DM&E Financing revisited.

[Anonymous]

     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.

In one of the reports on Matt Rose's objection(s) to DM&E, the comment was made that BNSF and UP already hold all the contracts for PRB coal .

Sure would like to understand that claim better,  Are they saying that there is a franchise-like relationship, with the two majors having an exclusive right to deal with the mines, or are they saying that all the contracts for delivery with the end user utilities are currently with them?

The former might be a big deal, but the latter seems like only a matter of time before contracts need to be renewed, and utilities currently using a seperate source could always create new contracts with DME that previously used eastern coal

So, I'm at a loss to appreciate what Rose was trying to imply with that comment.

[TimChgo9]

 

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

Finally, a spot on one of these threads where I can weigh in. 

The DM&E project has it's merits, and so does CREATE.... in fact, CREATE is a necessity in this area.  Chicago plays host to 37,500 freight cars A DAY, (that's 375 100 car freight trains A DAY snaking their way through the Chicago area) at an average speed of 12 miles an hour.  It is not uncommon for a train entering throught the south side of Chicago (perhaps a CSX train headed for Proviso yard) and transferring to another road, to go to the west coast,  to take 2-3 days to make the trip through the Chicago area.  That is a distance of about 60 miles, if the train enters on the South East side, near, say Calumet City, or something like that.   What are the bottle necks?? Well, there are many, one of them is Brighton Park Crossing, in the city proper, it is a network of switches that is still thrown by hand.  Trains go through 5mph.  Then there is the  IHB, the belt around Chicago not uncommon to see 60+ trains a day through there. .  I could go on.  But, Chicago's rail infrastructure is old, and it is pushed to capacity, and in some places  is even starting to deteriorate from age.   Chicago needs this project if it is going to remain competitive.  Chicago relies heavily on rail traffic (or so I have read) for many things, and there are alot of shippers that rely on the railroads in this area.   There are many road crossings that would benefit from being turned into over, or under passess, some crossovers could be turned into flyovers, and things like that.  Brighton Park, 16th St, Blue Island, CP Hill, the list goes on. 

So, CREATE would be a benefit to the nation, because it open up a huge bottleneck, as opposed to forcing the railroads to go around Chicago, either by rerouting, or building a route around the city. 

Let DM&E have their coal.... but let us have CREATE also..... 

 

Just thought I would have my say...

[Murphy Siding]

     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.

In one of the reports on Matt Rose's objection(s) to DM&E, the comment was made that BNSF and UP already hold all the contracts for PRB coal .

Sure would like to understand that claim better,  Are they saying that there is a franchise-like relationship, with the two majors having an exclusive right to deal with the mines, or are they saying that all the contracts for delivery with the end user utilities are currently with them?

The former might be a big deal, but the latter seems like only a matter of time before contracts need to be renewed, and utilities currently using a seperate source could always create new contracts with DME that previously used eastern coal

So, I'm at a loss to appreciate what Rose was trying to imply with that comment.

     I take that as meaning that BNSF and UP have all the long term contracts at this point.  When the contracts come up for renewal, then it will be a 3-way pricing battle.  At that point, doesn't DM&E have a 1 in 3 chance of getting the business?

[solzrules]

.  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)

Can't argue with you there.  The current state of affairs in WI is such that the common citizen is powerless over issues just like the one you described - companies realize that they can purchase influence here and regulatory agencies that are supposed to serve as safegards can be bought off.  Just ask our governor. 

I do, however, maintain a small glimmer of hope that there are some in the PSC and even at the utilities that will pass along any cost savings they may receive to the consumer.  I realize this is idealistic, but that's probably why I would be a terrible politician. 

[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.

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.

     As I said, there is a difference of opinion on this subject.  Dave's  gone from saying monopolies and duopolies weren't that far off in pricing.  Now, there's a 17% spread. 17% is a lot of difference.

[Anonymous]

I do, however, maintain a small glimmer of hope that there are some in the PSC and even at the utilities that will pass along any cost savings they may receive to the consumer.  I realize this is idealistic, but that's probably why I would be a terrible politician. 

My confidence in seeing the PSC as a protector of citizens interests went out the window with the big electric utility fiasco in California a few years ago.

The utilities control the PSC, not the other way around.

The PSC makes rules that the utilities  themselves are willing to agree to, then make sure that ALL utilities  comply equally...is the lions share of what they do.

Then they referee any disputes.

[CSSHEGEWISCH]

One issue that keeps recurring to me in this and other threads is where FM came up with the improbable notion that BNSF is in complete thrall to the Chinese.

[solzrules]

I was a touch puzzled by that, too.  Is BNSF the only rr with an office in China?

Does that automatically mean that they are the back pocket of the Chinese?

