Railroads Struggle to Deliver Coal to Utilities

[Anonymous]

I think we are assuming that all the decisions to abandon/dispose rail lines have been made in the distant past. This process to abandon certain rail lines that one would think are part of the basic network has continued even in recent years. Railroads can make certain routes look uneconomic simply by shifting bridge traffic to a different route. IJust because a route does not originate or terminate loads does not mean that it has no utility or makes an economic contribution to the railway in particular or the transportation system in general.
I am just waiting for the day when a factory closes by an Interstate and someone says we must abandon a segement of the Interstate because it is now uneconomic. This is the reason why countries such as the UK and Sweden have separated the rail infrastructure from the operating company. Unfortunately the cost of doing this in North America is prohibitively expensive. We also use different measures of cost, utility, efficiency and profitability for different, not only for different modes but also for different segments within the mode ( ie. frieght vs passenger) which makes rational comparison difficult.

[Anonymous]

QUOTE: Originally posted by Mookie

I think my coal car got dumped!

Don't be so coy. Just come right out and say what you mean.

You took a generalization whence this thread got sidetracked, aka capacity reductions/asset liquidation, took us down a more specific aspect of capacity reduction aka abandoned lines, then tried to tie the one to the topic title.

Now, has anyone alleged that railroads abandoned lines to functioning coal mines or coal deposits? No, but you seem to think so.

The capacity issue is more than abandoned lines. It is also reduction of double track and sidings. When it all gets put together, what you end up with is the loss of the secondary mains, and that's where the asset reduction tact by the railroads has cost them the capacity to get that coal from the mines to the power plants.

And wouldn't you think that since the quantity of coal being transported is under contract, the railroads assumed beforehand that they could get the coal to the plants without delay? Did they not expect the traffic growth in intermodal. Don't the boys in the coal hauling division ever talk to the guys in the intermodal division? After all, they all use the same trackage.

Or perhaps they knew they didn't have the necessary capacity to haul the quantity contracted, but hey, if they can't make their deliveries, what are those captive customers going to do? They ain't goin anywhere, so they can take it or leave it. We have the monopoly, we don't have to perform.

[MichaelSol]

QUOTE: Originally posted by idhull

I think we are assuming that all the decisions to abandon/dispose rail lines have been made in the distant past. This process to abandon certain rail lines that one would think are part of the basic network has continued even in recent years. Railroads can make certain routes look uneconomic simply by shifting bridge traffic to a different route. IJust because a route does not originate or terminate loads does not mean that it has no utility or makes an economic contribution to the railway in particular or the transportation system in general.
I am just waiting for the day when a factory closes by an Interstate and someone says we must abandon a segement of the Interstate because it is now uneconomic. This is the reason why countries such as the UK and Sweden have separated the rail infrastructure from the operating company. Unfortunately the cost of doing this in North America is prohibitively expensive. We also use different measures of cost, utility, efficiency and profitability for different, not only for different modes but also for different segments within the mode ( ie. frieght vs passenger) which makes rational comparison difficult.

Very good point. Much of abandonment wasn't driven by losses, but rather the "idea" that more profits could be extracted by loading up on key routes.

There is somewhat of both a manufacturing analogy and an engineering analogy to that approach. A well designed machine tends to operate well within certain operating parameters. Engines would be good examples, but any manufacturing process machine would be as well. A manager can consolidate the work of two machines working at 45% capacity, thinking he will save money. Yet, it is conceivable that a single machine always worked at 90% or more will simply fail and not do the job at all.

I recall a conversation with a truck engine engineer, not specifically, but to the effect that, "at 3000-4500 rpm this engine can run just about contnuously and go 500,000 miles. At 6,000 rpm, it will last about a day or two."

A rough analogy, but nevertheless, the study that would, to me, be interesting would look at the increased maintenance cost of loading a line to near "capacity," coupled with the efficiency losses/costs in terms of equipment expense, labor, fuel resulting from increased congestion and slower overall movement of trains.

Would a track at 90% of capacity really be more economical than two tracks at 45% capacity?

