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Lowering Coal Transportation Prices: The Rail Construction Option and a Brief Discussion of the STB's Bottleneck Case Decision

John H. LeSeur
Western Coal Transportation Association 1997 Spring Meeting
Tucson, Arizona
April 1, 1997

PRESENTATION OUTLINE

  • Rail Construction Price Reduction Strategy
     
    • General Overview
    • Review Legal Considerations

  • STB Bottleneck Case Decision
     
  • All Materials Cited Herein Are Derived From Publicly Available Sources

PART ONE

LINE CONSTRUCTION PRICE REDUCTION STRATEGY

  • Line Construction Has Been Pursued By Coal Shippers That Are Captive At Destination, But Enjoy Competition At Origins

     

  • Lines Are Built To Break Destination Captivity

     

  • GOAL: Obtain "Holy Grail" Competition-Set Origin-To-Destination Rates/Service Terms

RAIL LINES BUILT/
UNDER CONSTRUCTION*

Utility 

Alabama Power 
Alabama Power 
Associated Electric 
Detroit Edison 
Entergy 
Hastings Utilities 
Houston Lighting & Power 
MidAmerican Energy 
Nebraska Public Power Dist. 
Public Service Co. of Oklahoma 
Savannah Electric 
Union Electric 
Western Farmers

Plant 

Gaston 
Miller 
Thomas Hill 
MERC Dock 
Nelson 
Whelan 
Parish 
Council Bluffs 
Gentleman 
Northeastern 
McIntosh 
Joppa 
Hugo
* Source: AAR Comments, STB No. 41242 (October 15, 1996), and trade press articles.

RAIL LINE CONSTRUCTION AAR CLAIMS HAS BEEN "THREATENED" OR IS "CREDIBLE"**

Utility 

CINergy 
CLECO 
Commonwealth Edison 
Gainesville 
Georgia Power 
Georgia Power 
Georgia Power 
Grand Island 
Grand River Dam Authority 
Kansas City Power & Light 
Kansas City Power & Light 
Kansas City Power & Light 
Lower Colorado River Authority 
MidAmerican Energy 
Nebraska Public Power Dist. 
Southwestern Elec. Power 
Southwestern Elec. Power 
Sunflower 
TVA 
Union Electric 
Union Electric 
UtiliCorp. 
Wisconsin Electric

Plant 

Gibson 
Rodemacher 
Joliet 
Deerhaven 
Bowen 
Wansley 
Yates 
Platte 
GRDA 
Iatan 
LaCygne 
Montrose 
Fayette 
Neal 
Sheldon 
Flint Creek 
Welsh 
Holcomb 
Kingston 
Labadie 
Sioux 
Sibley 
Pleasant Prairie
**Source: AAR Comments, STB No. 41242 (October 15, 1996).

LINE CONSTRUCTION DETAILS

Utility/Plant Line Length Incumbent 
Rail Carrier		 New Carrier
Alabama Power/Gaston 7.5 miles NS CSX
Alabama Power/Miller 1.5 miles CSX BN
Associated Elec./Thomas Hill 17 miles None BN
Detroit Edison/MERC Dock .5 miles BN UP
Entergy/Nelson 4 miles KCS UP
Hastings Utils./Whelan .5 miles BN UP
Houston L. & P./Parish 10.7 miles BN UP
MidAmerican/Council Bluffs 3 miles BN UP
Nebraska P.P.D./Gentleman 9.2 miles BN UP
P.S. of Okla./Northeastern 11 miles UP BN
Savannah Elec./McIntosh 2.5 miles CSX NS
Union Elec./Joppa 4.5 miles UP BN
Western Farmers/Hugo 14 miles Kiamichi TOE

RAIL LINE CONSTRUCTION -- TYPES

Private Construction/Operation Common Carrier Construction/Operation
Hastings Utilities Alabama Power
Nebraska Public Power Dist. Associated Electric
Public Service of Oklahoma Detroit Edison/MERC
Houston Lighting & Power Entergy
MidAmerican
Savannah Electric
Union Electric
Western Farmers

PRIVATE vs. COMMON CARRIER LINE CONSTRUCTION (FORM)

Topic Private Common Carrier
Who Builds Non-Carrier Common Carrier
Who Operates Over Carrier Not Providing Common Carrier Service Carrier Providing Common Carrier Service
STB Approval Necessary No Yes
Source of Legal Authority Case Law 
ICC Term. Act		 49 U.S.C. Section 10901

BN CHALLENGES PRIVATE LINE CONSTRUCTION APPROACH?

CASE: BN petitions STB for declaratory ruling that HL&P line is subject to STB jurisdiction (May 7, 1996) (F.D. No. 32949)
HL&P/UP POSITION: HL&P building traditional exempt private line
BN POSITION: STB has jurisdiction where line is "integral part" of UP's PRB-to-Destination service
RESOLUTION: Citing new "developments," BN drops case (August 29, 1996)

IS LINE CONSTRUCTION AN OPTION FOR YOU?

  • Financial Roadblocks?

     

  • Political Roadblocks?

     

  • Legal Roadblocks?

     

  • Other Options Better?