 

[nanaimo73]

Murph-

I've decided that this is not a $6 billion dollar project. I believe DME is including the cost of coal cars that the utilities will own, and locomotives that leasing companies will own, to make the project sound more impressive. Personally, I would not include those in the pricetag as DME will not be paying for them. I could be wrong. Perhaps John B up in Dairyland knows.

[Murphy Siding]

Murph-

I've decided that this is not a $6 billion dollar project. I believe DME is including the cost of coal cars that the utilities will own, and locomotives that leasing companies will own, to make the project sound more impressive. Personally, I would not include those in the pricetag as DME will not be paying for them. I could be wrong. Perhaps John B up in Dairyland knows.

     Now I'm puzzled.  All along, I understood this to be a $2.5B project.  Then, several posters pointed out that it was $2.5B in government loan, to go with $3.5B in *private* investment money.  This doesn't seem to be the case, if the $3.5B investment is for cars and locomotives owned by others.

[nanaimo73]

The cars and locomotives would be about 500 million ? There must be another $3 billion for something else. (?)

[germanium]

The $3 billion is probably the bloodsucker's, sorry, I meant the lawyers fees

Germanium

 

[Murphy Siding]

The cars and locomotives would be about 500 million ? There must be another $3 billion for something else. (?)

Lawyer's fees and media ads

[Datafever]

     Now I'm puzzled.  All along, I understood this to be a $2.5B project.  Then, several posters pointed out that it was $2.5B in government loan, to go with $3.5B in *private* investment money.  This doesn't seem to be the case, if the $3.5B investment is for cars and locomotives owned by others.

It is no wonder that you are puzzled.  Various sources provide conflicting information regarding the project.  From GoTrac we learn that "DM&E Railroad will privately fund much of the $6 billion project".  But from DM&E's homepage, we learn that "We continue efforts to advance our $2 billion PRB Project."

$2 billion?  $6 billion?  What's the truth?

[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.

     As I said, there is a difference of opinion on this subject.  Dave's  gone from saying monopolies and duopolies weren't that far off in pricing.  Now, there's a 17% spread. 17% is a lot of difference.

Look at it this way - the triopoly pricing is twice the drop as compared to the duopoly pricing.

The problem with duopolies (and this is not addressed in the USDA study, but is addressed in general economic studies) is that collusion is easier with the tango, but harder with the trio.  I look at that particular USDA study as an analysis of duopoly pricing while under the microscope of the big bad feds.  Once the study concluded and the feds moved on to other issues, is it possible the 17% difference disappeared?

Who knows, since there was no longer any follow-up studies to give us the answer!

[Anonymous]

One issue that keeps recurring to me in this and other threads is where FM came up with the improbable notion that BNSF is in complete thrall to the Chinese.

 

"By their works ye shall know them."

No one has said that BNSF is an actual arm of the Red Chinese Army.  All I've pointed out over the years is that when you compare the R/VC related to the rates charged to overseas importers, and compare that with the same charged to captive domestic rail shippers, it would certainly appear that the overseas importers are given favorable treatment by BNSF at the expense of the captive domestic rail shippers.

Why an ostensibly American corporation would cross subsidize Chinese imports on the backs of US producers is something I'll leave you to ponder.  Circumstantial evidence (and logical analysis) suggests that BNSF is under the control of those who in turn receive special treatment from BNSF.  One thing we do know - it ain't Montana farmers.

Spin away, Chessiewitch.

[Anonymous]

     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.

In one of the reports on Matt Rose's objection(s) to DM&E, the comment was made that BNSF and UP already hold all the contracts for PRB coal .

Sure would like to understand that claim better,  Are they saying that there is a franchise-like relationship, with the two majors having an exclusive right to deal with the mines, or are they saying that all the contracts for delivery with the end user utilities are currently with them?

The former might be a big deal, but the latter seems like only a matter of time before contracts need to be renewed, and utilities currently using a seperate source could always create new contracts with DME that previously used eastern coal

So, I'm at a loss to appreciate what Rose was trying to imply with that comment.

     I take that as meaning that BNSF and UP have all the long term contracts at this point.  When the contracts come up for renewal, then it will be a 3-way pricing battle.  At that point, doesn't DM&E have a 1 in 3 chance of getting the business?

You see Murph?  Use a catchphrase like "re-distribution of wealth" in describing the DM&E vs BNSF/UP battle, and suddenly AG seems almost reticent in his critisism of DM&E.

I guess Solz and I had it all wrong regarding the framing of this debate - we should have portrayed DM&E as the oppressed proletariat fighting for equality against the bourgeoisie BNSF/UP/Mayo elite, and AG would have been all over those evil capitalist Mayo pigs.

