DM&E Financing revisited.

[TomDiehl]

 

    

Did I mention that BNSF is the NIMBY in this case?

     Can you explain this thought a little better?  Is BNSF openly opposing the DM&E loan?

Yes.  Matt Rose, the BNSF honcho, has gone on record as stating the DM&E project is "bad public policy".

I guess such things are only "good public policy" when the federal aid goes to the current rail oligarchs, as opposed to rail oligarchial wannabes.

Matt Rose gets paid to take care of his investors.  Why on Earth would he think the DME is a good idea for his investors?

Because the DM&E PRB line would make a nice capacity addition to all the PRB railroads, as it's East-West profile would reduce BNSF transit time between the Orin line and the Alliance sub.  All BNSF has to do is to play nice, and it is likely DM&E will be willing to rent out any extra capacity they might have on that portion, in order to maximize the line's revenue potential.

But of course that's not how US rail execs think, given the long sorry history of the integrated closed access mindset.  Geez, did Feudalism even last that long?

In that last paragraph, you can delete the words "US rail" and still be accurate. Why would a private, for-profit company want to support the expansion of the competition? You'd think someone that claims a bookkeeping background would know that. You can start by telling us how much K-Mart supported the expansion of the WalMart stores over the last decade or so. That would make as much sense as what you're suggesting.

You all have got to get off this myth of US railroads being the collective poster child exemplifying "a private, for-profit company".  There's simply too much history of federal aid for railroading in the US to use them as such.

And that gets to the gist of the point of the matter.....

I have not said BNSF should for all intents and purposes "support a competitor".  Rather, given the current lack of capacity and competition in the PRB, BNSF should use the opportunity to carve out their own capacity niche via the inevitable DM&E project.  There's more than enough business there to support all three railroads and still stay ahead of the demand curve, e.g. all three roads will enjoy pricing power for PRB deliveries (unless the Democrats take over DC and all coal fired power plants are shut down to *save* us from Global Warming.)

That being said, I don't think I have ever seen a company come out in public opposition of a potential competitor in such a shameful brazen way as BNSF has regarding the DM&E project.  No KMart exec has ever voiced opposition to a Walmart that I know of (most Walmart opposition comes from mom and pop types, or more succinctly extreme lefties posing as mom and pop types!).  I have never heard of a McDonalds manager publicly voicing opposition to a Wendy's or a Burger King.  No trucking company that I know of has ever voiced public opposition to the entry of another truckload carrier into even the small markets, no barge line has ever voiced public opposition to the entry of another barge line onto our waterways, no airline has ever voiced public opposition to the entry of another air line into small air markets.

Oh, for sure there's private opposition in all these examples, that's par for the course in business.  But outright public opposition?  Not at this scale.

I never said they were a "poster child" for anything, they're just like any large corporation, take what they can get from the government and the public.

But you still haven't explained why any company would support a competitor, railroad or not. And you should get your head out of the sand and realize that K-Mart, as well as the mom-and-pop stores, have come out opposing the opening of WalMarts, which just seem to open directly across the street from the K-Marts, at least where we're developed enough to have both.

The "more than enough business" argument doesn't wash, either. It doesn't matter if you apply it to railroads, or large retailers, they want all the business to themselves. That's not any more believable than your blanket statements of "no company ever objected publically to competition." At least the BNSF was open enough about it to object in the public forums, which would hardly be called "private opposition."

[Murphy Siding]

 

 

Most of the prime coal mines are in the Southern end.  DM&E will run a north-south line alongside the Orin line.

 

     According to Dale Terraserver's post above, 14% of the coal comes from these *captive* mines.  One would think they would be "easy targets" for a new rail provider.

[Murphy Siding]

These Terraserver links .............

Dale@Links-R-Us 

 

   So........What kind of commision do you get from Terraserver, for all that business you send their way from the Trains Magazine forum?

[nanaimo73]

Nothing yet.

There are some more mines just across the border in Montana that are not listed there. I believe they are East Decker, West Decker and Spring Creek.

[n012944]

Besides - this amount of money absolutely pails in comparison to the airline industry - and industry that has defaulted more than once on loans from the government and private investors.  Not only that, after 9/11 we gave the airlines what amounted to a 40 billion dollar present right?  Who paid that back?  I would be far more concerned about my tax dollars going to an industry that has major business model problems like the airlines instead of it going to rr's as loans that have to be paid back with interest. 

