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2/19/2009



Rail News: Rail Industry Trends

STB orders BNSF to pay record-setting reparations and rate reductions to captive coal shipper


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Yesterday, the Surface Transportation Board (STB) issued a decision that calls for BNSF Railway Co. to provide the Western Fuels Association Inc. and Basin Electric Power Cooperative Inc. about $345 million in reparations and rate reductions because of “unreasonable” rates charged to the utilities in the past. The judgment represents the largest award given to a captive shipper, according to the STB.

The utilities challenged the rates BNSF charged to move about 8 million tons of coal annually from mines in Wyoming's Powder River Basin to an electric-generating plant in Moba Junction, Wyo., which is captive to BNSF.

The board determined BNSF’s rates are “now roughly six times the variable cost of providing service” and are “unlawfully high.” The STB ordered the railroad to lower its rates by about 60 percent because a stand-alone cost test “demonstrated that in 2009, the maximum lawful rate for this traffic cannot exceed a revenue-to-variable cost ratio of 240 percent,” according to the board.

BNSF must promptly reimburse the utilities for $100 million in overcharges from 2004 through 2008. The exact amount of damages is contingent upon the volume of coal moved from various PRB mines between 2004 and 2008. The board also instructed the parties to resolve differences on the amount of damages and bring any disputes to the STB’s attention.

In addition, BNSF must lower its current rates to revenue-to-variable cost ratio levels and keep the rates below the prescribed level through 2024.

The decision demonstrates the board's commitment to protecting captive shippers from monopoly pricing,” said STB Chairman Charles Nottingham in a prepared statement, adding that the utilities’ customers have been “bearing the burden of these unreasonably high transportation rates in their monthly electric bills.”

However, BNSF “strongly opposes” the decision on its merits and believes the process used to arrive at the judgment is “unfair.”

In 2007, the STB determined that BNSF’s rates charged to Western Fuels were reasonable, but the board now has reversed its prior decision and determined those same rates were unreasonable, BNSF officials said in a statement.

“Despite ruling in BNSF's favor once, the STB substantially revised its large rate case rules, and then allowed the shipper to submit a reconfigured new case,” they said. “BNSF believes that this case is a manipulation of the new rules and represents an outcome-oriented decision in favor of this shipper. BNSF believes that the rates in question that it has charged the shipper are reasonable from both a market and regulatory perspective.”

BNSF officials are reviewing the decision and plan to pursue all legal remedies.


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