The PPL EnergyPlus LLC unit of PPL Corp. (NYSE: PPL) on March 31 again told the U.S. Surface Transportation Board that any board approval of a planned takeover of a Pennsylvania railroad must ensure continued access for new alternative coal supplies, including “Western” coal, for its Montour power plant, which now mostly takes Pittsburgh-seam coal out of Northern Appalachia.
That statement was initially made in PPL comments filed Jan. 21 with the board in a case concerning the proposed acquisition and operation by Norfolk Southern Railway (NS) of a total of 282.55 miles of rail line and related facilities roughly between Sunbury, Pa., and Schenectady, N.Y., that currently are owned and operated by the Delaware and Hudson Railway (D&H), a wholly-owned, indirect subsidiary of Canadian Pacific Railway (CP).
“PPL submits that the Board should condition any approval of NS’ acquisition of the D&H South Lines on its agreement to preserve PPL’s access to potential alternative rail transportation service to the Montour Generating Station near Sunbury, access which otherwise would be lost as a result of the subject transition,” said the Jan. 21 filing. “Specifically, the Board should impose post-acquisition conditions under 49 U.S.C. §11324(c), mandating that NS (1) enter into appropriate agreements with PPL and CSX Transportation, Inc. (‘CSXT’) for trackage or haulage rights on reasonable terms over the D&H South Lines for loaded and empty trains moving between points served by CSXT and the Montour Station; and (2) enter into a new or an extended trackage or haulage rights agreement with CP on reasonable terms over the Southern Tier Lines, for the handling of loaded and empty trains moving via Buffalo, NY between points served by CSXT and/or CP and the Montour Station.”
A PPL affiliate and subsidiary of PPL Energy Supply LLC – PPL Generation LLC – owns and operates the Montour Station. PPL’s responsibilities include the marketing of generation from Montour, and the procurement and transportation of fuel for the station. Notable is that this is one of the power plants that PPL Corp. wants to contribute to the new Talen Energy.
The Montour station is located in Montour County, Pa., about 20 miles north of the town of Sunbury. It includes two coal-fired steam units with a combined capacity of about 1,550 MW. Montour consumes between 3.0 million and 3.7 million tons of coal each year. Montour can utilize coal from a large number of mines in Appalachia and the Illinois Basin. However, its principal, current sources are in Western Pennsylvania, Northern West Virginia and Eastern Ohio, which are served by NS or short line railroads that connect with NS for the line haul service to Montour.
Currently and for many years prior, NS has been the sole provider of coal delivery service to Montour, as it is the only railroad that has tracks which physically connect to the delivery loop at the station. Occasionally, some coal used at Montour originated at mines served by CSXT, and was interchanged to NS at Lurgan, Pa., for delivery to Montour. However, NS strictly limited the volumes that PPL could transport in this way.
The D&H South Lines connect with the existing NS system near Sunbury and run generally north-by-northeast through Scranton, Pa., Binghamton, N.Y., and Oneonta, N.Y., to Schenectady. At Schenectady, the lines connect through various yards and switching tracks with the remainder of the CP system in New York. However, they also permit the handling of trains in interchange to and from CSXT, which owns and operates the former Consolidated Rail Corp. (Conrail) lines between the Albany area and, inter alia, Buffalo, N.Y., and Cleveland, Ohio, and (via CSXT’s own lines and trackage rights over those of NS) on to Chicago.
Said PPL in its March 31 arguments: “None of the other parties that submitted comments or statements on January 21, 2015 – including NS – offered any evidence or argument that contradicts either PPL’s entitlement to relief, or the reasonableness of the conditions sought to remediate the competitive harms that PPL described. To the contrary, the only parties to address issues related to those raised by PPL both essentially confirmed PPL’ s showings regarding the loss of potential competition that is threatened by the subject transactions, and corroborated the legitimacy of PPL’s remedial conditions.”
Norfolk Southern argues against any conditions suggested by PPL
Norfolk Southern said in its own March 31 arguments: “PPL EnergyPlus, LLC’s (‘PPL’) power plant in Washingtonville, Montour County, Pennsylvania (the ‘Montour Plant’) is currently solely served by NS. Neither CSX nor CP currently serves the Montour Plant. PPL alleges that it has a feasible build-out option that would enable it to receive rail service from a location on the D&H South Lines (i.e., it is not on a line served by D&H via trackage or haulage rights) and that NS’s purchase of the D&H South Lines will foreclose this build-out opportunity. Accordingly, PPL requests that the Board impose two conditions on the Transaction to preserve its build-out option: (1) NS must grant trackage or haulage rights to CSX over the D&H South Lines to access the Montour Plant; and (2) NS must grant CP haulage rights over the Southern Tier Line and the D&H South Lines and to access the Montour Plant, both being contingent on PPL’s constructing the build-out line between the Montour Plant and the D&H South Lines.
“The Board should deny PPL’s request for conditions because PPL has not shown that its build-out option provided a competitively significant option so as to constrain NS’s rates. Even if PPL had shown the potential for competitive harm, the PPL requested conditions are not narrowly tailored, contravene Board precedent, and impermissibly seek to improve its post-Transaction competitive position.
“NS does not dispute that the Montour Plant is served solely by NS. However, PPL would like the Board to believe that its build-out option is both financially and operationally feasible so that the threat of this build-out provided a competitive constraint on NS’s rates. This competitive constraint would, according to PPL, be eliminated if NS purchases the D&H South Lines to which PPL purportedly intends to build-out. Upon closer examination, it is clear that there are numerous operational difficulties associated with PPL’s build-out that call into question whether the project is even possible. As such, the build-out option did not and does not effectively constrain NS’s rates. Rather, NS’s rates are constrained by other market forces which will continue in a post-Transaction environment. As such, PPL has not established a competitive harm that is both substantial and likely so as to warrant imposition of a condition.
“Currently, NS is the only Class I carrier serving the Montour Plant. PPL’s requested conditions would provide direct access to the Montour Plant to two additional Class I carriers – CSX and CP (via a build-out to reach D&H). PPL is not entitled under Board precedent to receive direct service from any other carrier but NS. Providing CSX and CP with direct access to the Montour Plant is an improvement – not a preservation – of PPL’s pre-Transaction position.”