It was more like 10 Billion, and all airlines that recieved money are still around and making payments.

Bert

Really.  Even the bankrupt ones?

 

Yes it was one of the conditions of the loans from the ATSB, that if the airline went to a chapter of bankruptcy that was still allowing the airline to fly, the loans would still have to be repaid.  If the airlines went to a chapter of bankruptcy that resulted in a shut down and liquidation, the goverment loans would be repaid before other creditors.  That was on of the reasons that when United filed for the ATSB loan, its creditors were opposed to the airline getting it, they knew that if something happend and United folded, they would receive very little after the goverment got their piece of the pie.

 

 

Bert

[Poppa_Zit]

Besides - this amount of money absolutely pails in comparison to the airline industry - and industry that has defaulted more than once on loans from the government and private investors.  Not only that, after 9/11 we gave the airlines what amounted to a 40 billion dollar present right?  Who paid that back?  I would be far more concerned about my tax dollars going to an industry that has major business model problems like the airlines instead of it going to rr's as loans that have to be paid back with interest. 

It was more like 10 Billion, and all ailines that recieved money are still around and making payments.

Bert

Really.  Even the bankrupt ones?

Solz --

Bert & I follow this stuff because O'Hare and Midway are in our backyard -- and Chicago is the world HQ for United Airlines. :

CHICAGO  —  (Feb. 01, 2006) UAL Corp, parent of United Airlines, (UAUA) ended three years in Chapter 11 protection Wednesday, wrapping up the most expensive airline bankruptcy in history.

The No. 2 U.S. airline, which used its time in protection from creditors to slash costs by $7 billion a year, now must sink or swim in a fiercely competitive industry that is plagued by soaring fuel costs and overcapacity.

"We have achieved a great deal in our restructuring to reposition this company and build upon our assets, an unrivaled global network and our dedicated employees," UAL's Chief Executive Glenn Tilton said in a statement. "We can be better. We are in a very competitive industry, and we take nothing for granted." (Associated Press)

[Murphy Siding]

Besides - this amount of money absolutely pails in comparison to the airline industry - and industry that has defaulted more than once on loans from the government and private investors.  Not only that, after 9/11 we gave the airlines what amounted to a 40 billion dollar present right?  Who paid that back?  I would be far more concerned about my tax dollars going to an industry that has major business model problems like the airlines instead of it going to rr's as loans that have to be paid back with interest. 

It was more like 10 Billion, and all ailines that recieved money are still around and making payments.

Bert

Really.  Even the bankrupt ones?

Solz --

Bert & I follow this stuff because O'Hare and Midway are in our backyard -- and Chicago is the world HQ for United Airlines:

     Could the same type of *bailout*(?) type loan be used if a railroad (DM&E for example) got in too deep?  Would it have the same consequences and reactions by creditors?

[Poppa_Zit]

Besides - this amount of money absolutely pails in comparison to the airline industry - and industry that has defaulted more than once on loans from the government and private investors.  Not only that, after 9/11 we gave the airlines what amounted to a 40 billion dollar present right?  Who paid that back?  I would be far more concerned about my tax dollars going to an industry that has major business model problems like the airlines instead of it going to rr's as loans that have to be paid back with interest. 

It was more like 10 Billion, and all ailines that recieved money are still around and making payments.

Bert

Really.  Even the bankrupt ones?

Solz --

Bert & I follow this stuff because O'Hare and Midway are in our backyard -- and Chicago is the world HQ for United Airlines:

     Could the same type of *bailout*(?) type loan be used if a railroad (DM&E for example) got in too deep?  Would it have the same consequences and reactions by creditors?

Very interesting thought there, Murph. Is it not ironic how the airlines were forced into bankruptcy and the accompanying federal loan process because of overcapacity -- while with the railroads it is the exact opposite.

PZ

 

 

[Anonymous]

 You all have got to get off this myth of US railroads being the collective poster child exemplifying "a private, for-profit company".  There's simply too much history of federal aid for railroading in the US to use them as such.

How much has BNSF recieved from the taxpayer for PRB lines since Matt Rose took over from Krebs ?

