The Northern Plains Resource Council, an environmental group, on Jan. 13 asked the U.S. Surface Transportation Board to order the BNSF Railway and Arch Coal (NYSE: ACI), who co-own the Tongue River Railroad, to turn over more documents about themselves.
The Tongue River Railroad (TRRC), which has had a proposed rail line construction project for over 20 years, in December 2012 filed with the board its latest version of its project. That version would originate at two points, including at Arch Coal’s planned Otter Creek strip mining operation, in the Montana end of the Powder River Basin, and then interconnect with the BNSF near the Colstrip power plant. Among other things, this line routing would make this coal a viable player on the export market, due to relative proximity to existing and planned West Coast export facilities.
The council has been opposing the Tongue River Railroad project for years, through all of its iterations, and has lately been seeking more information from the company on the need for the project and the “financial fitness” of project backers BNSF and Arch Coal.
TRRC’s financial fitness depends on its owners who according to TRRC may finance construction of the $416m rail line entirely through additional equity investments, the council noted in the Jan. 13 petition to compel document production. “Despite TRRC’s reliance on its owners to meet the Board’s three-part test for determining whether to authorize construction and operation of the rail line, TRRC, Arch Coal and BNSF (collectively the ‘TRRC parties’) are withholding critical information in response to discovery requests tailored to these matters,” the council argued.
Among other things, the companies are limiting their search for responsive documents to “files of employees of BNSF and/or Arch Coal who supplied information for use in connection with the TRRC Application,” the council said. “The TRRC Parties claim that all other documents are not relevant, not reasonably calculated to lead to the discovery of admissible evidence, and are too burdensome to locate and produce. Other categories of documents are being withheld altogether.”
The demand and need for the Tongue River Railroad is inextricably linked to Arch Coal’s decisions about developing the Otter Creek mine, the council argued. “Most importantly, Arch Coal must decide to open the Otter Creek mine and produce coal in volumes sufficient to generate enough revenue-generating traffic for TRRC to cover the cost of constructing the Tongue River Railroad and BNSF’s operating costs and revenue requirements.”
The council said it wants more information in light of a recent Arch Coal statement during a quarterly earnings call that the PRB coal market is currently weak and don’t justify any increase in PRB production. Notable is that this Arch Coal statement was about a short-term market condition related to Arch’s existing Black Thunder and Coal Creek mines in the Wyoming end of the PRB. Otter Creek, at best, is several years away from a production start.
“Northern Plains anticipates the TRRC Parties will argue that the highly confidential internal spreadsheets containing projections of demand and analysis of markets produced to date are sufficient for purposes of these proceedings,” the council wrote. “Northern Plains does not dispute the fact that Arch Coal produced these spreadsheets. However, Arch Coal did not produce any documents discussing or interpreting information contained with the spreadsheets. Given Arch Coal’s direct financial interest in the Otter Creek mine and Tongue River Railroad, one reasonably expects that its spreadsheets do not exist in a vacuum devoid of any interpretation or discussion. If these documents do not exist in files of a handful of Arch and BNSF employees who assisted in the TRRC application, then they should certainly exist in the files of other employees or perhaps were created earlier in time. This information is highly relevant and should be produced.”