What I have seen in bits and pieces is "suggestive" that maintenance costs go up faster than the increase in tonnage, and cycle time studies seem to suggest that the operating cost increases far outstrip maintenance savings of the second line. On the other hand, studies that propose such consolidation almost always show, in convincing detail, the opposite. Not sure where the truth is there, and I haven't seen the conclusive study that looks at the whole picture.

[Mookie]

Dave - I am never coy. I am sweet at times, but never coy. But I admit in print - I am completely out of my league on 99% of the postings on this forum. And this is no exception. It is just that when you want to attack someone, you do it immediately. When I ask a question, it gets kicked to the curb for awhile.

I can't take long, convoluted explanations. I need short and simple answers. Little bits and bytes at a time.

Can you do that? I have no agenda - frankly as long as the trains run in my area, I don't care if they haul cow poop. But I do question items from time to time and a short two sentence answer would suffice.

I will treat you like a gentleman as long as you treat me like a lady. If you don't, then the reflection will be on you, not me.

Mookie

[n012944]

QUOTE: Originally posted by Mookie

Dave - I will treat you like a gentleman

Mookie

Why?

[n012944]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Mookie

I think my coal car got dumped!

Don't be so coy. Just come right out and say what you mean.

You took a generalization whence this thread got sidetracked, aka capacity reductions/asset liquidation, took us down a more specific aspect of capacity reduction aka abandoned lines, then tried to tie the one to the topic title.

Now, has anyone alleged that railroads abandoned lines to functioning coal mines or coal deposits? No, but you seem to think so.

The capacity issue is more than abandoned lines. It is also reduction of double track and sidings. When it all gets put together, what you end up with is the loss of the secondary mains, and that's where the asset reduction tact by the railroads has cost them the capacity to get that coal from the mines to the power plants.

And wouldn't you think that since the quantity of coal being transported is under contract, the railroads assumed beforehand that they could get the coal to the plants without delay? Did they not expect the traffic growth in intermodal. Don't the boys in the coal hauling division ever talk to the guys in the intermodal division? After all, they all use the same trackage.

Or perhaps they knew they didn't have the necessary capacity to haul the quantity contracted, but hey, if they can't make their deliveries, what are those captive customers going to do? They ain't goin anywhere, so they can take it or leave it. We have the monopoly, we don't have to perform.

So we are back to the armchair quarterbacking 30 years later. Its amazing how easy that is, isn't it.

Bert

[TomDiehl]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by TomDiehl
It still sounds like we're saying the same thing.

Well, maybe we are, I can't tell.

But I'm sure Dave got a good laugh out of it. [:D]

[Anonymous]

QUOTE: Originally posted by Mookie

Dave - I am never coy. I am sweet at times, but never coy. But I admit in print - I am completely out of my league on 99% of the postings on this forum. And this is no exception. It is just that when you want to attack someone, you do it immediately. When I ask a question, it gets kicked to the curb for awhile.

I can't take long, convoluted explanations. I need short and simple answers. Little bits and bytes at a time.

Can you do that? I have no agenda - frankly as long as the trains run in my area, I don't care if they haul cow poop. But I do question items from time to time and a short two sentence answer would suffice.

I will treat you like a gentleman as long as you treat me like a lady. If you don't, then the reflection will be on you, not me.

Mookie

Fine with me. In return, I would ask that you don't "pull a Murphy" and chime in with the usual suspects when the next insult barrage begins.

[Murphy Siding]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Mookie

Dave - I am never coy. I am sweet at times, but never coy. But I admit in print - I am completely out of my league on 99% of the postings on this forum. And this is no exception. It is just that when you want to attack someone, you do it immediately. When I ask a question, it gets kicked to the curb for awhile.

I can't take long, convoluted explanations. I need short and simple answers. Little bits and bytes at a time.

Can you do that? I have no agenda - frankly as long as the trains run in my area, I don't care if they haul cow poop. But I do question items from time to time and a short two sentence answer would suffice.

I will treat you like a gentleman as long as you treat me like a lady. If you don't, then the reflection will be on you, not me.

Mookie

Fine with me. In return, I would ask that you don't "pull a Murphy" and chime in with the usual suspects when the next insult barrage begins.