Why is "since" more relevent than "before"?  It's fairly easy to show the facade of being an exemplary private company after you've cashed all the welfare checks from prior decades.

 ...unless the Democrats take over DC and all coal fired power plants are shut down to *save* us from Global Warming.

Anything further the Democrats do will increase the sales of PRB coal and hurt eastern coal.

It's more than just the low-sulfer vs high sulfer debate.  Look around at all the states' with renewable mandates on their ballots this year.  These renewable mandates (usually demanding 10% or 15% of electricity generated be from so-called renewables) are mostly pushed by Democrats, so it is likely that if the Democrats take back Congress, they'll nationalize that so-far regionalize initiative.  That plus the prospects of a carbon tax on the national level would kill most new coal projects.

That being said, I don't think I have ever seen a company come out in public opposition of a potential competitor in such a shameful brazen way as BNSF has regarding the DM&E project.  No KMart exec has ever voiced opposition to a Walmart that I know of. I have never heard of a McDonalds manager publicly voicing opposition to a Wendy's or a Burger King. 

Walmart or Wendy's or Burger King are not applying for billions in tax dollars to fight K-mart or McDonalds in their most profitable markets.

Not sure what you mean here - DM&E is simply asking for something it's competitors have already recieved.

Dave, if you want to say DME is the good guy, and this project should go ahead, then I'll agree with you. You seem to keep using the wrong arguments to support DME.

DM&E is new competitive rail capacity, something sorely lacking out West.  That's what makes them the good guys.  And as a prospective conveyor of new competitive rail capacity they are deserving of some form of federal support same as the current PRB duo have received in the past.

I also can't understand why you are so passionate about this, and have so little interest in CREATE.

Becasue CREATE has all the earmarks of a mamoth boondoggle on the scale of Boston's Big Dig (or Seattle's proposed Alaskan Viaduct replacement project), and for the same wrong reasons - trying to squeeze in more activity in an area that is already over populated, over built, over indulged.  We (i.e. the rest of us non Chicagoans) don't need the CREATE project to speed rail service between East and West.  There's more than enough room to build east-west rail connections far from any of the Big Cities.

Urban projects such as these make no sense to me in the context of some supposed national gain from what is strictly a glorified urban renewal project.  City properties are mega times more expensive than non city properties when considering ROW purchases.  There is no hard fast rule that states all Northern Tier US rail traffic absolutely must pass through Chicago.  It would be a fraction of the cost to move such rail connections a few hundred miles south at the least, if not a few thousand miles south.

I'll reiterate - East West rail traffic does not have to move through Chicago.

Contrast CREATE with the DM&E project - the nation can do without CREATE, even if it means finding an alternative farther south, while the DM&E project is by consensus deemed vital to national energy security.  Ergo, there should be no federal funds for CREATE, and significant federal funds for DM&E's PRB project.

[Murphy Siding]

Contrast CREATE with the DM&E project - the nation can do without CREATE, even if it means finding an alternative farther south, while the DM&E project is by consensus deemed vital to national energy security.  Ergo, there should be no federal funds for CREATE, and significant federal funds for DM&E's PRB project.

     Using your logic, the nation could do without CREATE and DM&E, even if it means finding an alternative  farther south-down the existing Orin line.  I'm not sure about the concensus deeming DM&E vital to national energy security.(?)   The push behind DM&E is to haul coal to utilities cheaper than UP and BNSF do now.  This will positively effect only those utility customers who will be paying for cheaper coal.  There is also the distinct possibility that all rail customers will be negetively impacted.

     To be truthful, one wonders if $6B was used to improve the existing lines out of the PRB,everyone (except DM&E of course) would come out ahead.  Heck, maybe it would be more cost effective to use the $6B to subsidize freight to captive customers?

[Anonymous]

     Using your logic, the nation could do without CREATE and DM&E

Yes, that is exactly what he is saying. Intentionally or otherwise.

  This will positively effect only those utility customers who will be paying for cheaper coal.

Or the utility stockholders who will enjoy greater potential margin.

Afterall, there is no guarantee what-so-ever that the utilities will pass the benefit along, they might opt to pocket the difference

[Anonymous]

Contrast CREATE with the DM&E project - the nation can do without CREATE, even if it means finding an alternative farther south, while the DM&E project is by consensus deemed vital to national energy security.  Ergo, there should be no federal funds for CREATE, and significant federal funds for DM&E's PRB project.

