STB to railroads: No substitutes for coal

Published: March 21, 2013

WASHINGTON – Railroads are baffled after the Surface Transportation Board on Tuesday said it would continue using the same method for determining coal-shipping rates as though the shale gas boom never happened.

The railroads, represented by the American Association of Railroads, argued that coal rates should include a calculation on how indirect competition, such as natural gas, factors into the economics of determining rates. The shale gas boom of the late 2000s led electric utilities to shift away from burning railroad-delivered coal to low-priced, extremely clean-burning methane gas from the Marcellus and Utica shale deposits. The shift in demand and volume (coal shipments inside the United States have plummeted in recent years) has caused the railroads to lose thousands of carloads of coal traffic monthly. Regulations from the STB prevent railroads from adjusting pricing and rate structure to accommodate the new competitor – which railroad claim is as real as any competition from another railroad or trucking company.

Since 1999, the STB has only considered the effects of direct competitors – trucking firms, barges and other railroads – in making rates for railroads.

“We simply do not understand how the STB can refuse to acknowledge that the way Americans are getting their electricity is changing. The electric generating marketplace is undergoing a powerful transformation that the STB decision doesn’t take into account,” Edward R. Hamberger, AAR CEO and president, says. “It is deeply troubling that the STB decision ignores what economists, energy analysts and power companies already know: natural gas is displacing coal as the fuel for making electricity.”

The Concerned Captive Coal Shippers, the Western Coal Traffic League, National Mining Association, the American Public Power Association, and others challenged AAR's assertions before the STB. They argued that the AAR and U.S. railroads failed to demonstrate how natural gas was “effective” as a competitor with train-delivered coal.

The STB's final ruling acknowledged that indirect competition might affect competition, but that those concerns did not outweigh the need of the coal producers, users, and the STB, from having a streamlined rate setting process.

“AAR fails to consider or discuss how its approach would avoid the costly, time-consuming litigation that would likely ensue, as parties challenge (and defend) the assumptions underlying any allegation that effective geographic or product competition exists,” the STB ruling notes. “By limiting the market dominance inquiry to evidence of direct competition, the Board set out to eliminate this sort of lengthy, complex litigation, and AAR has given us no reason here to depart from that approach.”

Note: From Trains Magazine Online

Are you subscribed to Trains? The shale gas loom has helped many railroads, too. Many granger railroads (railroads that usually run seasonally, because they handle mostly grain) are now operating year round, and making a healthy profit because of the gas bloom. They are now able to upgrade their tracks, as most are still using light rail (I think 55lb. rail is most common, but don't quote me), and their right of way is not Class II, to say the least. So, the shale gas boom might be hurting the Class I's and a few Class II's, but it is helping many small railroads, who would be struggling to make a profit, stay alive in this troubled economy.