(The following article by Faith Bremner was circulated by Gannett News Service on July 2.)
WASHINGTON — Poor service and high shipping rates charged by the nation’s railroads are pushing up the cost of doing business for electric utilities, chemical makers and farmers, according to members of those industries.
Dairyland Power Cooperative in LaCrosse, Wis., got hit with a 93% increase in its shipping rates Jan. 1 when its three-year rail contract expired. The company, which provides wholesale electricity to cooperatives and municipalities in parts of Wisconsin, Minnesota, Iowa and Illinois, will spend $75 million this year to ship $30 million worth of coal in from Wyoming and Utah, company spokeswoman Deb Mirasola said.
“As a cooperative, we really have no choice but to pass these costs on to our members,” she said.
Some electric utilities in the Upper Midwest and South bought more expensive natural gas-generated electricity and shipped in foreign coal by barge and truck earlier this year after railroads fell behind on coal deliveries.
Utilities aren’t the only ones complaining.
John McIntosh, president of Chlor-Alkali Products, a division of Olin Corp., said his employees call the railroads that serve his company’s plants in New York, Georgia, Tennessee and Alabama at least weekly to track down missing rail cars.
Like 63% of the chemical plants in the nation, Chlor-Alkali Products’ plants are captive shippers, meaning they are served by only one railroad. McIntosh doesn’t see trucking as a viable alternative.
“The thought of us putting more and more chemical shipments on trucks on an already congested highway system is not the right answer,” he said.
Since the 1980s, when Congress largely deregulated the railroad industry, the number of major railroads has shrunk from 40 to four. While overall rates charged to most shippers have gone down since then, preliminary results from a Government Accountability Office report show the percentage of captive shippers who pay the highest rates has gone up by 50%.
“Individual companies have told us they either have forgone an expansion of a plant in the United States or decided not to build a facility or closed a facility where captive rail service and rates were part of the calculus,” said Tom Schick, senior director for distribution for the American Chemistry Council. “That means jobs in communities.”
Nationally, only 6% of the nation’s freight was shipped under higher “captive” rates in 2004, according to the GAO. But it can be far higher in some spots.
In West Virginia, 20% of coal shipments in 2004 paid the highest captive rates, up from 4% in 1985, according to the GAO. In Montana, 39% of grain shipments originating in the state in 2004 paid the highest rates, up from 14%.
Farmers shipping grain to Portland, Ore., from Nebraska, where there are two railroads, pay the same amount as farmers in Montana, served primarily by one railroad, even though the distance is half as far, said Dale Schuler, president of the National Association of Wheat Growers.
The railroads blame their recent coal delivery problems on two derailments in the Powder River Basin coal region in Wyoming and Montana in May 2005 that cost six months of repairs and upgrades plus last year’s hurricanes, which disrupted service nationwide.
They agree that captive shippers pay more than shippers served by multiple railroads, but lots of businesses, including airlines, charge different rates to different customers, they say.
Spokesmen for Burlington Northern Santa Fe Corp. and Union Pacific Corp. referred calls for comment to the Association of American Railroads.
AAR spokesman Tom White said that a change in the regulatory system would return the railroads to the days before deregulation, when 20% of the nation’s rail lines were bankrupt and track was so bad in some places that standing trains derailed.
“The fact of the matter is, the railroad industry was once regulated in much the way they’re proposing here,” White said.
Only recently have the railroads become profitable. Last year, the four major railroads — Burlington Northern Santa Fe, Union Pacific, CSX Corp. and Norfolk Southern Corp. — made a combined net profit of $4.56 billion. The companies plan to spend $8.3 billion this year on maintenance and capital improvements.
There have been a flurry of hearings this year before Congress, the Federal Energy Regulatory Commission and the Surface Transportation Board over captive shippers, coal shortages and fuel surcharges the railroads have added.
Sen. Conrad Burns, R-Mont., introduced a bill four years ago that’s still pending that would make it easier for captive shippers to contest rates and use short-line railroads to gain access to competing rail lines. Sen. Herb Kohl, D-Wis., introduced legislation Thursday that would repeal antitrust exemptions that protect freight railroads from competition.
“We are starting to get a sympathetic ear in Congress,” said Floyd Robb, spokesman for Basin Electric Power Cooperative, a consumer-owned generation and transmission cooperative based in Bismarck, N.D., that provides wholesale electricity to nine states. “Ultimately that is the only place this will get solved.”