A posting of about two weeks ago stated that an MIT report predicted a dim future for coal. I have checked in the MIT wewbsite, read the issues of the alumni magazine, and have come to a different conclusion. MIT predicts a great future for coal but says that affordable and practical pollution control measures must be adopted. I believe they will be.
The fact that American railroads are capacity restrained in going after new business is a well-established fact. And some want government to help with the investment to increase capacity. I am not such an idealogue either way on this issue, but I do think capacity should be increased. The question regarding Powder River is can BNSF and UP increase capacity sufficiently fast to keep up with demand and still satisfy their other customers' demands, which may also call for increased capacity? Certainly, it is possible to put down a fourth or fifth track in Wyoming, but what about critical junctions, the servicing of power, yards, etc.? For this reason I hope the DM&E expansion plan is a success. In addition to providing added capacity for Powder River Basin coal, it will also provide better rail service for areas that have mediocre service and rail service to places where none is provided now. This will strenghen the USA rail system in general and the country in general. I think there will be enough business for everyone and BNSF and UP profits won't suffer.
Thanks to Chris / CopCarSS for my avatar.
Murphy Siding wrote: In the grand scheme of things, I'll bet that it's much cheaper and easier to expand the capacity on the UP and BNSF lines, than to try to start from scratch(DM&E).
That's an interesting take. I just have one question. "Cheaper and easier" for whom in particular? The utilties? The taxpayers? BNSF and UP? Rail shippers in general?
It's not such an easy question to answer. If indeed DM&E represents an introduction of triopoly competition into the PRB duopoly, then the subsequent market pressure to lower rates will be "cheaper and easier" for the utilities and for rail shippers in general.
Since the FRA has rejected DM&E's "wish list" loan request, it may be DM&E can find a less overall expensive way to enter the PRB with mostly private funding. That gets the taxpayers off the hook, although I expect DM&E will file another loan request for a much lesser amount to facilitate the actual PRB entry trackage.
(BTW - I see where DM&E did get a loan approval for the Colony line. Maybe they can tap into the Basin from that point with a shorter extension, albeit a longer overall route to the power plants.)
Seems to me the only folks who really will experience "cheaper and easier" are BNSF and UP.
......1)open can....2)dump out worms in a microwaveable continer...3)heat on medium for 3 to 4 minutes...4) re-open discussion of DME?PRB merits.....
Dave-on another thread, you suggest that the railroads don't have enough money to maintain their trackage at the current levels of traffic. On this thread, you're once again championing a third rail line into the PRB to increace competition, and lower shipping costs. You do see the irony in this-don't you?
Murphy Siding wrote: Dave-on another thread, you suggest that the railroads don't have enough money to maintain their trackage at the current levels of traffic. On this thread, you're once again championing a third rail line into the PRB to increace competition, and lower shipping costs. You do see the irony in this-don't you?
Maintenance cost curves for typical manufacturing facilities typically show optimal levels of production. A given system of machines, for instance, may show optimal maintenance costs at 85% of maximum production. To ramp up to 95% doesn't simply require 10% more support costs, but 30% more, and another 30% to achieve 99% capacity. To achieve an optimal output, it can be substantially more cost effective to be operating 10 machines at 80% capacity, than 8 machines at 100% capacity.
The company could not afford to operate 8 machines; but the cost of operating ten to achieve the same output is not just feasible, but the only rational alternative.
At the identical levels of overall output, there's not enough money to maintain and operate 8 machines, but there is plenty of money to maintain and operate 10, under the specific circumstances.
There may be a moral to the story in there for railroads at capacity, perhaps even irony.
I don't remember writing that any of the Class I's don't have the money to maintain the plant at current levels of traffic, but I know this has been true of some of the short lines. Others have written about the CN, and perhaps CSX with regard to sunkinks, but generally the Class I's seem to be both maintaining current plant and pursuing moderate expansion, but leaving the question of enough expansion. One issue I didn't raise is the security by having an altogether different route accessing the Basin, since BNSF and UP are completely together for part of the access.
After so much track has been ripped up, I think it would be great if a lot were put down and be economically viable.
Murphy Siding wrote: ......1)open can....2)dump out worms in a microwaveable continer...3)heat on medium for 3 to 4 minutes...4) re-open discussion of DME?PRB merits..... Dave-on another thread, you suggest that the railroads don't have enough money to maintain their trackage at the current levels of traffic. On this thread, you're once again championing a third rail line into the PRB to increace competition, and lower shipping costs. You do see the irony in this-don't you?