     Using your logic, the nation could do without CREATE and DM&E, even if it means finding an alternative  farther south-down the existing Orin line.  I'm not sure about the concensus deeming DM&E vital to national energy security.(?)   The push behind DM&E is to haul coal to utilities cheaper than UP and BNSF do now.  This will positively effect only those utility customers who will be paying for cheaper coal.  There is also the distinct possibility that all rail customers will be negetively impacted.

     To be truthful, one wonders if $6B was used to improve the existing lines out of the PRB,everyone (except DM&E of course) would come out ahead.  Heck, maybe it would be more cost effective to use the $6B to subsidize freight to captive customers?

You still don't get it, do you?  Why is it so hard to understand the difference between adding capacity to buttress a monopolistic situation, or adding new competitive capacity to alleviate a monopolistic situation?  If you cannot grasp the vital importance of this difference, then we are all wasting our time with this thread.

From Logistics Today:

http://www.logisticstoday.com/displayStory.asp?nID=8275

Quothe John Ficker, president of the National Industrial Transportation League, regarding the NITL's support for the DM&E project - "The movement of coal from Wyoming’s Powder River Basin is important not just to utilities, but also to shippers in general; since a significant portion of the nation’s electrical supply—upon which all industry is dependent—is powered by Powder River Basin coal.”

Quite obviously, the DM&E project has ramifications for national energy security beyond it's regional impacts.

Conversely, I don't see where CREATE will have a similar positive impact for the nation.

[TomDiehl]

[

Quothe John Ficker, president of the National Industrial Transportation League, regarding the NITL's support for the DM&E project - "The movement of coal from Wyoming’s Powder River Basin is important not just to utilities, but also to shippers in general; since a significant portion of the nation’s electrical supply—upon which all industry is dependent—is powered by Powder River Basin coal.”

Quite obviously, the DM&E project has ramifications for national energy security beyond it's regional impacts.

Conversely, I don't see where CREATE will have a similar positive impact for the nation.

Chicago is a major rail hub, as well as a major bottleneck. The CREATE project is designed to releive at least part of that bottleneck and allow for higher average train speeds. I think there was someone on the forum here that was pushing the idea of increasing train speeds.

I wonder who that was?

[nanaimo73]

 Chicago is a major rail hub, as well as a major bottleneck. The CREATE project is designed to releive at least part of that bottleneck and allow for higher average train speeds. I think there was someone on the forum here that was pushing the idea of increasing train speeds.

 

Tom, you seem to be in favor of CREATE, and against the DME project. Is that correct, or are you just trolling ?

[TomDiehl]

 Chicago is a major rail hub, as well as a major bottleneck. The CREATE project is designed to releive at least part of that bottleneck and allow for higher average train speeds. I think there was someone on the forum here that was pushing the idea of increasing train speeds.

 

Tom, you seem to be in favor of CREATE, and against the DME project. Is that correct, or are you just trolling ?

This was my reply to Dave, who was making the comparison and claiming the CREATE had no "similar impact" for the nation, as noted in the following statement by Dave:

"Quite obviously, the DM&E project has ramifications for national energy security beyond it's regional impacts.

Conversely, I don't see where CREATE will have a similar positive impact for the nation." (end Dave's quote)

How did you get the impression that I'm against the DM&E project?

[nanaimo73]

 How did you get the impression that I'm against the DM&E project?

Are you in favor of the DME project ?

[TomDiehl]

 How did you get the impression that I'm against the DM&E project?

Are you in favor of the DME project ?

Yes.

[nanaimo73]

 How did you get the impression that I'm against the DM&E project?

Are you in favor of the DME project ?

Yes.

Thanks for an honest answer.

[Datafever]

You still don't get it, do you?  Why is it so hard to understand the difference between adding capacity to buttress a monopolistic situation, or adding new competitive capacity to alleviate a monopolistic situation?  If you cannot grasp the vital importance of this difference, then we are all wasting our time with this thread.

Regarding that bit about alleviating a monopolistic situation -

I guess that I am confused again.  I did not realize that the PRB was monopolistic.  I was under the impression that both BNSF and UP served much of the PRB.