LEGAL FACTORS TO CONSIDER

Item Private Build Common Carrier Build
Land Acquisition State Law State Law
Rail Crossing Approval State Law STB
Environmental Approvals Fed/State Law STB/Fed/State Law
Other Gov't Approvals Fed/State/Local Law Fed/State/Local Law
Timing of Approvals Fed/State/Local Law STB/Fed/State/Local Law
Rate Base Fed/State Law Fed/State Law
Parent/Sub. N/A Fed/State/Local Law
Common Carrier Duties N/A Fed. Law
Liability Fed/State/Local Law Fed/State/Local Law
Oversight Post-Construction Fed/State/Local Law Fed/State/Local Law

STB APPROVAL PROCESS WFEC R.R. EXAMPLE

NEPA Compliance:

Oct., 1994 -- WFEC invokes third-party contractor process under NEPA 
Dec., 1994 -- WFEC requests E.A. 
Jan., 1995 -- ICC grants E.A. request 
Aug., 1995 -- ICC issues E.A. for comment 
Nov., 1995 -- ICC issues post-E.A. 
Feb., 1996 -- STB issues final Env. NEPA 

Approval
Petition to Build Rail Line:  Dec., 1994 -- WFEC files exemption petition 
Feb., 1995 -- ICC conditionally grants petition 
Sep., 1995 -- ICC denies petitions to reopen conditional approval 
Feb., 1996 -- STB approves WFEC exemption petition
Petition to Cross Incumbent Carrier: Feb., 1995 -- WFEC files crossing petition 
June, 1995 -- Kiamichi files reply; WFEC files rebuttal 
Feb., 1996 -- STB approves WFEC crossing petition

KEY CONSTRUCTION PRECEDENTS

At The ICC/STB:

 

  • STB favors rail construction

     

  • Has approved all "utility build-ins"

     

  • Has approved all utility build-in rail crossings and set fair crossing fees

     

  • Has significant experience with NEPA process

     

  • Has been through "litigation mill"

In The Courts:

 

  • Not many appeals of ICC/STB decisions

     

  • Associated Electric Case, 33 F.3d 980 (8th Cir.,1994), ICC exemption/environmental review findings upheld in utility build-in case

     

  • Condemnation Cases -- no state court "disasters" reported to date

TWO STB CROSSING CASE DECISIONS

STB Jurisdiction: STB can order one common carrier to cross another and can set crossing fee if parties cannot agree on fee (49 U.S.C. Section 10901(d)) 
ICC/STB Cases: 

MERC Case (F.D. No. 32433, August 11, 1995) -- BN asks for $605,000 annual crossing fee; ICC sets fee at single lump sum crossing fee at $35,000 (approx.) 

OPPD Case (F.D. No. 32630, August 1, 1996) -- BN asks for $28.2 million single lump sum crossing fee; STB sets single lump sum crossing fee at $5,320

THE BOTTLENECK RATE CASE COMPLAINTS

  • CPL v. SP, filed April 12, 1994 (Coleto Creek Station)

     

  • PPL v. Conrail, filed August 4, 1994 (Brunner Island, Montour, Martins Creek, Sunburry Stations)

     

  • Western Resources v. Santa Fe, filed July 15, 1995 (Lawrence and Tecumseh Stations)

     

  • MidAmerican v. UP, filed Sept. 28, 1995 (Neal Station)

BOTTLENECK RATE CASE STRATEGY

(1) Obtain Maximum Rate Prescription Over the Bottleneck Line Segment

 (2) Then, Play-off Carriers in Contract Negotiations

THE STB BOTTLENECK DECISION

* Decision Served December 31, 1996

 * STB Pronounces Set of "Governing [Legal] Principles"

 * Applies "Principles" to CPL, MidAmerican and PPL Facts

 * Dismisses Bottleneck Relief Requests in Each Case

 

GOVERNING STB PRINCIPLES

* Where the Involved Carriers Offer Only Origin- to-Destination COMMON CARRIER RATES, the Shipper's Only Maximum Rate Remedy is to Challenge the Origin-to-Destination Rate

 * Where a Shipper and a Carrier First Enter into a RAIL TRANSPORTATION CONTRACT Over a Non-Bottleneck Line Segment, a Shipper May Challenge an EXISTING Applicable Bottleneck Segment Rate

 * UNCLEAR Whether a Shipper Must in All Instances Obtain a COMPETITIVE ACCESS ORDER to Force a Bottleneck Carrier to Provide a Challengeable Bottleneck Segment Rate

 

STATUS OF DECIDED BOTTLENECK CASES

At STB:

 

  • Shipper petitions for clarification/reopening pending

     

  • STB says decision on petitions by April 15, 1997

In Court:

 

  • Four shipper appeals (WCTL, NITL, CPL, MidAmerican)

     

  • Three carrier appeals (AAR, Conrail, UP)

     

  • Cases consolidated in Eighth Circuit (St. Louis)

LESSONS LEARNED FROM BOTTLENECK CASE

* Bottleneck Case Theory Presumed Dead for Present Time

 * Successful Shipper Appeals May Revive Theory

 * Railroad Industry Sends Signal to Utility Industry

 

-- Back Off Access

* Political Fallout -- Remains to be Seen

 * BNSF Merger Appeal -- May Address Some Bottleneck Legal Issues

 

ORIGIN-TO-DESTINATION CASES GO ON

WTU v. BN Case:

 

  • Decided May 3, 1996 (STB No. 41191)

     

  • PRB-to-Oklaunion BN route

     

  • Rate prescribed at $13.68 per ton

     

  • Rate equals 180% of variable cost, 12.3 mills in shipper cars

     

  • $17 million in annual savings

     

  • BN appeal in D.C. Circuit pending

Other Pending STB Cases:

 

  • APS v. Santa Fe (No. 41185)

     

  • PEPCO v. CSX (No. 41989)

     

  • PPL v. Conrail, et al. (No. 41295)

STB BOTTLENECK CASE PROCEEDINGS

  • Defendant Carriers Filed Motions to Dismiss

     

  • ICC/STB Let Cases Sit in "Holding Patterns"

     

  • August, 1996 -- STB Asks for Comments on "Generic Issues"

     

  • October, 1996 -- STB Hears Oral Argument

BOTTLENECK LINE SEGMENT LENGTH

Utility 

CPL 

Western Resourcecs 

MidAmerican 

PPL

Length (Miles) 

16 

44 

90 

150