(The following article by Thomas Content was posted on the Milwaukee Journal Sentinel website on April 26.)
MILWAUKEE, Wisc. — Utilities, manufacturers and electricity customers are mobilizing to pressure Congress to respond to rising railroad prices that threaten to increase Wisconsin’s electric rates.
A coalition of 30 organizations, including the Wisconsin Paper Council, the Customers First coalition, utilities and others, sent a letter to Wisconsin’s congressional delegation Tuesday asking for help to control rising shipping costs.
Meanwhile, Milwaukee-based Wisconsin Electric Power Co., which uses the trade name We Energies, filed suit in federal court in Milwaukee alleging breach of contract by Union Pacific Railroad for failing to deliver the amount of coal specified under contracts or overcharging the utility.
At stake is roughly $23 million in higher costs the company has faced because of Union Pacific’s inability to deliver the amount of coal specified under the utility’s contract in recent years, utility spokesman Barry McNulty said.
“We’re doing this to protect customers; these are contributing drivers to increased fuel costs,” McNulty said. “The railroads need to honor their contracts.”
Union Pacific spokesman James Barnes had not seen the suit and declined comment.
The concerns raised by the utility are separate from other rail problems that are expected to result in higher rates for customers of We Energies and other state utilities. Flooding-induced derailments in Wyoming last year caused massive delays in coal shipments, forcing utilities to conserve coal and run their more expensive natural gas-fired power plants more often in 2005.
The suit was filed weeks after another utility, Entergy Corp., claimed in a suit that Union Pacific’s 2005 delays cost it “tens of millions of dollars,” Bloomberg News reported.
In 2005, Wisconsin Energy had faced $26 million in higher costs associated with that issue, while Madison-based Wisconsin Power & Light Co. saw a $12.3 million jump in costs, and Green Bay-based Wisconsin Public Service Corp. saw a $6.4 million increase, according to filings with the Securities and Exchange Commission.
The suit was filed and the letter to Congress members was sent one day before a congressional hearing scheduled to examine the “rail capacity crunch.”
Railroads say raising prices gives them more resources to spend on repairing old tracks and improving an aging rail network. The nation’s largest railroads plan to invest a record $8 billion this year in new track and new equipment, according to the American Association of Railroads.
Customer groups say railroads are exploiting so-called captive customers, those who have no other option to bring in their goods. They’re mobilizing to support bills that would remove the antitrust exemption railroads enjoy and give customers a better and less costly option for appealing rate increases authorized by the federal Surface Transportation Board.
“It’s our feeling as a group that if the railroads were pushed to offer fairer rates to captive shippers, a lot of these costs for electric customers could be avoided,” said John Sumi, executive director of Customers First.
Dairyland Power Cooperative of La Crosse has seen a 93% jump in its rail costs, under contracts that came up for renewal at the end of last year, said Brian Rude, Dairyland director of external relations. The cooperative is expected to phase in wholesale electric price increases of 18% to 20% this year, he said.
“The bottom line for us is that coal is our main source of energy and virtually all of our coal comes by rail – either directly or even the coal that comes up the Mississippi River by barge comes from rail to get to the barge,” Rude said.
The groups say a massive consolidation in the railroad industry since it was deregulated in 1980 has left many manufacturers without any choices but to pay higher and higher rates.
“This massive consolidation has led to 35% of the nation’s rail traffic now being subject to railroad monopoly power,” the groups said in their letter to Congress.
But railroad industry advocates say re-regulation is not a fair answer.
Edward R. Hamberger, president of the Association of American Railroads, said earlier this year that coalitions of railroad customers have “failed to explain how artificially lowering rail rates and rail earnings would lead to increased investments. In fact it wouldn’t. Instead, it would compel railroads to cut back on or eliminate projects aimed at increasing capacity.”