A number of officials with coal producing and consuming companies have offered letters of support for the takeover of RailAmerica Inc. by Genesee & Wyoming Inc.
Both companies are parents of a number of short-line railroads scattered around the U.S. Short-line railroads often orginate coal at the mines and also sometimes handle final deliveries of coal to power plants and other customers, with often a major rail carrier, called a Class I railroad, handling the in-between moves. In the western U.S., the majors are BNSF Railway and the Union Pacific, while in the eastern U.S. they are CSX Transportation and Norfolk Southern.
On Aug. 6, Genesee & Wyoming applied at the U.S. Surface Transportation Board for approval to acquire control of RailAmerica. Genesee & Wyoming said Oct. 1 that it has completed the acquisition of RailAmerica and that control of RailAmerica was then placed into a voting trust with R. Lawrence McCaffrey appointed as trustee. The trust will remain in effect until the STB issues its decision, which could occur as early as the fourth quarter of 2012 or as late as the first quarter of 2013.
“The Transaction raises no significant competitive issues,” said Genesee & Wyoming’s STB application. “No shipper will have its options reduced from 2 rail carriers to 1. There are only four localities where the short line railroads controlled by the Applicant holding companies have any contact at all, and an analysis of the circumstances at each point of contact shows that there will be no adverse competitive impact at those locations. The evidence submitted in support of this application shows that the Transaction raises no other significant competitive issues.”
Kevin Neels of consultant The Brattle Group said in testimony filed with the board supporting the takeover: “Rail systems like those owned by GWI or RailAmerica have geographic structures that differ dramatically from that of a typical Class I railroad. A Class I network is made up of a single interconnected network of high density main lines, branch lines and feeder lines. In contrast, the systems owned by GWI or RailAmerica are made up of numerous small, low density and in most cases non-contiguous lines under common ownership and management. While common ownership of these relatively small, scattered rail operations does generate efficiencies in terms of purchasing and management, it generates few, if any. opportunities for market power.”
Coal industry officials offer support for merger
In hundreds of pages of documents filed with the board as part of the original application, the Genesee & Wyoming offered letters of support from dozens of customers, including a number of officials involved with the coal industry. Those comments include:
- Shannon Brown, Managing Director responsible for coal supply and transportation at Dynegy Inc., said in a July 25 letter that under certain energy management and service agreements Dynegy Inc. and its subsidiaries Dynegy Administrative Services Co. and Dynegy Operating Co. provide services to and are authorized to act on behalf of Dynegy Midwest Generation LLC, which sells wholesale power, capacity and ancillary services to utilities, cooperatives, municipalities and other energy companies in the Midwest. DMG’s power generation portfolio consists of about 3,132 MW of baseload and peaking power plants fueled by coal and natural gas. The Illinois & Midland Railroad presently provides rail service to DMG and is anticipated to continue to do so in the future. DMG supports the acquisition of RailAmerica by Genesee & Wyoming, the parent company of the Illinois & Midland, since both parent companies currently operate independent short line rail networks which do not overlap. Under these conditions, this acquisition would not reduce competition, Brown noted.
- Jeff Price, Senior Vice President at Enserco Energy LLC, wrote that his company has been involved in transportation and logistics management associated with the U.S. domestic coal market. Among other things, Enserco often manages deliveries from primary producers to end users and as such often carries rail transportation as part of its offerings. Enserco supports the acquisition of RailAmerica by Genesee & Wyoming, parent company of the coal-hauling Utah Railway. Both G&W and RailAmerica operate independent short line rail networks and, combined, there is no overlap, Price said. “Additionally, the short line combination offers customers the ability to connect to multiple Class 1 railroads, creating an additional level of competition through competitive routing options.”
- Nicholas Grimmer, Director, Fuel Supply for Indianapolis Power & Light, noted that his current position requires him to negotiate rail rates and schedule unit train deliveries to IPL’s three coal-powered plants. Two of IPL’s coal plants are served by the Indiana Southern Rail Road. The third is served by The Indiana Railroad. RailAmerica is the parent company of the Indiana Southern. “In my market, I am not aware of any overlap of services provided by Genesee & Wyoming, Inc. and RailAmerica, Inc. and therefore don’t foresee any loss of competition due to this merger,” he said. “In fact, IPL supports any merger that results in Indiana Southern Rail Road’s parent company emerging financially stronger and committed to being a long term provider of quality rail service to IPL.”
- Bruce Hann of Ohio coal producer Hopedale Mining LLC noted that his company ships about 1.3 million tons of coal by rail each year, via the Ohio Central Railroad and Wheeling and Lake Erie Railroad. The Genesee & Wyoming is the parent company of the Ohio Central Railroad. Hann said he sees no potential for overlap and reduction of service from this merger.
- Charles Ungurean, President and CEO at Ohio coal producer Oxford Mining Co. LLC said that presently rail service is provided to the company by the Ohio Central Railroad, which is currently part of the Genesee & Wyoming. Like the others, Ungurean said he sees no potential for reduced competition for its coal-hauling business due to this merger.
- James Barker, Executive Vice President at Rosebud Mining, noted that his company operates 19 underground coal mines, eight coal preparation plants, and seven surface mines in Pennsylvania and Ohio. “We ship coal by both truck and rail,” he added. “For rail coal, we ship on the Buffalo & Pittsburgh Railroad, Ohio Central, RJ Corman, Norfolk Southern, and CSX railroads as our operations are spread out geographically.” He noted that the Genesee & Wyoming is the parent company of the Buffalo & Pittsburgh Railroad and that his company believes that this acquisition will strengthen G&W and its operating subsidiaries.
- David Osikowicz said he is the owner of Valier Coal Yard, a coal processing and brokerage firm located near Valier, Pa. In operation since 1980, the yard handles truck coal and also has a rail siding on the Buffalo & Pittsburgh Railroad, which is currently controlled by the Genesee & Wyoming, that is equipped to load single cars and up to 130-car unit trains under power. The Buffalo & Pittsburgh has the advantage of interchanging with both the CSX and NS railroads, he noted. Valier Coal Yard has the capacity to handle 50,000 tons of coal per month. It has the ability to ship mine run coal and a 2″x 0″ product. It can screen various sizes of industrial coal from pea stoker up to a 6″x2” or on 8″x2″ lump product. He said this deal should strengthen the local railroad financially.