[(-D] Several months back, another poster, whose opinion I respect, e-mailed me, and asked that I be a little easier on you Dave. I took that as a sign. If, you feel I am somehow ganging up on you, that is a misperception, and for that I do apologize.
That being said, I'm here to discuss and learn about trains, and railroads, and such. Seeing how we often have diverging opinions on things, it seems natural that we'll be discussing many things in posts to come. As far as junior high games? I'm not interested.[:p]

[bobwilcox]

QUOTE: Originally posted by Mookie

I think my coal car got dumped!

Let me re-rail your car.

I am going to talk about why, based on my book learning and experience, Nebraska got a lot of excess railroad capacity which then got scrapped. Most of my book learning came while earning a transportation degree at the University of Tennessee and independent study since then over the last 40 years. My experience concerning Nebraska came from working with fertilizer and chemical shippers served by the Rock Island, Northwestern and UP. I beleve I testified for the C&NW in all of the ICC abandoment proceedings on the once extensive network of branchlines extending out from Lincoln to Superior, Hastings, Wahoo, etc. These are just my thoughts and others may have their own opinions. I notice your ability to weigh posters contributions has increased greatly in the past few days.

The Model T on the asembly line went into production in 1914. That meant many people in NE could buy an automobile for the first time. The notice their roads were very poor and insisted the Unicamral provide good roads. Their elected officials deleverd and people sone abandoned the mixed train into Lincoln for their new Model T. People like cars because you were not tied to the railroads schdule and you could drive from your home to your destination. On the train you had to go to the depot, wait for the train and at destination figure out a way to get from the depot to your destination in Lincoln. The loss of this business was so bad by the 1930s that it caused railroads like the Burlingtion to figure out ways to get the business back with lower fares and faster schdules. They called it the Zepher!

The same thing happenend in frieght for much the same reasons after the end of WWII. It was a lot cheaper and faster to move livestock from the farm to the Omaha market when compared to driving the cattle to a stock pen and then loading them on the stock cars to Omaha.

In these cases the traffic went from rail to truck because the truck, on those new highways,. was cheaper and faster. However, in the North Eastern part of the US entire industries stopped shipping by rail or truck. The caught the last train to the Coast. As an example, before WWII, GM supplied their California customers from Michigan. In the ten years after WWII GM build several assembly plants in CA. The GM rail movements of automobiles from Michigan to California stopped.

The big problem the railroads had was they could not dump the mixed train from Hastings to Lincoln or the branchline no one shipped cows on anymore in a timley fashion. In the early 1970s if you filed an abandoment case with the ICC that had no oppostion it would take two years to get abandoment the abandoment approved. If you filed on a line with a cash flow loss and their was opposition it would take three to five years to get a decision. Often the railroad would lose those cases. If you had a postive cash flow you could not get an abandoment approved. These rules changed with a lot of new case law, the collapse of the PC and finally the Staggers Act. In the meantime railroads like the Rock Island were put our to business.

During the 1970s the succesful railroads in the Midwest were the ones that managed to stay in operation with spit and bailing wire. Adequate profits were something far over the horizon. Because these railroads were so desperate for cash from any sorce they could seldom hold on to a line to see if it might have some future potental. One case was the Northwstern holding on to the line from Chadron to Fremont as they figured out how to handle coal from the Powder River Basin. When the finally decided to work with the UP the line was abandoned. Some other railroads with more financial strength, such as the Southern, were able to rail bank lines and see it they held potental for the future. When you do this the first thing you do is do to the taxman and have the taxes dropped way down since it is no longer an operating business but just idle land.

I hope that helps.

[rrandb]

QUOTE: Originally posted by Mookie

Dave - I am never coy. I am sweet at times, but never coy. But I admit in print - I am completely out of my league on 99% of the postings on this forum. And this is no exception. It is just that when you want to attack someone, you do it immediately. When I ask a question, it gets kicked to the curb for awhile.

I can't take long, convoluted explanations. I need short and simple answers. Little bits and bytes at a time.

Can you do that? I have no agenda - frankly as long as the trains run in my area, I don't care if they haul cow poop. But I do question items from time to time and a short two sentence answer would suffice.

I will treat you like a gentleman as long as you treat me like a lady. If you don't, then the reflection will be on you, not me.

