Intermountain files new version of coal rate complaint against UP

The Intermountain Power Agency (IPA) wants the U.S. Surface Transportation Board to look at whether the Union Pacific Railroad is charging IPA too much for coal transportation to the Intermountain power plant under rates set in 2010.

IPA, in a May 30 complaint, is seeking the establishment of reasonable rates and other terms for unit train coal transportation service by the UP from a point of interchange with the Utah Railway (URC) at Provo, Utah, to IPA’s power plant in Utah. The two Intermountain generating units have a total capacity of 1,800 MW and consume 4 million to 6 million tons of coal per year.

In December 2010, UP published the rates subject to challenge in this complaint. Later in December 2010, IPA filed a first complaint with the board challenging the same rates that are the subject of this complaint and rates from two other origins that are not the subject of the May 30 complaint.

On May 2, IPA moved for leave to withdraw that prior complaint. On May 22, UP filed a reply to IPA’s withdrawal motion. In its reply, UP acknowledged that IPA is entitled to file a new complaint challenging the rates from the Provo interchange, but asserted that IPA should be prohibited from seeking reparations for any period preceding the dismissal of the old complaint, IPA noted. The board has not acted on the May 2 dismissal motion, but IPA said it is prudent to move forward with this new case in the meantime.

IPA said it has shipped, and anticipates it will continue to ship, at least 2.5 million to 3.5 million tons of coal per year from the Provo interchange through the end of the 10-year prescriptive period. IPA has shipped, and will continue to ship, the balance of its coal supplies during the time period (about 2.5 million tons per year) from non-issue origins. Depending on future coal supply requirements, IPA’s annual transportation of coal from the Provo interchange could rise above the 2.5 million to 3.5 million level, IPA noted.

IPA has a long-term contract with URC to transport URC-originated Utah coal to Provo, Utah, where URC interchanges the contract coal traffic to UP for delivery to IPP. UP is the only rail carrier capable of receiving coal in interchange at Provo and transporting it to IPP. The Intermountain power plant is located along UP’s main line between Salt Lake City, Utah, and Los Angeles, Calif., and UP is the only rail carrier capable of serving the plant. Accordingly, UP possesses “qualitative” market dominance over IPA’s coal movements under legal codes, something that UP itself has conceded in a prior case, IPA said.

UP is currently transporting coal from the issue origin to the power plant under the common carrier pricing document that is the subject of this complaint. No contract for such service exists between the parties, and the last such contracts expired on Dec. 31, 2010. UP’s common carrier rates for this service in shipper-supplied cars from the issue interchange were $7.13 per ton (286k Capacity Cars) and $7.27 per ton (263k capacity cars) as of Jan. 1, 2011. UP’s common carrier rate quotations are subject to a fuel surcharge.

“The common carrier transportation charges established by UP in its December 10, 2010 rate quotation are substantially in excess of 180% of the variable cost of the associated service,” said IPA about a threshold level that invokes board authority to rule in a case like this.

The reasonableness of UP’s rates should be examined using the Constrained Market Pricing principles, said IPA. “The use of Constrained Market Pricing principles is appropriate because coal shipments to IPP via UP involve high volume, repetitive unit train traffic,” it added.

In its May 22 reply to the withdrawal motion, the UP said the board should dismiss that initial case “with prejudice” and that it has shown its rates are reasonable under board guidelines. The UP said that IPA should not be allowed to undertake a “do-over” by filing a new case after having reviewed the UP’s evidence in the prior 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.