OTOH, I will admit that I am not completely up to speed on this issue, and most of what I know about it, I have read on this thread.

[Murphy Siding]

You still don't get it, do you?  Why is it so hard to understand the difference between adding capacity to buttress a monopolistic situation, or adding new competitive capacity to alleviate a monopolistic situation?  If you cannot grasp the vital importance of this difference, then we are all wasting our time with this thread.

      Why is it so hard..........>>perhaps because you're not doing a very good job of explaining why the two are different?

     The fact that I don't agree with you doesn't automatically mean that I'm wrong and you are right.  You seem to have opinions about DM&E and CREATE that don't mesh with each other. If UP and BNSF wanted to borrow $2.5B of federal money, to put with $3.5B of private money, to expand capacity in the PRB to *secure our national energy security*, would you be against that, as well?

[Murphy Siding]

You still don't get it, do you?  Why is it so hard to understand the difference between adding capacity to buttress a monopolistic situation, or adding new competitive capacity to alleviate a monopolistic situation?  If you cannot grasp the vital importance of this difference, then we are all wasting our time with this thread.

Regarding that bit about alleviating a monopolistic situation -

I guess that I am confused again.  I did not realize that the PRB was monopolistic.  I was under the impression that both BNSF and UP served much of the PRB.

OTOH, I will admit that I am not completely up to speed on this issue, and most of what I know about it, I have read on this thread.

     An honest answer to this, is that Dave(futuremodal) and the economists he quotes believe that having only 2 competitors is no different than having none.  I, and the rest of the world, who compete for business every day, have an entirely different opinion.  To say that it only takes 2 to tango, but it takes 3 to have competition, seems to work in economist's theories, but doesn't work in the real world I live in.  Suffice to say, that both sides of this issue are sure that they are correct.

[Murphy Siding]

Or the utility stockholders who will enjoy greater potential margin.

Afterall, there is no guarantee what-so-ever that the utilities will pass the benefit along, they might opt to pocket the difference

     In my mind, I wonder if DM&E will be able to offer that much lower rates than BNSF and UP?  It's hard to compete against an established,ongoing company if you have to buy all your plant and equipment new.  Especially, if all you would have to offer is a cheaper price.  It would be hard to offer any value-added premium to hauling coal.

[Anonymous]

The bad news is that we are losing a little over a buck on every car load.

The good news is we expect to make it up on volume?    LOL!!


Seriously, this offer that "cheaper coal" will equate to lower utility costs at the consumer level, is promised EXACTLY WHERE?  The so called  promise is pie in the sky if you ask me

[Datafever]

Or the utility stockholders who will enjoy greater potential margin.

Afterall, there is no guarantee what-so-ever that the utilities will pass the benefit along, they might opt to pocket the difference

     In my mind, I wonder if DM&E will be able to offer that much lower rates than BNSF and UP?  It's hard to compete against an established,ongoing company if you have to buy all your plant and equipment new.  Especially, if all you would have to offer is a cheaper price.  It would be hard to offer any value-added premium to hauling coal.

I would have to agree with you here.  I doubt that DM&E is going into this project with the idea of cutting rates.  After all, they are looking to make a profit - a hefty profit to eventually cover the $6B price tag.  So, this isn't really about the utilities getting cheaper coal, or the utility customers getting reduced rates.  This is about increasing rail capacity.

And if increasing rail capacity were profitable, why wouldn't BNSF be doing it?

[solzrules]

In WI (watch this now, AG) there is a utilities commission that sets the rates and has to approve rate hikes. 

There is government oversight on this.  IF the utilities wanted to pocket the savings (it seems to me that by law they HAVE to pass the savings on to the consumer) they would have to answer to this commission at the next rate hike, which the commission would probably turn down.  I hope. 

[petervonb]

     In my mind, I wonder if DM&E will be able to offer that much lower rates than BNSF and UP?  It's hard to compete against an established,ongoing company if you have to buy all your plant and equipment new.  Especially, if all you would have to offer is a cheaper price.  It would be hard to offer any value-added premium to hauling coal.

