(The following story by Marvin Baker appeared on the Minot Daily News website on September 1.)
BISMARCK, N.D. — North Dakota’s Public Service Commission wants the Legislature to consider filing a challenge against Burlington Northern Santa Fe Railroad for what it calls unreasonable grain rail shipping rates.
A completed legal report was released Monday, giving analysis of the rates BNSF charges to the state’s grain shippers. In part, the report explains market dominance, unreasonable rates and methods for filing a case.
Some of the elevators reviewed as part of the study revealed rates yielding more than 300 percent revenue against variable cost. In other words, some shipping locations are generating more than $3 in revenue for every $1 in the railroad’s cost, far exceeding the $1.80 benchmark that is set in a statute.
BNSF media spokesman Gus Melonas did not return phone calls Monday.
“The study helps confirm what we have felt was true for a long time, that North Dakota shippers are overcharged on their rail rates,” said Public Service Commissioner Susan Wefald. “More importantly, the work of the legal counsel and technical experts in this report forms the core data and analysis that can be used to begin a successful formal rate case.”
According to Wefald, the investigation of rail rates is the result of action initiated by the PSC in the 2003 Legislature. With support of the governor and the Legislature, the PSC was granted $250,000 spending authority to investigate the feasibility of challenging rail rates before federal regulators.
Wefald said the information collected will now go the 2005 Legislature and it will be up to lawmakers to determine if the case should move forward to the Surface Transportation Board.
If the Legislature agrees, the case could take 18 to 24 months to complete and cost $950,000. Wefald said the result would grant producers better rates for shipping grain.
“Depending on the type of case that is filed and the willingness of the STB to lower rates, a successful rate complaint could return millions of dollars each year to North Dakota farmers and grain elevators,” said Public Service Commissioner Kevin Cramer.
A prerequisite to filing a case before the Surface Transportation Board is that a party challenging rail rates must prove captivity to a railroad. That means a specific railroad, such as BNSF, would have at least 70 percent rail market share. In some cases, the report details locations in North Dakota shipping more than 90 percent of their grain over a single railroad.
Wefald said there are two methods for filing a case – a stand alone case and a simplified case. The stand alone case can cost up to $4 million and take up to three years to investigate. It is generally used by coal companies. The simplified case is smaller in geographic scope, but does include a fairly lengthy segment of rail line across the state.
“Up to this point, only large, industrial shippers have been able to take advantage of federal rate relief, but for the sake of our farmers and country elevators, that has to change,” said Public Service Commissioner Tony Clark. “We have among the most captive shippers in the nation paying some of the very highest rates in the nation. If a successful case can’t be brought here, it won’t work anywhere.”
Because this challenge targets BNSF and not Canadian Pacific Railway or other short line railroads, it doesn’t guarantee that every elevator will receive lower rates if a case is won.
It does, however, send a message, according to Wefald.
‘It doesn’t guarantee (new) rates will apply to the whole state,” Wefald said. ”But it will set a precedent.”
The investigation, conducted by L.E. Peabody & Associates of Alexandria, Va., stated a successful rate complaint could produce significant rate reductions. Depending on origin, destination, type of movement and other factors, reductions of 10 to 40 cents per bushel were calculated.
The investigation verified that rail rates on wheat are high enough to warrant a complaint before the STB.