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Coal by Wire / Coal Tolling

F. Robert Reeder, Michele A. Mladejovsky, The Electric Industry Opportunities and Impacts for Resource Producers, Power Generators, Marketers, and Consumers (1996)

Coal by wire is a term that has been used to capture the concept of changing the point at which coal is sold in the energy chain. In a coal by wire transaction, instead of the traditional sale of coal to an electric generator, the coal owner first converts the coal to electricity, then transmits it to the point of use, where the first sale takes place in the form of a sale of electricity. A permutation of the concept, coal tolling, occurs when a coal producer or other coal owner has no generating unit and must contract with a third party generator to convert the coal to electricity.

This paper provides an explanation of how coal by wire/coal tolling can benefit both the coal producer and the electricity consumer by increasing the margin coal producers receive and lowering the prices electricity consumers pay. The paper first presents a general discussion of the evolution of the concept and the changes in energy policy which set the stage for its use today. The paper then considers the present state of one form of coal by wire, that of coal tolling, and the practical implications of its use for the coal producer and consumer. Finally, the paper discusses the remaining barriers to coal by wire transactions, regulatory and royalty considerations.