Arizona Electric takes coal haul rate decision to court

On Jan. 23, Arizona Electric Power Cooperative Inc. (AEPCO) filed a notice of appeal at the U.S. Court of Appeals for the D.C. Circuit over a November 2011 decision by the U.S. Surface Transportation Board in a coal haul rate dispute with the BNSF Railway and Union Pacific Railroad.

“AEPCO submits that the decision is arbitrary, capricious, contrary to law, and not supported by substantial evidence, and respectfully requests that this court hold the decision unlawful, vacate, enjoin and set it aside, and grant such other relief as may be just and proper,” said the brief notice, which didn’t get into the details of what exactly the cooperative plans to contest in that ruling.

The actual Nov. 16 STB decision, all 150 pages of it, went for AEPCO. “The board finds that the complaining shipper does not have a feasible shipping alternative to defendant railroads for the transportation at issue, and that the challenged rates those railroads charge the complaining shipper are unreasonably high,” said the board decision. “Therefore, the board prescribes maximum reasonable rates for future at-issue shipments and orders the defendant railroads to pay reparations for past, excessive charges.”

In December 2008, AEPCO filed a complaint challenging the reasonableness of the joint rates established by BNSF Railway and Union Pacific for unit train coal transportation service from New Mexico and the northern portion of the Powder River Basin in Wyoming and Montana to AEPCO’s Apache plant located near Cochise, Ariz. AEPCO requested that the board prescribe reasonable rates and order reparations for past overcharges.

AEPCO pursued relief under the agency’s stand-alone cost (SAC) test. Under this test, the parties must hypothesize a stand-alone railroad (SARR) that could serve the traffic at issue if the rail industry were free of entry barriers. Under the SAC test, the challenged rates cannot be higher than what the SARR would need to charge to serve the complaining shipper while fully covering all of its costs, including a reasonable return on investment.

“In this case, AEPCO has demonstrated that the challenged rates are unreasonable under the SAC test,” said the board decision. “Accordingly, we will order defendants to pay reparations to AEPCO (with interest) for prior shipments, and we will prescribe the maximum lawful rate that defendants can charge through 2018. The maximum lawful rate is expressed as a revenue-to-variable cost (RlVC) ratio. The agency may not prescribe a rate below the 180% RlVC ratio set forth in the statute. Here, the SAC analysis places the maximum reasonable rate below that threshold. Accordingly, we will order the railroads to establish transportation rates no higher than the 180% jurisdictional floor, which will provide AEPCO a 28% reduction in the transportation rate for 2009, and an average reduction of37% over the 10-year period for which AEPCO is entitled to relief.”

Although the record does not provide the data needed to calculate precisely the total amount of reparations due to AEPCO, the board estimated that the reparations are roughly $4.5m in 2009. It further estimated that the total relief AEPCO will obtain as a result of this order – including both reparations and the lower prescribed rate through 2018 – will approximate $63m (in current dollars).

Following standard practice, the board told the parties to calculate the total amount of reparations and interest due, in accordance with this decision. If they cannot agree, the parties should bring the dispute to the board’s attention for resolution.

The appeals court issued a Jan. 24 scheduling order that, among other things, gave AEPCO a deadline of Feb. 23 to file a more detailed statement of issues in this case.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.