The reason railroads can't cover their cost of capital is due to the anachronistic integrated system combined with the natural monopoly characteristics that cause US railroads to make irrational choices. Like spending most of their capacity enhancement funds on the low margin import intermodal corridors, while throwing nickel and dime expenditures at the high margin corridors. Like simply trying to add trackage to existing lines e.g. maintaining the error of consolidation rather than diversifying/dispersing new lines into new corridors.
But you know what? That's a whole 'nother subject. The question put forth in this thread is whether the PRB is better off with two railroad companies simply trying to add track to existing lines or with a new third railroad coming in with a uniquely located new line. I of course vote for the latter. I would amend that basic question with a scenario of my own: The PRB would also be better off if UP and/or BNSF added new trackage on new corridors out of the PRB than if a third railroad company was added but was instead granted trackage rights over the present set of lines.
Of these four choices, I choose a third player over new trackage in new corridors. Next would be UP/BNSF adding new trackage on new corridors. Next would be adding a third player over present trackage with added sidings et al, and last is UP/BNSF simply adding trackage on present lines.
I have to go to work. I'll explain it later.
Nothing is more fairly distributed than common sense: no one thinks he needs more of it than he already has.
futuremodal wrote: Murphy Siding wrote: ......1)open can....2)dump out worms in a microwaveable continer...3)heat on medium for 3 to 4 minutes...4) re-open discussion of DME?PRB merits..... Dave-on another thread, you suggest that the railroads don't have enough money to maintain their trackage at the current levels of traffic. On this thread, you're once again championing a third rail line into the PRB to increace competition, and lower shipping costs. You do see the irony in this-don't you?The reason railroads can't cover their cost of capital is due to the anachronistic integrated system combined with the natural monopoly characteristics that cause US railroads to make irrational choices. Like spending most of their capacity enhancement funds on the low margin import intermodal corridors, while throwing nickel and dime expenditures at the high margin corridors. Like simply trying to add trackage to existing lines e.g. maintaining the error of consolidation rather than diversifying/dispersing new lines into new corridors.But you know what? That's a whole 'nother subject. The question put forth in this thread is whether the PRB is better off with two railroad companies simply trying to add track to existing lines or with a new third railroad coming in with a uniquely located new line. I of course vote for the latter. I would amend that basic question with a scenario of my own: The PRB would also be better off if UP and/or BNSF added new trackage on new corridors out of the PRB than if a third railroad company was added but was instead granted trackage rights over the present set of lines.Of these four choices, I choose a third player over new trackage in new corridors. Next would be UP/BNSF adding new trackage on new corridors. Next would be adding a third player over present trackage with added sidings et al, and last is UP/BNSF simply adding trackage on present lines.I have to go to work. I'll explain it later.
Okay, here goes....
Murphy postulates that it is ironic that (1) on one thread it is pointed out that railroads cannot meet their equilibrium of maintaining trackage and current profitability, which means the difference will probably be funded by us taxpayers, and (2) on this thread it is pointed out that more capacity and more competition is needed in the PRB.
I hypothesized that #1 is due to the integrated rail model combined with the natural monopoly of railroading that produces irrational market behaviour.....like spending most of the capacity enhancement funds on the low margin corridors rather than the high margin corridors.
#2 is just obvious to those of us in the energy sector, you know, what with coal delivery shortfalls and rate increases approaching 300%....that sort of thing. If BNSF, which has 57% of it's system ton/miles from coal hauling, spent it's maintenance funds on new dispersed trackage for it's coal corridors, it may have been able to meet and beat that aforementioned equalibrium. Alas, they're speding it all on the LA-Chicago corridor where margins are thinnest.
As for DM&E, remember they are not constrained by all this low margin import intermodal hullaballoo, so most of their business (along with sister railroad IC&E) is of the high margin caliber - grain, ethanol, and soon coal......
http://www.progressiverailroading.com/freightnews/article.asp?id=10534
http://www.progressiverailroading.com/commentary/article.asp?id=10527
".....the DM&E has always had other options besides the feds - after all, the DM&E has built a fine franchise in of itself (think "ethanol")...."
So, for DM&E to build tracks into the PRB makes sense financially for them, since they are under no *overlord* pressure to waste such funds on double stack tracks. If the DM&E PRB line pressures rates for coal to be lowered, so be it. Those rates will still be higher margin than the import intermodal lanes unless there is a complete collapse of the coal market. If BNSF and UP still want to throw all their money at their respective "Route 66's", well let Warren and John worry about that.
daveklepper wrote:I agree with the above analysis, except that what will prevent rail freight from going Socialist is the increasing demand for freight service, continual shift from highway-alone to intermodel with greater profit pricing ability given to the railroads, and greater use of industrial land with rail access. This will improve profitability of all the Big Six and the regionals. Short Lines with benefit also, but some will require some "Socialism" to improve physical plant to handle the business. Like what Maine is proposing for the Portland - Crawford Notch line.
