The U.S. Surface Transportation Board on May 21 denied a petition from Arizona Electric Cooperative requesting that the board order two railroads, BNSF Railway and the Union Pacific (UP), to charge a single rate for coal hauls to comply with a decision finding for the shipper in a rate dispute.
In 2008, Arizona Electric (AEPCO) filed a complaint at the board challenging the reasonableness of the joint rates established by BNSF and UP for unit train coal transportation service from New Mexico and the northern portion of the Powder River Basin in Wyoming and Montana, to the Apache plant located near Cochise, Ariz.
In a decision served on Nov. 22, 2011, the board found that AEPCO had shown that defendants have market dominance over those movements and that their rates were unreasonable. The board ordered defendants to reimburse AEPCO (with interest) for amounts previously collected above prescribed levels. The board further ordered defendants to establish and maintain rates for movements of the issue traffic that do not exceed 180% of the variable costs of providing the service.
On Jan. 9, AEPCO filed a petition requesting that the board order BNSF and UP to publish joint rates to comply with the November 2011 decision. AEPCO said the rates recently published by BNSF and UP are proportional rates, and claimed that this violates the board’s order. AEPCO argued that the rates it challenged were joint rates, and that when the board prescribed rates in the November 2011 decision, defendants lost the authority to change the form of the common carrier rate.
BNSF and UP both argued that the board did not prescribe a particular rate type in the November 2011 decision, but instead merely required that they quote to AEPCO rates that do not exceed 180% of the variable costs to provide the service. They argued that they retained their freedom to establish the type of rates to quote.
Defendants further stated that they quoted proportional rates to help disentangle UP’s rates from the issues surrounding Berkshire Hathaway’s (NYSE: BRK.A)acquisition of BNSF and its possible effect on board-prescribed BNSF rates. A number of shippers have complained to the board in a separate case that Berkshire’s price premium paid for BNSF shouldn’t be passed along to BNSF customers through board-approved rates.
Board says railroad actions allowed under November 2011 order
“We will deny AEPCO’s petition,” said the board’s May 21 ruling. “In a rate case, the Board determines whether a carrier (in this case two carriers) has charged an unreasonable rate. If the Board determines that the carrier has charged an unreasonable rate, it prescribes a maximum lawful rate. When a shipper successfully challenges a rate for common carrier transportation, as AEPCO did here, the carrier loses some of its flexibility in setting the terms of carriage, at least in as much as those terms affect the level of the rate prescription. Here, there is no dispute that the level of the rate, whether a joint or proportional rate, will not exceed 180% of the variable costs to provide the service. By seeking to change the type of rate charged from joint to proportional, the railroads argue they are exercising freedom they continue to have notwithstanding the rate prescription. Prior to this case, the Board had not been called upon to determine where a railroad’s flexibility in setting terms of carriage ends when the rate is subject to a prescription.”
The board found the changes proposed by defendants permissible under this analysis. “AEPCO has not shown or argued that its relief has been affected,” it added. “Instead, AEPCO argues that it is being denied the benefits associated with a joint through rate, including the simplified determination of rates. But, as discussed above, the complaint concerned the rate level, and not the ease of administration of the rate prescription. Furthermore, the determination of rates issues that AEPCO points to regard differing calculations by the carriers. These differences would occur regardless of the rate type. The November 2011 Decision requires the parties to determine the prescribed maximum lawful rates by using the individual carriers’ actual costs for their segment of the movement. AEPCO and defendants would therefore perform the same calculations, about which there are disagreements, regardless of whether joint or proportional rates are quoted.”
AEPCO also raised concerns about UP’s “creative maneuvering” of common carrier arrangements in recent rate disputes. “Application of the standard discussed in this decision would prevent any improper post-decision maneuvering by a carrier,” the board responded. “The standard considers both the Board’s underlying analysis and relief to the shipper. Should either of those factors be affected, a carrier would necessarily need to make a strong showing under the counterbalancing other factors for the Board to allow any changes to the tariff to take effect.”