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9/14/2001



Rail News: Rail Industry Trends

STB finds UP's WPL rate unreasonable, orders railroad to pare down price


Per a utility's rate challenge, Surface Transportation Board Sept. 13 ruled that Union Pacific Railroad's coal-moving rate charged to Wisconsin Power and Light (WPL) is unreasonably high, and the board ordered UP to reduce its rate and pay WPL reparations.

UP moves coal from Wyoming's Powder River Basin (PRB) to WPL's Sheboygan, Wis., power plant.

Using a stand-alone cost test — which determines the lowest cost a hypothetical, efficient railroad could provide transportation needed by a complaining shipper — STB examined projected earnings and operations of a hypothetical railroad from 2000 to 2019. Test results determined that a stand-alone railroad would generate more revenue than incurred costs for each year of then 20-year period.

Therefore, the board ordered UP to reduce its challenged rate to 180 percent of the railroad's variable cost of providing WPL service — the lowest rate level STB can authorize.

Under U.S. code provisions, the board can consider a challenge to a railroad's rates only if STB first determines that the railroad faces no effective competition for the rate-affected traffic. The board concluded that UP has market dominance over WPL's coal traffic, the challenged rate exceeds 180 percent of UP's variable cost of providing WPL service and WPL has no effective transportation alternative to UP's PRB-to-Sheboygan service.


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