[Murphy Siding]

     It is interesting to think that BNSF and UP must have (more) competition in the PRB coal hauling business.  I've read several places, that BNSF priced their coal contracts too low the first decade or so.  When UP came in, surely, they had to be competitive with (read:lower than ) BNSF rates, in order to get the business.  So there you have the two PRB railroads, supposedly "raking in the big bucks", when presumeably, they still haven't made that good of a return on their original investments.  Is it a wonder that they are not too hip on the DM&E?

[solzrules]

Murph-

I've decided that this is not a $6 billion dollar project. I believe DME is including the cost of coal cars that the utilities will own, and locomotives that leasing companies will own, to make the project sound more impressive. Personally, I would not include those in the pricetag as DME will not be paying for them. I could be wrong. Perhaps John B up in Dairyland knows.

     Now I'm puzzled.  All along, I understood this to be a $2.5B project.  Then, several posters pointed out that it was $2.5B in government loan, to go with $3.5B in *private* investment money.  This doesn't seem to be the case, if the $3.5B investment is for cars and locomotives owned by others.

Keep in mind that the figures quoted in the STB decision were 1998 figures - the costs of material and labor have risen since then.  Also, these figures were PRIOR to the enviromental impact studies that were subsequently released.  The additional construction, engineering, and material required to satisfy these studies would be added onto the project cost.  I am sure there are also substantial legal fees that have acrued since then and I am ABSOLUTELY sure that there will be many more legal fees incurred throughout construction. 

I think if you couple the revised cost of construction with equipment leases (or purchases - I think DME is holding that card yet) you certainly may arrive in the neighborhood of 6 billion. 

[solzrules]

     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.

In one of the reports on Matt Rose's objection(s) to DM&E, the comment was made that BNSF and UP already hold all the contracts for PRB coal .

Sure would like to understand that claim better,  Are they saying that there is a franchise-like relationship, with the two majors having an exclusive right to deal with the mines, or are they saying that all the contracts for delivery with the end user utilities are currently with them?

The former might be a big deal, but the latter seems like only a matter of time before contracts need to be renewed, and utilities currently using a seperate source could always create new contracts with DME that previously used eastern coal

So, I'm at a loss to appreciate what Rose was trying to imply with that comment.

     I take that as meaning that BNSF and UP have all the long term contracts at this point.  When the contracts come up for renewal, then it will be a 3-way pricing battle.  At that point, doesn't DM&E have a 1 in 3 chance of getting the business?

You see Murph?  Use a catchphrase like "re-distribution of wealth" in describing the DM&E vs BNSF/UP battle, and suddenly AG seems almost reticent in his critisism of DM&E.

I guess Solz and I had it all wrong regarding the framing of this debate - we should have portrayed DM&E as the oppressed proletariat fighting for equality against the bourgeoisie BNSF/UP/Mayo elite, and AG would have been all over those evil capitalist Mayo pigs.

 

WOW!  That was a page right out of the Communist Manifesto! 

Marx would be a proud man!

Throw in a few cuss words and Lennin would be even prouder!

Kill all your opponents and then Stalin would probably sign on too!

 

I think without getting carried away we can suffice to say that three competitors fighting for business will translate into reduced shipping costs.  Wether that savings will be passed on to the consumer depends entirely on how utilities in each state affected by this treat their customers - AG's point about political entities that are supposed to watch over these matters failing to pass the savings on to the consumer is not lost on me. 

As for the class warfare scenario, FM, that is the real trick behind winning these arguments, isn't it?  If you can identify someone who is profiting v. someone who isn't than automatically the person profitting is the one at fault, right?  The Mayo clinic is one of the richest research hospitals in the world - health insurance costs bear that out.  The DME is a fairly small fry in the world of business - most people look on it as old technology spewing pollution with 1800's era arrogance.  If you frame this as the working man against the intelligentsia, doesn't the DME represent the proletariat?  Something to think about.

 

[Anonymous]

You see Murph?  Use a catchphrase like "re-distribution of wealth" in describing the DM&E vs BNSF/UP battle, and suddenly AG seems almost reticent in his critisism of DM&E.

I guess Solz and I had it all wrong regarding the framing of this debate - we should have portrayed DM&E as the oppressed proletariat fighting for equality against the bourgeoisie BNSF/UP/Mayo elite, and AG would have been all over those evil capitalist Mayo pigs.

You really are like a kitten with a ball of yarn, you know that FM?

That is not AT ALL what is going on here, your assumption a very misguided one,   par for the course  that I've learned to expect from you.

Or maybe you just have a reading disability?  Murph qualified his comment as (likely) being  "the sad truth"...and I happen to agree with that sentiment entirely,  therefore no further dialog appeared necessary.

Of course, there is no reason at all to suspect that those individualS partial to making serial kneejerk conclusions would have the capacity to ferret that out on their own.

Putting that much taxpayer money at risk simply to enable the principals of DM&E at the expense of BNSF & UP shareholders, in some zero sum undertaking has gotta be one of the more sterling reasons I've seen yet to deny taxpayer assistance.

