Coal-fired utilities argue for more rail competition at the STB

Several coal-fired utilities, including Entergy Arkansas, told the U.S. Surface Transportation Board on May 30 that the board needs to be cautious about changing its switching regulations, but that it is on the right track to easing coal-haul rates.

Entergy Arkansas, Kansas City Power & Light, Seminole Electric Cooperative and Wisconsin Electric Power d/b/a We Energies (collectively called the “Joint Coal Shippers”) were responding to a board decision from July 2012, as modified by a board decision in October 2012.

Following the board’s 2011 hearings in a rail competition case, the National Industrial Transportation League (NITL) submitted a proposal to modify the board’s mandatory competitive standards. The board determined that it could not gauge the potential impact of NITL’s petition and therefore requested that interested parties supply it with additional information to help it decide how to proceed on the NITL initiative.

In its July 2012 decision, the board stated that under NITL’s proposal, where mandatory switching enabled two railroads to quote rates for the same origin-to-destination service, “there may be no market dominance, and hence the Board may not regulate the reasonableness of those rates.” The board seemed to view its function under the proposed rules as “limited to regulating the ‘access price’” that “Railroad 1 may charge to provide the shipper with access to the competitor service provided by Railroad 2,” the utilities said. The board explained that under the assumption that competition between Railroad 1 and Railroad 2 would ensure reasonable rates and service between origin and destination, the board could focus its resources “only on the access price for the first 30 miles of the movement under NITL’s proposal.”

In their opening submission, the Joint Coal Shippers said they demonstrated that so-called “competitive” switching options would not automatically result in effective competition for purposes of market dominance determinations in rate reasonableness proceedings. They explained that there was no support in law or policy for the STB to construe a switching rule that granted access to a second carrier but failed to provide shippers with any actual, meaningful competitive rate benefits as precluding a shipper from exercising its statutory right to seek rail rate reasonableness relief at the board for its existing origin-to-destination movement.

Other non-railroad parties expressed concerns with the board’s statements on market dominance, which were largely consistent with Joint Coal Shippers’ views. The railroads likewise did not advocate that the new switching rules should be viewed as a substitute for a full market dominance analysis, those shippers added.

The Joint Coal Shippers said they demonstrated that any limitations on captive shippers’ rights to pursue origin-to-destination rate relief would have a significant adverse impact on those shippers. “Particularly in light of the highly concentrated state of the railroad industry, it would be unrealistic to assume that if the Board were to adopt a mandatory switching rule, competition between the railroads automatically would become robust,” they noted. “Accordingly, the availability of any new switching remedy simply should be viewed as any other potential alternative in making a market dominance determination in a rate reasonableness proceeding.”

Arkansas Electric offers its own coal perspective

Arkansas Electric Cooperative (AECC), a coal-fired power producer that often files its own solo arguments in cases at the board, did so in this matter.

“The railroads claim that increasing intra modal competition for captive rail shippers by expanding reciprocal switching would be nothing more than a back door form of rate regulation, which would improperly undermine differential pricing and the principles of Constrained Market Pricing (CMP),” Arkansas Electric wrote. “On the contrary, as AECC shows below, under current market conditions, where the large Class I railroads have achieved the robust financial health that was one of the objectives of the Staggers Act, CMP requires the implementation of new policies and practices to rein in excess differential pricing.”

The railroads also claim that the NITL proposal would cause traffic to be routed inefficiently, rather than via the supposedly efficient routes chosen by the incumbent monopoly railroad, Arkansas Electric added. “On the contrary, as AECC shows below, the absence of effective rail-to-rail competition causes inefficiency, whereas increased competition that would result from the adoption of the NITL Proposal would foster efficiency (as competition commonly does).”

The railroads claim that increased competition through the adoption of the NITL proposal would disrupt rail service, but again they overlook the benefits of competition, said Arkansas Electric. A monopoly railroad does not face the same market discipline to maintain and restore high levels of service as does a railroad that faces competition, it added.

CSX says the NITL proposal is ‘misguided’ and would favor chemical shippers

CSX Transportation, one of two major eastern U.S. railroads, said in its May 30 brief: “The Opening Comments filed by other parties confirm what CSXT demonstrated in its Opening Comments: the NITL Proposal is a misguided effort to remake the regulatory system to benefit a favored subset of shippers at the expense of the vast majority of rail users. Adoption of the NITL Proposal would both create significant operational problems and set off an avalanche of new regulatory litigation. Even the comments submitted by supporters of forced switching make clear that the Proposal is slanted heavily in favor of a few shippers of relatively-higher rated traffic who have the resources to pursue a complex new type of regulatory litigation. This small group of intended beneficiaries—predominantly chemicals shippers—has proposed a plan transparently designed to serve their desire to obtain lower rail rates without having to prove that those rates are unreasonable. Those shippers would do so at the cost of significantly damaging the fluidity of the rail network and service for other shippers. The Board should reject this misguided and shortsighted proposal.”

The “winners” under this proposal are the limited number of shippers who could take advantage of forced switching to pressure railroads to lower their rates (without having to prove that those rates are unreasonable), CSX argued. The “losers” include shippers who could not or do not want to use forced switching but who would nevertheless share in the costs of such switching, including lower network efficiency, degraded service, and longer delays and dwell times, the railroad said.

CSX added about the coal industry stance in this: “Non-chemicals shippers are either indifferent to the NITL Proposal or primarily concerned with revising it into a full ‘open access’ regime. For example, coal shippers primarily want assurance that rate remedies (and particularly shippers’ ability to prove market dominance) would not be adversely affected by a forced switching regime. A group of four coal-burning electric power utilities—three of which are former rate case complainants—submitted comments urging the Board not to make any change that would limit shippers’ ability to challenge the reasonableness of their rates. See Opening Comments of Entergy Arkansas, Inc., Kansas City Power & Light Co., Seminole Electric Cooperative, Inc. & Wisconsin Electric Power Co. (‘Joint Coal Shippers’). The Joint Coal Shippers took no position as to the advisability of adopting the NITL Proposal. Instead, they urged the Board not to make changes that could make it harder for shippers to demonstrate the lack of effective competition that complainants must prove to establish that the STB has jurisdiction over complaints about the reasonableness of their rates. The coal shippers argued that a regulatory change that would limit a solely served shipper’s right to seek rate relief would constitute ‘a significantly adverse impact’ on shippers.”

The American Short Line and Regional Railroad Association (ASLRRA) had a slightly different perspective, saying in a May 30 filing: “A premise of the NITL petition for government-mandated inter-carrier access is that 550-odd small Class II and Class III railroads shall be exempt from its provisions. Despite the presumed intent to exclude Class II and Class III railroads, the NITL petition is ambiguous as written and needs to be clarified the avoid decimating the small railroad industry. Specifically, if the Board decides to adopt the NITL petition, it should expressly limit the application to situations in which no Class II or Class III railroad participates at any point in the movement of the traffic whether or not the small railroad appears on the waybill.”

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.