Intermountain, the Union Pacific battle over coal haul rates

The Intermountain Power Agency on Aug. 14 filed a brief with the U.S. Surface Transportation Board in its longstanding effort to win better rates from the Union Pacific railroad for coal moving to the Intermountain power plant in Utah.

The five subjects that IPA addressed in the brief include:

  • IPA’s use of cross-over traffic and the associated revenue divisions;
  • Z-train traffic;
  • Stand-alone railroad (SARR) local traffic;
  • equity flotation fees; and
  • the proper analysis of cross subsidy issues.

IPA said its evidence and argument in this case demonstrate that it is entitled to relief from the “excessive rates” charged by the Union Pacific (UP) for coal traffic moving to the Intermountain Generating Station (IGS) in Lynndyl, Utah. “UP’s arguments in support of the challenged rates are improper and unavailing,” IPA added.

IPA filed its complaint in May 2012. IPA seeks a determination that UP’s rates for the transportation of coal from Provo, Utah, to IGS (in shipper-supplied high- or low-capacity railcars) exceed maximum reasonable levels under the board’s stand-alone cost (SAC) constraint. IPA also seeks the payment of reparations (plus interest) for alleged past UP overcharges since November 2012.

“This proceeding is IPA’s second challenge to the reasonableness of UP’s common carrier rates for transporting coal in unit train service from an interchange with Utah Railway Company (‘URC’) in Provo, Utah, to IPA’s [IGS] at Lynndyl, Utah,” said the UP in its own Aug. 14 brief. “IPA abandoned its first challenge in 2012, recognizing that it could not show UP’s rates were unreasonable under the assumptions that IPA made in that case.”

The UP added: “This case demonstrates the need to change the Board’s rules governing use of cross-over traffic in stand-alone cost (‘SAC’) cases. As IPA concedes, the primary difference in the SAC analysis of its stand-alone railroad (‘SARR’) in this case and the SARR in Docket No. 42127 is that the SARR in this case does not replicate UP’s lines from Provo to Price, Utah. IPA obtained different results in this case by designing its SARR so that UP, rather than the SARR, is responsible for the relatively high costs to construct, operate, and maintain the Provo-Price segment, while still crediting its SARR with substantial revenues for handling cross-over traffic that moves over the Provo-Price segment, thanks to the Average Total Cost (‘ATC’) method of allocating cross-over revenues. The disparity in results is a red flag. It demonstrates that ATC is not a neutral means of simplifying a SAC analysis of a true SARR – that is, a SARR that provides origin-to-destination service for all the movements in the SARR traffic group. More specifically, it shows that complainants can and do exploit the use of cross-over traffic and ATC to allocate revenues to their SARRs that are disproportionately large in relation to the actual costs of serving the SARR traffic group.”

Lower rates would be of benefit to IPA, though the Los Angeles Department of Water and Power and other plant participants are looking to shut the IGS early to mid next decade. The IPA proposal provides for the construction of two combined-cycle natural gas turbines, each with a capacity not exceeding 600 MW (for a total capacity of 1,200 MW) that will replace the current coal-fired units which have a net capacity of 1,800 MW. The natural gas units will utilize the existing infrastructure as much as possible, since there is enough land located at the site to accommodate both the coal-fired units and the proposed new natural gas units at the commencement of service.

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.