[Anonymous]

If you frame this as the working man against the intelligentsia, doesn't the DME represent the proletariat?  Something to think about.

 

I suspect DM&E as more along the lines of what the Butcher Brothers were to banking.

[Datafever]

Putting that much taxpayer money at risk simply to enable the principals of DM&E at the expense of BNSF & UP shareholders, in some zero sum undertaking has gotta be one of the more sterling reasons I've seen yet to deny taxpayer assistance.

So, if I understand you correctly, you would have no problems with DM&E entering the picture if it did not require a federal loan?

[Anonymous]

So, if I understand you correctly, you would have no problems with DM&E entering the picture if it did not require a federal loan?

As a side issue they need to come to some form of peace with the city of Rochester, but if we exclude that as a seperate matter entirely, then yes I would have no objections to what DM&E is trying to accomplish.

I've been on record here before as an admirer of DM&E's game plan.

Just the way they have been so willing to rub everyone the wrong way and just say "tough" has tarnished my image of them somewhat.

Let the people who stand to gain the most out of the venture absorb all the risk.

[Datafever]

Somewhere, I read that DM&E will receive eminent domain privileges in order to complete this project.  How does eminent domain play into the overall picture?  How much existing (although abandoned) RoW is involved?  How much land is going to fall under eminent domain?

[Anonymous]

So, if I understand you correctly, you would have no problems with DM&E entering the picture if it did not require a federal loan?

As a side issue they need to come to some form of peace with the city of Rochester, but if we exclude that as a seperate matter entirely, then yes I would have no objections to what DM&E is trying to accomplish.

Yet you display no similar hostility to the fact that both BNSF and UP received federal assistance for their PRB projects.  Indeed, there is nary a peep out of you concerning NS's grant from the taxpayers for their doublestack project.

At least you're consistent in your inconsistency.

[Anonymous]

Somewhere, I read that DM&E will receive eminent domain privileges in order to complete this project.  How does eminent domain play into the overall picture?  How much existing (although abandoned) RoW is involved?  How much land is going to fall under eminent domain?

That's another area where  DM&E's proponents have been very misleading, trying to claim that Rochester is the sole line side resident to oppose DM&E's plans


There were eminent domain battles  at the other end (in Wyoming) that the line side people eventually lost,  meaning, I gues,s that Rochester remains as the sole survivor where DM&E has yet to twist it in and break it off. But they are far from the only entity to oppose DM&E.

[Anonymous]

Yet you display no similar hostility to the fact that both BNSF and UP received federal assistance for their PRB projects.  Indeed, there is nary a peep out of you concerning NS's grant from the taxpayers for their doublestack project.

At least you're consistent in your inconsistency.

Believe me when I tell you, you have yet to see me "hostile" towards anyone.

I think that the word you meant to use was opposition.

And in that vein it's for good reason. For one, federal loans to UP and BNSF are not on the table here, we are talking about a loan to DM&E, an entirely seperate entity. what's done is done, we can't change that.

Where you seem to be trying to argue that since BNSF/UP received such loans, that the gov't somehow "owes" similar treatment to DM&E, you (thankfully) seem to be in the minority in that regard.

The "everybody else is doing it" mentality is not what I consider to be  a persuasive argument, never has been, never will.

The BNSF/UP loans were ENTIRELY seperate, with a loan recipient that was far less leveraged, had far more collateral, with a FAR longer track record  (no pun) as a long term operator than this DM&E bunch.

The two can not and should not be considered in the same spirit, since they come from entirely seperate universes.

The "inconsistency" you see is actually in your delusion pretending BNSF/UP and DM&E are "peers" worthy of the same consideration.


Matt Rose and Dick Davidson just don't strike me as a risk  that would borrow 10 times what they are worth,  using the proceeds to bankroll an operation where they can draw handsome salaries for six years, then as payments start falling due,  say "whoops, it didn't work",  and hand the bag back to the american taxpayer.

Draw whatever inferences you find convenient there.

[Murphy Siding]

The BNSF/UP loans were ENTIRELY seperate, with a loan recipient that was far less leveraged, had far more collateral, with a FAR longer track record  (no pun) as a long term operator than this DM&E bunch.

     I'd add to that thought, that BNSF and UP were looking to borrow money to increase profitable business.  DM&E is jumping inot uncharted waters.  That's where that risk factor comes in.

[Anonymous]

The BNSF/UP loans were ENTIRELY seperate, with a loan recipient that was far less leveraged, had far more collateral, with a FAR longer track record  (no pun) as a long term operator than this DM&E bunch.

     I'd add to that thought, that BNSF and UP were looking to borrow money to increase profitable business.  DM&E is jumping inot uncharted waters.  That's where that risk factor comes in.

So BNSF/UP borrow money to increase profitable business, but DM&E isn't?