Mookie

[#welcome] Welcome to the Bowling League. Watch out as it's not just the balls that can get you but some times the pins can go flying as well. [:-^]

[jeaton]

After 10 pages of arguing back and forth, I thought it would be interesting to go back to the original post and just drop in some numbers about coal production and shipments.

We know that the situation developed from the problems the UP and BNSF had with the track out of the PRB during spring, 2005. The very unusually high rain falls last year softened the road beds causing derailments and with the need to resurface and repair the track, the number of daily trains out had to be significantly reduced. While the problem came because of unforseen weather, the utilities and others have argued that the railroads should have been prepared with additional trackage over alternate allignments into the mines, by doing something to sweep up or keep the coal dust out of the ballast which contributed to the problem, and even keeping trackage and routes that were torn up 30 or 40 years ago when the PRB coal was considered only slightly more useful than dirt.

Of course we know that electric utilities have had brown outs and black outs, but those situations have been caused by weather conditions-heat waves and lightening strikes-so how could they be prepared for that?

With all the screaming and nashing of teeth, you might think we have all been freezing (or boiling) in the dark. Let's see just how bad it was. Here are the Wyoming production numbers for 2001 to 2005. (Million Tons) Source: US Government Energy Information Administration April 2006

2001 --- 368.7
2002 --- 373.2
2003 --- 376.3
2004 --- 396.5
2005 --- 406.4

I suppose I could be wrong, but unless some trucks were hauling coal from the mines in the dark of the night, those numbers are also the rail tonnage for the year. If I am right, in spite of the problems, it looks like the UP and BNSF actually hauled 10 million more tons in '05 than '04.

One might also note a big 20 million ton increase from '03 to '04. Here are the Electric Power coal consumption numbers for the same 5 years. 964.4, 977.5, 1,005.1, 1,016.3, 1,039.0. Do you suppose that there is any correlation between the increase in the coal burn and the increase in natural gas price? Not to say that the recent extensive construction of natural gas fired generation stations has had anything to do with gas prices.

Any Questions?

[rrandb]

QUOTE: Originally posted by MichaelSol

The Boeing example is not an R&D cost. Aircraft such as the A-380 require 250 sales to break even, before the company begins to make money (Airbus). The plane was designed in 2003 and 2004. That will probably be in 2013-2014, if at all. The planning is extraordinarily long term. Production capacity is planned out 10, 15, 20 years in advance with the idea that profit might occur in the 12, 14th year, maybe later. .

You could not be further from the mark than with Boeing. I installed DOD reg.(classified) access controls for their offices in No VA. A huge share of there income is from government contracting and I do not just mean Military planes. The profits from comercial work is icing on the cake. There ROI on R&D puts the RR's to shame. It's Airbus Industries that has put all it's egges in one basket with the A-380. Their bankers are already nervous with the current production delays and threatned cancelation of orders and they are a gov. sponsered affair. How many Gov. contracts do the RR's rely on other than AMTAK. NONE Try again.

[Mookie]

Without quoting the whole thing - thanks to Bob from VA and of course, Jay.

Bob - Since I lived through most of that time, I can now see what has happened through the years. I was here when it was CBQ/UP/CNW/RI and now it is BNSF around Lincoln with just a touch of UP. Most of that is even gone and they use the BNSF yards. We are just cut-through country with great rest stops in Lincoln and North Platte.

And to tie in with Jay - he confirmed what I suspected. Trucks didn't move the coal - the trains did.

I hate to wade through all that murky fluff (sorry Dave) to just get to a single point. That's why I had to narrow it down to a single point. We got that answered, now we can move on.

And Jay - today's paper says they are increasing our gas tax 1 cent to make up for all the conservation of fuel. ( we will now be # 7 in the nation) Our roads will suffer because we are conserving fuel!!!!

May I borrow your shovel that you used for digging up facts and hit myself in the head with it?

Mookie

[Anonymous]

QUOTE: Originally posted by Mookie

Without quoting the whole thing - thanks to Bob from VA and of course, Jay.

Bob - Since I lived through most of that time, I can now see what has happened through the years. I was here when it was CBQ/UP/CNW/RI and now it is BNSF around Lincoln with just a touch of UP. Most of that is even gone and they use the BNSF yards. We are just cut-through country with great rest stops in Lincoln and North Platte.