One interesting consideration that is a wild card is the lead time required to complete civil engineering studies, project and then actual cost budgets and the filing and approval of enviromental studies...and then ponder the rate of increase for traffic within that time frame and then, of course the time required to actually add trackage. Will one overrun the other? It would be interesting to compare long term capital planning and the actual phases toward completion that are ongoing now based on the projections of available capital and projected increases in traffic and the ultimate reconciliation of the four aspects of this dynamic. If they do not meet in a syncronicity of events, then perhaps the socialist remedy will be applied. I think the tipping point could be a tangent path of increased demand for rail passenger services adding to the load. In other words, if the political situation changes during the next cycle occurs ( and who can plan for that?) and a legislative cure-all for additonal access by passenger services is wedged forward, it will make for a interesting set of circumstances.
wallyworld wrote: daveklepper wrote:I agree with the above analysis, except that what will prevent rail freight from going Socialist is the increasing demand for freight service, continual shift from highway-alone to intermodel with greater profit pricing ability given to the railroads, and greater use of industrial land with rail access. This will improve profitability of all the Big Six and the regionals. Short Lines with benefit also, but some will require some "Socialism" to improve physical plant to handle the business. Like what Maine is proposing for the Portland - Crawford Notch line.One interesting consideration that is a wild card is the lead time required to complete civil engineering studies, project and then actual cost budgets and the filing and approval of enviromental studies...and then ponder the rate of increase for traffic within that time frame and then, of course the time required to actually add trackage. Will one overrun the other? It would be interesting to compare long term capital planning and the actual phases toward completion that are ongoing now based on the projections of available capital and projected increases in traffic and the ultimate reconciliation of the four aspects of this dynamic. If they do not meet in a syncronicity of events, then perhaps the socialist remedy will be applied. I think the tipping point could be a tangent path of increased demand for rail passenger services adding to the load. In other words, if the political situation changes during the next cycle occurs ( and who can plan for that?) and a legislative cure-all for additonal access by passenger services is wedged forward, it will make for a interesting set of circumstances.
?
CSSHEGEWISCH wrote: wallyworld wrote: daveklepper wrote:I agree with the above analysis, except that what will prevent rail freight from going Socialist is the increasing demand for freight service, continual shift from highway-alone to intermodel with greater profit pricing ability given to the railroads, and greater use of industrial land with rail access. This will improve profitability of all the Big Six and the regionals. Short Lines with benefit also, but some will require some "Socialism" to improve physical plant to handle the business. Like what Maine is proposing for the Portland - Crawford Notch line.One interesting consideration that is a wild card is the lead time required to complete civil engineering studies, project and then actual cost budgets and the filing and approval of enviromental studies...and then ponder the rate of increase for traffic within that time frame and then, of course the time required to actually add trackage. Will one overrun the other? It would be interesting to compare long term capital planning and the actual phases toward completion that are ongoing now based on the projections of available capital and projected increases in traffic and the ultimate reconciliation of the four aspects of this dynamic. If they do not meet in a syncronicity of events, then perhaps the socialist remedy will be applied. I think the tipping point could be a tangent path of increased demand for rail passenger services adding to the load. In other words, if the political situation changes during the next cycle occurs ( and who can plan for that?) and a legislative cure-all for additonal access by passenger services is wedged forward, it will make for a interesting set of circumstances. ?
Will the increase in freight traffic projected now actually be larger in scope than the increase in capacity designed into projects already on the books, given the lead time required and the lag in completing them? Is the increase in traffic and the planning for more capacity to carry it at a state of equalibrium considering this lead-lag timing? Then throw into this question, the political change which may occur in Washington next year, which could easily equate to legislative action to increase passenger services over freight lines by mandate. This is a likely wild card in the capacity issue..
Always amusing how people throw "Socialism" around. Guess it comes down to the "Limbaughization" of American politics - any money spent by government on health care, roads, or basically anything except the military is "socialism".