UP and BNSF spent a lot off money on Powder River plant not all that long ago and they are buying new equipment all the time.  I doubt that they got 25 years to pay off the loans for the plant, however, whereas DM&E will.  The DM&E equipment loans will probably have about the same terms as those with UP and BNSF - with maybe a slightly higher interest rate.

UP and BNSF share a lot of the ROW in and out of the Basin.  That makes their duopoly there even closer to a monopoly - without the need for opinions of the economists.

[Murphy Siding]

The bad news is that we are losing a little over a buck on every car load.

The good news is we expect to make it up on volume?    LOL!!


Seriously, this offer that "cheaper coal" will equate to lower utility costs at the consumer level, is promised EXACTLY WHERE?  The so called  promise is pie in the sky if you ask me

     Don't be silly!  It's printed on the same page that says DM&E will be able to take business from UP & BNSF, and still make money. 

     The sad truth, I believe, is that the sum accomplishment of the DM&E PRB extention would only be the re-distribution of money from BNSF and UP's stockholders to someone else's pockets.

[Anonymous]

The bad news is that we are losing a little over a buck on every car load.

The good news is we expect to make it up on volume?    LOL!!


Seriously, this offer that "cheaper coal" will equate to lower utility costs at the consumer level, is promised EXACTLY WHERE?  The so called  promise is pie in the sky if you ask me

     Don't be silly!  It's printed on the same page that says DM&E will be able to take business from UP & BNSF, and still make money. 

     The sad truth, I believe, is that the sum accomplishment of the DM&E PRB extention would only be the re-distribution of money from BNSF and UP's stockholders to someone else's pockets.

That is so nonsensical, it makes the whole French invasion of California argument seem elementary by comparison.

What you have just said is basically this.......

*New competition in the PRB is the moral equivelant of redistribution of wealth.*

Hmmmmm, competition = communism?

Next you'll be telling us that oil and water do mix!

[Anonymous]

You still don't get it, do you?  Why is it so hard to understand the difference between adding capacity to buttress a monopolistic situation, or adding new competitive capacity to alleviate a monopolistic situation?  If you cannot grasp the vital importance of this difference, then we are all wasting our time with this thread.

Regarding that bit about alleviating a monopolistic situation -

I guess that I am confused again.  I did not realize that the PRB was monopolistic.  I was under the impression that both BNSF and UP served much of the PRB.

OTOH, I will admit that I am not completely up to speed on this issue, and most of what I know about it, I have read on this thread.

     An honest answer to this, is that Dave(futuremodal) and the economists he quotes believe that having only 2 competitors is no different than having none.  I, and the rest of the world, who compete for business every day, have an entirely different opinion.  To say that it only takes 2 to tango, but it takes 3 to have competition, seems to work in economist's theories, but doesn't work in the real world I live in.  Suffice to say, that both sides of this issue are sure that they are correct.

Not quite the right phrasology.  To be more precise, having two service providers competiting (aka duopoly) is not that far removed from having one service provider (aka monopoly) in terms of pricing, whereas having three service providers (aka triopoly) is not much different from having many service providers (aka perfect competition) in terms of pricing.  The reasoning is that collusion is easier between two firms, but much harder among three firms.  Two's company, three's a crowd.  Whoever feels like the odd man out may react proactively to head off exclusionary discrimination within an informal pact, aka even if the three wanted to collude, human nature provides it's own check and balance on such collusion attempts.

I know I've posted this before, but it's worth examining.  A small scale study of rail rates in the 90's showed that there is a 17% difference between monopoly and duopoly pricing (assuming no collusion), but a 32% difference between monopoly and triopoly pricing.  Thus, the spector of collusion can erase that 17% price differential in the duopoly situation, but the check against collusion via triopoly almost guarantees the 32% price differential will stick.

http://www.ams.usda.gov/stb.htm

BTW - that's a real world study there Murph, not a theoretical construct.

[Anonymous]

.  I hope. 

Hope is nice, but it hardly qualifies as a hard promise, does it?

Absent any rigid obligation to pass the savings along, I think it's pretty naive to assume that they will. First inclination will be to 'explain away' any benefit as offsetting some other intangible cost.

They'll just claim that line maintenance costs have gone up 17% to offset the 12% fuel cost savings, and have a nice little ledger pretending to back that claim, that the PSC will review before approving. (or some similar maneuver)