And to tie in with Jay - he confirmed what I suspected. Trucks didn't move the coal - the trains did.

I hate to wade through all that murky fluff (sorry Dave) to just get to a single point. That's why I had to narrow it down to a single point. We got that answered, now we can move on.

And Jay - today's paper says they are increasing our gas tax 1 cent to make up for all the conservation of fuel. ( we will now be # 7 in the nation) Our roads will suffer because we are conserving fuel!!!!

May I borrow your shovel that you used for digging up facts and hit myself in the head with it?

Mookie

For the record, my example was shorter and less convaluted than Bob's, but apparently he touched a nerve of familiarity with you.

Question: Is there a capacity crunch where you live?

As for Jay's coal numbers, remember those "increases" are still below the contracted levels, and deliveries are short of demand. Glass half full or glass half empty?

[rrandb]

As the numbers are increasing I would say fuller and more than just half. UP has embargoed their sales dept from writing new coal contracts untill they improve capacity. An enviable position that many companies wi***hey were in. More customers than product. The RR's will catch up and reap the benifits of a planed expansion as opposed to excess capacity but not enough traffic.

[Mookie]

Dave - I am not sure what you mean by a capacity crunch. If you mean at the power plants - none that I am aware of. But my info comes from what I read in the paper.

Help me out here.

Mook

[Anonymous]

QUOTE: Originally posted by Mookie

Dave - I am not sure what you mean by a capacity crunch. If you mean at the power plants - none that I am aware of. But my info comes from what I read in the paper.

Help me out here.

Mook

Railroad capacity cruch = not enough capacity to meet demand.

If you read Michael Sol's post, you might begin to understand why holding on to capacity through the lean years would have been the least costly option compared to having to add that lost capacity now. Which might explain why the railroads are wanting the feds to provide some finacial aid for capacity expansion.

[Anonymous]

Predictably, BNSF is trying the strong arm/blackmail approach to try and reign in support of coal producers for proposed rail legistlation aimed at addressing the captive rail shipper inequity..........

From the Casper Star-Tribune:

Railroad warns against more regulation

By DUSTIN BLEIZEFFER
Star-Tribune energy reporter

MORAN -- A railroad official warned Wyoming mining leaders Thursday that efforts to persuade Congress to better regulate rail rates could convince railroads to shift capital spending away from expanding coal delivery capacity -- a key component to growing Wyoming's coal mining industry.

"If they cap our ability to raise our revenue, then we will pull capital out of this business, very quickly," said Steve Robb, group vice president of BNSF Railway's coal business unit.

Robb spoke to a roomful of miners attending the Wyoming Mining Association's annual convention here at Jackson Lake Lodge this week.

Robb recommended that mine industry leaders ask their congressional representatives to back away from "re-regulating" the rail industry. He said although coal haulage makes up a significant portion of BNSF Railway's business, it provides the least amount of return on capital expenditures. The company gets a much better rate of return on capital spent on hauling consumer goods -- a market that is rapidly expanding.

Wyoming's 400 million tons of annual coal production is widely distributed among 36 states in the nation to fuel electrical generation plants. The rail industry has been under significant scrutiny this past year due in part to interruptions and increased demand for coal which left many utilities shortchanged of Powder River Basin coal.

Utilities have also raised concerns that rapidly rising shipping rates may not be based on real costs of services, and that many utilities are "captive" customers served by only one rail company.

In an interview Thursday, Wyoming Rural Electric Association Executive Director Shawn Taylor took issue with Robb's comments concerning shipping rate regulations. Taylor said utilities are not asking that the rail industry be re-regulated.

"We need the railroads, and we want them to thrive and be successful," Taylor said. "But we want assurances on delivery, fair and transparent rates and accountability."

Taylor cited an ongoing case between BNSF Railway and Basin Electric Power Cooperative. When Basin's 20-year rail delivery contract for its Laramie River Station power plant near Wheatland -- a "captive" BNSF Railway customer in eastern Wyoming -- expired, BNSF Railway allegedly tripled its rate. Basin has asked the federal Surface Transportation Board for relief, but BNSF Railway maintains it is not gouging.

