about where to buy coal. Here are some of the key issues:

Texas and Illinois

  • All out-of-state coal delivered to Texas originated in Wyoming, with an average delivered cost of $1.92 per MMBtu, which was the lowest average delivered cost of these five states.
  • Texas has the largest amount of coal-fired electricity generating capacity of any state in the nation.
  • Illinois received nearly all of its out-of-state coal from Wyoming, with an average delivered cost of $1.95 per MMBtu, almost identical to Texas.
  • Coal from Illinois is high in sulfur, so most power plants that burn it in the United States need to have scrubbers installed. In 2012, about 91% of coal delivered to power plants in Illinois was from mines outside of the state. In recent years, coal production has increased in Illinois. This coal has been consumed in both domestic power markets as well as exported overseas. As more scrubbers are installed on power plants to comply with the Environmental Protection Agency's Mercury Air Toxic Standards rule, there will be a larger domestic market (including within the state of Illinois) for Illinois coal.

North Carolina, Georgia, and Michigan

  • North Carolina, Georgia, and Michigan received out-of-state coal from the eastern and western parts of the United States, with considerably higher average delivered costs than Texas and Illinois.
  • None of these states has any coal production, so all coal delivered to North Carolina, Georgia, and Michigan was out-of-state coal.
  • The higher-priced eastern coal, combined with longer transit distances for western coal, made the average delivered cost of out-of-state coal to North Carolina, Georgia, and Michigan more than the cost to Texas or Illinois.

Principal contributor: Nicholas Paduano