(The following article by Marv Balousek was posted on the Wisconsin State Journal website on January 3.)
MADISON, Wisc. — Rail customers in Wisconsin say they’re struggling to pay higher shipping rates while national railroads report record- setting operating income.
Two electric utilities in the state say rising coal shipping costs caused them to boost electricity rates. A third is suing Union Pacific Railroad, claiming lack of service and excessive shipping charges going back to 2003. Higher rail shipping rates for ethanol, grain and paper also are affecting other Midwestern companies.
Railroad officials say higher operating income is needed for upgrading aging tracks and equipment to handle more freight and provide better service.
Rail rates are coming under increasing scrutiny. The state Public Service Commission held hearings last fall as part of a study of rail shipping rates. Sen. Herb Kohl, D-Wis., again plans to introduce a bill to remove antitrust exemptions that protect freight railroads from competition. The bill went nowhere last year, but this time Kohl is expected to chair the Senate’s Antitrust Subcommittee.
Badger CURE (Consumers United for Rail Equity), a coalition of about 40 rail shippers, was the first statewide organization to challenge rising rail rates. Spokesman John Sumi said the group wants the federal Surface Transportation Board, which regulates rail rates, to make it easier for shippers to challenge higher rates. If that doesn’t work, he said, the industry should lose its antitrust exemption.
“When railroads talk about their level of investment, these are big numbers,” Sumi said. “What of this investment is helping Wisconsin and the upper Midwest? Or, is the investment more aimed at taking containers off ships from China to Wal-Mart distribution centers?”
Dairyland Power Cooperative of La Crosse hiked its electricity rates last year by 20 percent to help offset a 93 percent increase in coal shipping rates in 2006, said Brian Rude, the cooperative’s external relations director.
“We understand the railroads need to make a profit,” he said. “We understand their need to invest in their rails. Right now, it just seems one-sided.”
The PSC last month approved a $14 million electricity rate increase for Northern States Power Co., a subsidiary of Xcel Energy, and 40 percent of the increase was attributed to higher coal shipping costs. Coal provides 60 percent of the state’s energy.
Wisconsin Electric Power Co. of Milwaukee is suing Union Pacific, claiming the railroad overcharged the utility for coal shipping by $7.3 million and failed to deliver about 700,000 tons of coal over a three-year period.
The railroad claims it was allowed to raise rates due to the closure of a Utah steel plant that ended westbound movement of iron-ore pellets. Wisconsin utilities often have their coal shipped from Colorado or Wyoming.
Alliant Energy hasn’t sought rate hikes despite higher coal shipping costs, partly because the utility has longer-term delivery contracts, said spokesman Scott Smith. Madison Gas & Electric isn’t planning to pass coal shipping charges on to customers and MGE doesn’t hold any rail contracts directly, said spokesman Steve Kraus.
Pat Schillinger of the Wisconsin Paper Council said rail rates have risen so high that trains are no longer competitive with trucks. He said paper manufacturers have struggled with decreased days of service, reliability and quality of rail cars in addition to higher prices. He said a Tomahawk paper operation with 20 jobs was moved to Michigan over a year ago due to high energy and rail costs.
While their customers struggle with higher shipping costs, three national railroads that serve Wisconsin issued record- setting financial reports for the third quarter of 2006.
Burlington Northern Santa Fe reported record operating income of $920 million for the third quarter, up 18 percent over the same quarter a year earlier.
Union Pacific reported all- time quarterly record operating income of $752 million for the third quarter, up 56 percent from 2005.
Rail officials defend the numbers by pointing to the need for capital improvements.
Railroads invest about 18 percent of their total income on track, locomotives and other capital costs, said James Barnes, Union Pacific’s media information director. He said coal is the least profitable commodity hauled by rail.
“Over the last decade, we’ve spent $7 billion on our coal network, yet coal and ag products are the smallest of our six business groups,” he said. Other groups are industrial, auto, intermodal, chemicals and other energy.
Heavier rail cars and longer trains make capital needs critical for stronger bridges and higher-capacity track, said Wisconsin rail commissioner Rodney Kreunen.
“Part of what they’re facing is they have a dramatic need to increase capacity throughout the system,” Kreunen said. “The rates before never allowed them an adequate return on capital. It’s just getting to the point where they’re able to attract capital to do this.”
Besides upgraded track, he said another example of national railroad investment in Wisconsin is CN’s computerized dispatching center at Stevens Point. The Montreal- based railroad planned to spend about $900 million throughout its system last year for infrastructure improvements, up from about $40 million in 2005.
“CN is committed to the long-term viability of our Wisconsin lines,” wrote James Foote, executive vice president, in an Oct. 11 letter to the PSC. “Unlike other companies, however, it is essential that we derive sufficient revenues to sustain our highly capital- intensive operations.”