The rail industry's shortfall in coal deliveries has also left Laramie River Station with only a week's worth of reserves in recent months, which could lead to reduced electrical generation and higher utility costs to Wyoming customers.

Robb said BNSF Railway has already spent millions of dollars to expand export capacity out of the Powder River Basin. The railroad will spend $167 million to expand capacity this year and plans to spend hundreds of millions more with Union Pacific to ramp up capacity on their jointly owned main line south out of the basin.

The railroads expect they will meet anticipated demand to ship 425 million tons of coal annually on that southern line alone by 2009.

"That's a big number, and it's going to require us to build a lot of railroad," Robb said. "We are spending the money today because we think we can get those returns where they need to be."

[Mookie]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Mookie

Dave - I am not sure what you mean by a capacity crunch. If you mean at the power plants - none that I am aware of. But my info comes from what I read in the paper.

Help me out here.

Mook

Railroad capacity cruch = not enough capacity to meet demand.

If you read Michael Sol's post, you might begin to understand why holding on to capacity through the lean years would have been the least costly option compared to having to add that lost capacity now. Which might explain why the railroads are wanting the feds to provide some finacial aid for capacity expansion.

As I said before - I am not well-versed on all this, but from what I know - we have the capacity railroad-wise. We have the capacity power plant-wise.

I have read that the power plants are not happy about the service and rate increases.

But - and I don't know - if the railroads had held onto the extra capacity through the lean years, would they really use it now to increase capacity. Isn't this akin to keeping your old car for 50 years and hope someday to drive it again? And I am not sure that what the railroads gave up in Nebraska was worth hanging onto in the first place. Seems like at one power plant - it was built after most of the railroads had left Nebraska.

Maybe someone has a better grasp on history than I do and can help us out.

Mook

[TomDiehl]

Well, at least the article told both sides of the story, even though Dave can still only see one side. [}:)]

QUOTE: Originally posted by futuremodal

Predictably, BNSF is trying the strong arm/blackmail approach to try and reign in support of coal producers for proposed rail legistlation aimed at addressing the captive rail shipper inequity..........

From the Casper Star-Tribune:

Railroad warns against more regulation

By DUSTIN BLEIZEFFER
Star-Tribune energy reporter

MORAN -- A railroad official warned Wyoming mining leaders Thursday that efforts to persuade Congress to better regulate rail rates could convince railroads to shift capital spending away from expanding coal delivery capacity -- a key component to growing Wyoming's coal mining industry.

"If they cap our ability to raise our revenue, then we will pull capital out of this business, very quickly," said Steve Robb, group vice president of BNSF Railway's coal business unit.

Robb spoke to a roomful of miners attending the Wyoming Mining Association's annual convention here at Jackson Lake Lodge this week.

Robb recommended that mine industry leaders ask their congressional representatives to back away from "re-regulating" the rail industry. He said although coal haulage makes up a significant portion of BNSF Railway's business, it provides the least amount of return on capital expenditures. The company gets a much better rate of return on capital spent on hauling consumer goods -- a market that is rapidly expanding.

Wyoming's 400 million tons of annual coal production is widely distributed among 36 states in the nation to fuel electrical generation plants. The rail industry has been under significant scrutiny this past year due in part to interruptions and increased demand for coal which left many utilities shortchanged of Powder River Basin coal.

Utilities have also raised concerns that rapidly rising shipping rates may not be based on real costs of services, and that many utilities are "captive" customers served by only one rail company.

In an interview Thursday, Wyoming Rural Electric Association Executive Director Shawn Taylor took issue with Robb's comments concerning shipping rate regulations. Taylor said utilities are not asking that the rail industry be re-regulated.

"We need the railroads, and we want them to thrive and be successful," Taylor said. "But we want assurances on delivery, fair and transparent rates and accountability."

Taylor cited an ongoing case between BNSF Railway and Basin Electric Power Cooperative. When Basin's 20-year rail delivery contract for its Laramie River Station power plant near Wheatland -- a "captive" BNSF Railway customer in eastern Wyoming -- expired, BNSF Railway allegedly tripled its rate. Basin has asked the federal Surface Transportation Board for relief, but BNSF Railway maintains it is not gouging.