Except for the Great Northern, virtually every 19th c. transcontinental railroad was built thanks to government subsidies via land grants...this during a 30-40 year period when Republicans controlled the Presidency, House and Senate for all but a few years. Guess Abe Lincoln was a "Socialist" for authorizing the subsidies for the UP and NP to be built?? How about General / President Grant?? Well, a lot of those Presidents did have beards kinda like Karl Marx I guess, maybe they were really Bolsheviks!!
wjstix wrote: Always amusing how people throw "Socialism" around. Guess it comes down to the "Limbaughization" of American politics - any money spent by government on health care, roads, or basically anything except the military is "socialism".Except for the Great Northern, virtually every 19th c. transcontinental railroad was built thanks to government subsidies via land grants...this during a 30-40 year period when Republicans controlled the Presidency, House and Senate for all but a few years. Guess Abe Lincoln was a "Socialist" for authorizing the subsidies for the UP and NP to be built?? How about General / President Grant?? Well, a lot of those Presidents did have beards kinda like Karl Marx I guess, maybe they were really Bolsheviks!!
so·cial·ism Pronunciation: 'sO-sh&-"li-z&mFunction: noun Any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods.
Murphy Siding wrote: on another thread, you suggest that the railroads don't have enough money to maintain their trackage at the current levels of traffic. On this thread, you're once again championing a third rail line into the PRB to increace competition, and lower shipping costs. You do see the irony in this-don't you?
on another thread, you suggest that the railroads don't have enough money to maintain their trackage at the current levels of traffic. On this thread, you're once again championing a third rail line into the PRB to increace competition, and lower shipping costs. You do see the irony in this-don't you?
excellent point..
Actually, Lincoln gave money to private companies to help them complete a monumental task. 'Socialism', as defined in wallyworld's post above, would mean that the government undertook the task of building the transcons itself. There is a difference, if you think about it.
futuremodal wrote: The question put forth in this thread is whether the PRB is better off with two railroad companies simply trying to add track to existing lines or with a new third railroad coming in with a uniquely located new line. I of course vote for the latter. I would amend that basic question with a scenario of my own: The PRB would also be better off if UP and/or BNSF added new trackage on new corridors out of the PRB than if a third railroad company was added but was instead granted trackage rights over the present set of lines. Of these four choices, I choose a third player over new trackage in new corridors. Next would be UP/BNSF adding new trackage on new corridors. Next would be adding a third player over present trackage with added sidings et al, and last is UP/BNSF simply adding trackage on present lines.I have to go to work. I'll explain it later.
The reality, as I see it, is different. UP and BNSF already go to the mines, and to the power plants. Use whatever number you wish-$6 billion for example. $6Billion invested in infrastructure investments by BNSF,UP, or both, would yield far more capacity growth than the same amount invested in a new route. Unique-yes. Logical-no. I think the market is proving that. Warrn Buffet isn't buying big chunks of DM&E.
Murphy Siding wrote: futuremodal wrote: The question put forth in this thread is whether the PRB is better off with two railroad companies simply trying to add track to existing lines or with a new third railroad coming in with a uniquely located new line. I of course vote for the latter. I would amend that basic question with a scenario of my own: The PRB would also be better off if UP and/or BNSF added new trackage on new corridors out of the PRB than if a third railroad company was added but was instead granted trackage rights over the present set of lines. Of these four choices, I choose a third player over new trackage in new corridors. Next would be UP/BNSF adding new trackage on new corridors. Next would be adding a third player over present trackage with added sidings et al, and last is UP/BNSF simply adding trackage on present lines.I have to go to work. I'll explain it later.There's the unique reason you and I disagree on some things. I'm all in favor of a Cinderella story. Small, ad-hoc,struggling regional railroad builds dream line into fat city coal market, steal business away from two big Class 1's, and saves the day! That has Disney movie written all over it. The reality, as I see it, is different. UP and BNSF already go to the mines, and to the power plants. Use whatever number you wish-$6 billion for example. $6Billion invested in infrastructure investments by BNSF,UP, or both, would yield far more capacity growth than the same amount invested in a new route. Unique-yes. Logical-no. I think the market is proving that. Warrn Buffet isn't buying big chunks of DM&E.
Well, I don't see DM&E as a Cinderella. They are already nearly a Class I, it's the proposed PRB line that would put them over the top. It's not like they're the next Murphy Siding & Pacific!
You're still not differentiating between a dollar spent on or by BNSF/UP and a dollar spent on or by someone other than BNSF or UP. How does capacity growth on BNSF help UP, CP or KCS? Are you looking at the end game, namely getting lots of coal to power plants in a timely manner and at a competitive rate? Or are you only looking at it as a big homogenous pie?
Remember, that's the same logical fallacy made by Olgilvie in allowing the PCE to be torn up west of Miles City - "Hey, BN can more than make up the slack in Montana, we don't need no stinkin' New Milwaukee!"
