(The following article by Dirk Lammers was circulated by the Associated Press on May 28.)
SIOUX FALLS, S.D. — The federal system that oversees railroad coal delivery should be more responsive to ensure reasonable rates and a competitive market, Sen. Tim Johnson, D-S.D., said.
The Senate Energy and Natural Resources Committee heard testimony in Washington last week from power companies who say that recent coal distribution shortages are prompting higher summer energy rates.
Johnson, a member of the committee, said many power plants that burn coal are “captive shippers” with nowhere to turn other than the one railroad that serves them.
“Free enterprise is the greatest economic system in the world, bar none,” Johnson said on Friday. “But it only works when there is a reasonable amount of competition.”
Edward Hamberger, president and chief executive of Association of American Railroads, told the committee that the railroads’ coal delivery abilities were “anything but a crisis situation.”
Freight railroads delivered 72 percent of the coal used by coal-fired utility plants last year, according to the association, and the industry is poised to have another record year in 2006.
The coal delivery issues were caused by heavy rains in Powder River Basin of northeast Wyoming last May and two derailments, Pat Hiatte, a spokesman for BNSF Railway, said.
Hiatte said BNSF has since started an enhanced maintenance plan and added capacity, and the company is now shipping more coal than ever. The company has loaded an average of 48.4 trains per day in Powder River Basin so far this year as of May 21, up 8.8 percent from the same period in 2005, he said.
Big Stone power plant near Milbank, which is partly owned by Otter Tail Power, typically has a 30-day supply of coal on hand. Its stockpile fell to 10 days earlier this year because of delivery issues, Cris Kling, spokeswoman for Otter Tail, said.
The shortage forced Big Stone to back off its power production so it could stockpile coal for the peak summer season, and that meant it had to buy higher-priced energy on the open market. The cost is passed on to customers through a fuel adjustment clause, Kling said.
Big Stone is now working with BNSF to add a third train, which would bolster the two 115-car trains that deliver coal to the plant.
“The market for railcars has been tight, but we have been able to find train sets that would be available for lease,” Kling said.
Bob Sahr, chairman of South Dakota Public Utilities Commission, returned from Washington Friday after testifying before the committee. He told lawmakers that power companies and other coal users should be able to more easily appeal railroad shipping rates.
Appealing a rate to the STB costs millions of dollars and takes several years, Sahr said. He encouraged lawmakers to strengthen the agency and give it the authority to set reasonable rates and reliability standards.
“At the federal level, if you want to appeal a rate that the railroad is charging you, it’s a very expensive, very lengthy process,” Sahr said Friday. “And the burden of proof is extremely high.
Hamberger said the current system is effective in protecting shippers from abuse of market power or anticompetitive behavior.
Absent governmental subsidies, shippers must be willing to pay for the rail service they need “and the market is far superior to the government in determining who should pay,” he said.
But Johnson said the lack of competition is forcing legislators to rethink the role of government as a regulatory entity. With monopolies and near-monopolies, the government historically has stepped in to regulate rates, he said.
Officials should also consider removing the remaining exemptions from railroad antitrust laws, he added.
“There really are no market forces at work where there is a monopoly situation,” he said.
The overburdened rail system prompted Municipal Electric Authority of Georgia to get its coal from Indonesia this year instead of Wyoming.
Johnson called that an “extraordinary step that really boggles the mind.”
“The transportation cost of a commodity like coal from Indonesia would seem to me to be huge given the fact that the United States is sometimes referred to as the Saudi Arabia of coal,” he said.