The rail industry's shortfall in coal deliveries has also left Laramie River Station with only a week's worth of reserves in recent months, which could lead to reduced electrical generation and higher utility costs to Wyoming customers.

Robb said BNSF Railway has already spent millions of dollars to expand export capacity out of the Powder River Basin. The railroad will spend $167 million to expand capacity this year and plans to spend hundreds of millions more with Union Pacific to ramp up capacity on their jointly owned main line south out of the basin.

The railroads expect they will meet anticipated demand to ship 425 million tons of coal annually on that southern line alone by 2009.

"That's a big number, and it's going to require us to build a lot of railroad," Robb said. "We are spending the money today because we think we can get those returns where they need to be."

[n012944]

QUOTE: Originally posted by futuremodal

Predictably, BNSF is trying the strong arm/blackmail approach to try and reign in support of coal producers for proposed rail legistlation aimed at addressing the captive rail shipper inequity..........

From the Casper Star-Tribune:

Railroad warns against more regulation

By DUSTIN BLEIZEFFER
Star-Tribune energy reporter

MORAN -- A railroad official warned Wyoming mining leaders Thursday that efforts to persuade Congress to better regulate rail rates could convince railroads to shift capital spending away from expanding coal delivery capacity -- a key component to growing Wyoming's coal mining industry.

"If they cap our ability to raise our revenue, then we will pull capital out of this business, very quickly," said Steve Robb, group vice president of BNSF Railway's coal business unit.

Robb spoke to a roomful of miners attending the Wyoming Mining Association's annual convention here at Jackson Lake Lodge this week.

Robb recommended that mine industry leaders ask their congressional representatives to back away from "re-regulating" the rail industry. He said although coal haulage makes up a significant portion of BNSF Railway's business, it provides the least amount of return on capital expenditures. The company gets a much better rate of return on capital spent on hauling consumer goods -- a market that is rapidly expanding.

Wyoming's 400 million tons of annual coal production is widely distributed among 36 states in the nation to fuel electrical generation plants. The rail industry has been under significant scrutiny this past year due in part to interruptions and increased demand for coal which left many utilities shortchanged of Powder River Basin coal.

Utilities have also raised concerns that rapidly rising shipping rates may not be based on real costs of services, and that many utilities are "captive" customers served by only one rail company.

In an interview Thursday, Wyoming Rural Electric Association Executive Director Shawn Taylor took issue with Robb's comments concerning shipping rate regulations. Taylor said utilities are not asking that the rail industry be re-regulated.

"We need the railroads, and we want them to thrive and be successful," Taylor said. "But we want assurances on delivery, fair and transparent rates and accountability."

Taylor cited an ongoing case between BNSF Railway and Basin Electric Power Cooperative. When Basin's 20-year rail delivery contract for its Laramie River Station power plant near Wheatland -- a "captive" BNSF Railway customer in eastern Wyoming -- expired, BNSF Railway allegedly tripled its rate. Basin has asked the federal Surface Transportation Board for relief, but BNSF Railway maintains it is not gouging.

The rail industry's shortfall in coal deliveries has also left Laramie River Station with only a week's worth of reserves in recent months, which could lead to reduced electrical generation and higher utility costs to Wyoming customers.

Robb said BNSF Railway has already spent millions of dollars to expand export capacity out of the Powder River Basin. The railroad will spend $167 million to expand capacity this year and plans to spend hundreds of millions more with Union Pacific to ramp up capacity on their jointly owned main line south out of the basin.

The railroads expect they will meet anticipated demand to ship 425 million tons of coal annually on that southern line alone by 2009.

"That's a big number, and it's going to require us to build a lot of railroad," Robb said. "We are spending the money today because we think we can get those returns where they need to be."

