(The following story by John D. Boyd appeared on the Journal of Commerce website on July 27, 2009.)
WASHINGTON, D.C. — Union Pacific Railroad will have to repay a captive Oklahoma utility amounts the Surface Transportation Board said could reach $100 million over 10 years, as the STB settled a dispute over how to calculate charges on those UP coal hauls.
The decision comes in a case from November 2008, in which Oklahoma Gas & Electric challenged the reasonableness of new UP rates it would pay to bring coal from 12 Wyoming mines in the Powder River Basin to OG&E’s Muskogee Station power plant in Fort Gibson, Okla.
The coal shipments, which total 6 million tons a year and provide electricity to over 750,000 users in Oklahoma and western Arkansas, were under private contracts through the end of last year and therefore outside STB jurisdiction.
But the two sides could not agree on terms for a new contract, and since the utility could only get its PRB coal from UP its shipments went on common carrier tariff this year, making it subject to STB oversight.
Both sides agreed that UP had market dominance in that there was no effective competition, the STB said, and both agreed that a reasonable rate should be that allowed as a rate floor in federal law – 180 percent of the carrier’s variable costs of providing the service.
What they disagreed on was how to figure those costs, and therefore the rates. So the board used its own computations based on its regulatory cost formula, and determined that UP overcharged OG&E over the first two quarters of this year amounts ranging from $1.66 to $1.91 per ton in railcars the shipper supplies.
And it gave both sides instruction they had sought in how to compute the maximum lawful rate on shipments through the end of 2018. All that works out to $10 million a year in reparations and rate relief based on historical volumes, the STB said.