(The following article by Dustin Bleizeffer was posted on the Casper Star-Tribune website on March 18.)
GILLETTE, Wyo. — For years, rural customers of Powder River Basin coal have complained that Union Pacific and BNSF Railway maintain a stranglehold on the market, at times charging unreasonable shipping rates that gobble up operating margins for producers and utilities alike.
“It exceeds the cost of the fuel itself, making it prohibitively expensive,” said Patrick Lavigne, spokesman for the National Rural Electric Cooperative Association.
“(Cooperatives) were willing to pay the freight provided they could guarantee delivery. But now it’s a service question, too,” Lavigne said.
Union Pacific Corp. and BNSF Railway say they are in a headlong rush to resolve maintenance and capacity issues for the Powder River Basin, but many still doubt they’ll overcome a projected 20 million-ton shortfall for a second year in a row.
Meanwhile, Congress is considering measures to address a perceived lack of competition throughout the rail industry — particularly for rural customers who have access to only one railroad, such as the Laramie River Station in eastern Wyoming.
The legislation comes at a time when several utilities across the nation are considering drastic measures to make up for the constrained flow of Powder River Basin coal.
“We have got members who have discussed importing foreign coal,” Lavigne said. “Now we are in a position where America, the Saudi Arabia of coal, is having to import foreign coal. It’s ludicrous.”
The legislation
U.S. Sen. Craig Thomas and Rep. Barbara Cubin, R-Wyo., each are co-sponsoring bills aimed at preventing rail monopolies and unreasonable shipping rates that disadvantage “captive customers.”
Thomas is supporting S. 919, the “Railroad Competition Act.” Cubin is a co-sponsor of HR 2047, the “Railroad Competition Improvement and Reauthorization Act.”
Upon introduction of S. 919 last year, Thomas issued a statement regarding the need for more oversight:
“Wyoming’s shippers have experienced a sharp increase in the rates they pay to get their goods to market. We have one of the largest clean coal reserves in the world, but service disruptions and high rates leave our shippers with no alternatives and consumers with higher prices.”
In addition to S. 919 and HR 2047, the Railroad Antitrust and Competition Act seeks to strip away antitrust exemptions for railroads.
Concern about limited rail competition seems to be growing among representatives of rural utilities and agricultural regions, but it’s unclear how well the support for the proposed bills will measure up to the historic superpower of the railroad lobby.
But supporters say there may be a quicker remedy.
There is an open seat on the three-member Surface Transportation Board, and groups such as the National Rural Electric Cooperative Association are pushing for an appointee who would advocate an administrative approach to discouraging monopolistic activities.
“The single best, quickest remedy would be for the Surface Transportation Board to have members who were interested in regulating,” Lavigne said.
Laramie River Station
Basin Electric Power Cooperative, which is majority owner and operator of the 1,650-megawatt Laramie River Station near Wheatland, announced last week it may have to curtail generation because dwindling coal deliveries from the Powder River Basin had sunk the plant’s stockpile to only a six-day supply.
In addition to not getting its contracted delivery volume at Laramie River Station, Basin Electric has been battling BNSF Railway over shipping rates. The company said after a 20-year contract expired in 2004, BNSF Railway — the only railroad to access the plant — demanded a rate triple the amount under the old contract.
The prospect of higher utility bills due to these rail issues is especially frustrating for customers in Wyoming because many of them say their state’s contribution to the nation’s coal market should give them some advantage.
Wheatland resident Michelle Foster shares that frustration, but says she isn’t surprised at the situation Wyoming consumers find themselves in.
“A lot of things are harder to find in Wyoming than anywhere else,” Foster said, referring to the fact that the Powder River Basin coal market is a national market, regardless of where the coal originates.
“It’s not really right,” Foster said. “But what are you going to do about it?”
Matter of distance
BNSF Railway and Union Pacific declined to talk about rate issues. But a coal industry analyst who keeps a close eye on rail delivery said there is a reason a railroad would rather send a train from northeastern Wyoming to Ohio instead of Wheatland.
Richard Price, managing director of Westminster Securities Corp. in St. Louis, Mo., said figured into the cost of transporting a product by rail is the idle time for loading and unloading.
“In the interest of the railroad, the cost of idle train time is greater if you’re loading and unloading trains for a relatively short distance,” Price said. “On the other hand, if you load a train and it ends up in Topeka (Kan.) then you’re using the rail relatively efficiently.”
For more than 100 years, coal was the No. 1 breadwinner for railroads, but that’s been changing, according to BNSF Railway.
BNSF Railway spokesman Patrick Hiatte said coal was the company’s slowest revenue growth commodity in 2005. Total freight revenue for the company in 2005 was $12.606 billion, of which coal accounted for $2.448 million — or 19.5 percent. That’s down from 2004, when coal accounted for more than 21 percent of the railway’s freight revenue.
That may be true, Price said. But coal revenues were up overall, and coal remained a major force behind Union Pacific’s 11 percent growth in revenues in 2005, and BNSF Railway’s 19 percent revenue growth.
Price said the railroads understand full well that many Powder River Basin coal producers already possess the ability to boost production by 5 percent or more, and the nation is projected to demand more and more of the basin’s low-sulfur product.
“Those other commodities are more volatile, depending on the economy. The nature of coal is it’s a base-load fuel,” Price said.