Those big bad mean railroads, how dare they put more of THEIR money into the area with higher returns.[}:)]

Bert

[MichaelSol]

The highest returns are where the captive shippers are,

[n012944]

QUOTE: Originally posted by MichaelSol

The highest returns are where the captive shippers are,

Funny, I have seen it argued many times that most coal shippers/utilities are captive shippers, however this artical that Dave posted seems to dissagree with both you and Dave. From the artical "coal haulage provides the LEAST amount of return on capital expenditures." How can that be? According to the conspiracy theorists in the PNW, railroads are Uncle Moneybags in the game of Monopoly when it comes to coal, but yet coal provides the LEAST amount of return. I have seen it argued that the only way to ship coal economicly is rail, so if the whole monopoly theory is correct, along with Michael's capptive shipper line at the top of this page, coal should be giving the highest rate of return.


Bert

[MichaelSol]

Well, your statement was "how dare they put more of THEIR money into the area with higher returns."

Which is it? They get the highest rates of return, or the lowest?

[n012944]

QUOTE: Originally posted by futuremodal

Predictably, BNSF is trying the strong arm/blackmail approach to try and reign in support of coal producers for proposed rail legistlation aimed at addressing the captive rail shipper inequity..........

From the Casper Star-Tribune:

Railroad warns against more regulation

By DUSTIN BLEIZEFFER
Star-Tribune energy reporter

. The company gets a much better rate of return on capital spent on hauling consumer goods -- a market that is rapidly expanding.

Consumer goods= stuff shipped on TOFC or COFC, most of which are not captive customers. Waiting for the spin from the lovely PNW.

Bert

[MichaelSol]

Not sure anyone wants to get into an argument with Dustin Bleizeffer, the energy reporter for the Casper Star-Tribune, but why don't you just go to the BNSF Annual Report, for instance, and look at the carload revenue breakdown for coal, ag, intermodal, etc. and see what it says?

Then you would at least have some numbers to start from instead of relying on Dustin Bleizeffer, energy reporter for the Casper Star Tribune, for your information about railroad rates.

[MichaelSol]

QUOTE: Originally posted by n012944
Funny, I have seen it argued many times that most coal shippers/utilities are captive shippers, however this artical that Dave posted seems to dissagree with both you and Dave. From the artical "coal haulage provides the LEAST amount of return on capital expenditures." How can that be?

So then why did you say they are investing where they get the higher rates of return?

"Those big bad mean railroads, how dare they put more of THEIR money into the area with higher returns."

Not following your argument here .... it looks like you want to argue about something, I just can't tell what it is ...

[greyhounds]

QUOTE: Originally posted by MichaelSol

The highest returns are where the captive shippers are,

No.

Sol keeps saying this (or saying similar things) because it fits his ideology and political agenda. He has provided no basis or data to support this statement.

In the past, what he's tried to use as stubstantiation are the supposidly high margins (or revenuue to variable cost ratios) on the so-called 'captive' business.

Leaving aside the questions of whether the margins he uses are accurate, and wether the shippers are indeded 'captive', it is important to realize that a high margin in and of itself will not produce a high rate of return on an investment, nor will it result in profitability.

Margins are not the same as "returns" or "profits".

A railroad could mark every bit of traffic up to 300% of its variable costs and still go broke. A railroad could sell every bit of traffic at 110% of its variable costs and be very profitable with a high rate of return on its investment.

You gotta' have some volume. Profitability = margin x volume. You need to consider both factors on the right hand side of the equation. Sol keeps leaving out volume because it suits his purpose, whatever that purpose is.

Now Powder River coal certainly has the volume, but until now it hasn't had the margins. The railroads are fixing that as existing contracts come up for renewal. And that coal is certainly not 'captive' as both the UP and BNSF compete for most of the business.

Ken Strawbridge

[Anonymous]

QUOTE: Originally posted by MichaelSol

The highest returns are where the captive shippers are,

WHOA there cowpoke...one of those big sky overbroad type statements, agin...

Ain't necessarily so...

The best returns on a railroad are where traffic volume is maximized without overwhelming the infrastructure making utilization of the infrastructure, equipment and personnel greatest and most efficient. One example would be the Port of LA/Long Beach which has competitive service by two Class 1 systems and switching largely performed by a short line (Pacific Harbor Line) connecting with both.

Just because a shipper uses one railroad does not maximize returns and although unit trains and large loading and unloading facilities can increase returns through attacking the expense of the three above areas doesn't mean it is the best ROI on the RR. But, nice try...