Impact of Dredging Crisis on Great Lakes Coal Trade

Fred L. Shusterich President
Midwest Energy Resources Company

Remarks presented at the 11th Annual Informational
Breakfast for the Great Lakes Delegation
Hosted by Great Lakes Maritime Task Force

Senators, Representatives, other distinguished guests, members of the Great Lakes Maritime Task Force - good morning. It is a pleasure on behalf of Midwest Energy Resources Company to be here with you today to comment on the impact of the dredging crisis on the Great Lakes coal trade. Before getting into the topic, I believe that it would be most appropriate to begin by giving you some brief background on our company.

Midwest Energy Resources Company (MERC), established in 1976, is a wholly-owned subsidiary of the Detroit Edison Company having as its primary responsibilities the management of Detroit Edison's low sulfur western (LSW) coal movements from the mines to its power plants, along with the management of LSW coal delivery systems for at present sixteen (16) third-party utility and industrial customers located in the Great Lakes basin and Canadian Maritimes. The transportation network that has been established last year moved approximately 20.5 million tons of LSW coal by rail to the MERC terminal in Superior, Wisconsin for subsequent blending and reloading to vessels for Detroit Edison and third-party customers. The network involves long and short term contracts with western mines, railroads, vessel companies, the ownership of the MERC terminal and approximately 7000 aluminum bodied rotary rail cars.

In 1993, MERC completed a terminal expansion project taking our annual throughput capacity from 13 to 18 million tons. A subsequent expansion project completed in early 2005 further increased our annual throughput capacity to 25 million tons. We currently have budgeted 22 million tons of LSW coal throughput in 2006. At present, we move more tonnage annually on the Great Lakes than any other bulk commodity dock. To my knowledge, we are the highest throughput capacity dock facility in North America, having only a single railcar unloader and single shiploader.

Coal is no stranger to the Great Lakes. Coal currently represents the second largest bulk commodity on the Great Lakes and the leading bulk commodity currently handled through the port of Superior/Duluth.

The continuing growth of LSW coal in satisfying our nation's energy needs can be attributed to both its economics of use and its natural application in environmental compliance strategies. I do not see this trend changing appreciably going forward.

What I do see changing going forward is the degree to which we and others will be successful in keeping pace with the coal generated energy needs of the Great Lakes basin. The continuing inability to maximize vessel loadings, particularly 1,000–foot–long vessel loadings, due to the lack of a reliably funded Great Lakes dredging program continues to put in jeopardy our ability to keep pace with coal generated energy demands into the future.

There are currently no new Great Lakes vessel builds, particularly 1,000–foot–long vessel builds, planned; therefore, we must maximize the carrying capacities of the existing vessel fleets. A recent survey by the U.S. Maritime Administration found the members of Lake Carriers' Association estimated that 75% of the cargoes they have carried in the past five years have been reduced in volume due to inadequate water depth at either loading or discharge port or in the connecting channels.

11,000–foot–long vessels carrying coal from the MERC terminal average 250 tons for each inch of loaded draft. The majority of the coal shipped from the MERC terminal transits the St. Mary's River enroute to our customers. These 1,000–foot–long vessels are losing as much as 18 inches of loaded draft when the St. Mary's River is the controlling depth on a voyage. When these vessels forfeit 18 inches of draft, they are leaving approximately 4,500 tons of coal at our dock, or as much as 6.5 percent of their carrying capacity on each and every trip. Put into perspective, MERC loaded 412 total vessels in 2005. 333 vessels, or 81 percent were 1,000–foot–long vessels. At 4,500 tons lost per loading, that amounted to almost 1.5 million tons lost, or the equivalent of one 1000 foot-long vessel in service to the MERC terminal for six months. We currently project loading 366 1,000–foot–long vessels in 2006.

In summary, in order to keep pace with the coal generated energy demands of the Great Lakes basin, Congress must fund a comprehensive plan to restore the Great Lakes system to its project depths as quickly as possible and subsequently adequately maintain these project depths into the future.

Concluding, I would like to thank the Lake Carriers' Association and Great Lakes Maritime Task Force for the opportunity to speak before you today.

www.midwestenergy.com

Midwest Energy Resources Company - Transshipment Summary

Year Tons Received Tons Shipped Tons Transshipped
1976 2,557,023 1,855,086 2,206,055
1977 3,469,079 3,646,643 3,557,861
1978 3,395,302 3,147,833 3,271,568
1979 4,296,625 3,973,441 4,135,033
1980 4,018,101 4,090,696 4,054,399
1981 4,669,957 4,185,270 4,427,614
1982 4,639,880 3,790,273 4,215,077
1983 5,116,826 5,718,900 5,417,863
1984 5,538,089 6,677,349 6,107,719
1985 6,628,656 6,990,885 6,809,771
1986 8,210,957 8,180,871 8,195,914
1987 10,586,691 11,157,326 10,872,009
1988 10,489,423 10,079,146 10,284,285
1989 11,586,027 11,775,845 11,680,936
1990 12,385,949 12,298,458 12,342,204
1991 11,108,209 11,496,813 11,302,511
1992 10,434,937 10,875,446 10,655,192
1993 10,938,476 11,458,886 11,198,681
1994 13,319,768 13,481,527 13,400,648
1995 13,707,576 13,240,666 13,474,121
1996 13,253,250 13,739,290 13,496,270
1997 14,658,735 14,804,946 14,731,840
1998 16,184,578 15,816,993 16,000,785
1999 16,059,280 16,262,566 16,160,923
2000 16,269,907 16,691,452 16,480,679
2001 17,033,873 17,374,574 17,204,224
2002 18,524,449 18,388,102 18,456,276
2003 17,551,791 18,282,188 17,916,990
2004 18,591,272 18,804,254 18,697,763
2005 19,897,742 20,979,033 20,438,388
2006 - 19-Apr 5,267,224 2,586,443 3,926,833
Totals 330,389,651 331,851,201 331,120,426