Well, do you think Montana is better off today with only BNSF as a primary rail service provider, or would the state be better served if New Milwaukee was there competing with BNSF?
If indeed we the taxpayers have to make up the shortfall in our nation's rail capacity improvements, aren't we better off if that money is allocated for more encouraging more intramodal competition rather than subsidizing a few monopolistic entities?
futuremodal wrote:You're still not differentiating between a dollar spent on or by BNSF/UP and a dollar spent on or by someone other than BNSF or UP. How does capacity growth on BNSF help UP, CP or KCS?
( pssssst: You're letting your anti-BNSF ideas cloud the issue again)
RJ
"Something hidden, Go and find it. Go and look behind the ranges, Something lost behind the ranges. Lost and waiting for you. Go." The Explorers - Rudyard Kipling
http://sweetwater-photography.com/
Murphy Siding wrote: futuremodal wrote:You're still not differentiating between a dollar spent on or by BNSF/UP and a dollar spent on or by someone other than BNSF or UP. How does capacity growth on BNSF help UP, CP or KCS? Why should capacity growth on BNSF have to help UP,CP,KCS or any other railroad. Is the goal to get more coal to power plants, or simply to take business away from BNSF? Would it be any different if only UP increaced capacity?( pssssst: You're letting your anti-BNSF ideas cloud the issue again)
I'm not really sure why you are stuck on the status quo as being the prefered alternative in this debate. This has nothing to do with being pro-BNSF or anti-BNSF, pro-UP or anti-UP, pro-DM&E or anti-DM&E, nor pro-MS&P or anti-MS&P. It's about what's best for the country in terms of a reliable cost competitive supply of coal for it's power plants. The key word there is competitive, an idea that seems not to take root in your analysis of the situation. You seem to be okay with the notion of a continued duopoly out of the PRB as being the best alternative, but of course you are not in the energy biz so you don't see things the way we do. Suffice it to say, just adding incremental capacity to UP and BNSF coal hauling lines, regardless of who pays for it, is not going to alleviate the situation to any great extent. We need more players in the basin, and we need more lines leading out of the basin.
miniwyo wrote:I am not sure if this is really relative to the discussion but I have heard rumours that they may be building another powerplant up there.
Where is "up there"? There's literally dozens upon dozens of coal-fired power plants on the drawing boards, some of which have passed various stages of authoritative approval, none of which has had a spade full of dirt turned as of yet.
Are you talking about the one proposed for Pierre? Great Falls? Ely? Kalama?
Dan
I have never had any problem with the DME getting into the PRB, and I was not opposed to the government loan. One way or another, the public is going to pay for the project, either through their electric bill or, if government grants or loans are ever provided, through their tax bill.
However, I think that an expectation that the DME will blow the current coal rates out of the water may just be wishful thinking. I have heard that in a decade or two, the demand for PRB coal will be on the order of 700 million tons per year. Right now the BNSF and UP, at capacity, are hauling about 400 million tons. When finished the DME says they will haul 100 tons. The DME plans to spend $6 billion to get the 100 million tons. I'd venture to say that a mere billion dollars spent by the UP and BNSF could get that twice that much in additional capacity.
The bottom line is that the DME is not going to be the low cost carrier. Not only will they have the $6 billion nut to deal with, but,according to the models reference by Michael Sol, the twenty or so daily trains the DME will be moving will be quite a bit above the 8 or 9 daily trains said to be the optimum for unit costs on a single track railroad.. Take that along with the forecast of the demand for the coal and unless the DME coal pricing manager is a dunce, I can't see any major downward move on coal rates.
The mere fact of another player moving into a market does not automaticly mean that prices will soften. At least that won't happen unless the new player can produce at a lower cost. I doubt that the DME is going to be the low cost player in the PRB game.
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
jeaton wrote: The DME plans to spend $6 billion to get the 100 million tons. I'd venture to say that a mere billion dollars spent by the UP and BNSF could get that twice that much in additional capacity.
The DME plans to spend $6 billion to get the 100 million tons. I'd venture to say that a mere billion dollars spent by the UP and BNSF could get that twice that much in additional capacity.
Saving this one!
futuremodal wrote: jeaton wrote: The DME plans to spend $6 billion to get the 100 million tons. I'd venture to say that a mere billion dollars spent by the UP and BNSF could get that twice that much in additional capacity.Saving this one!
Save away.
http://www.uprr.com/newsinfo/releases/capital_investment/2006/0508_sprb.shtml
Another interesting discussion.
Dave wants increased capacity from PRB for coal to keep his rates down (understandably so). I want low electricity rates. I also want the highest rates of return for my investments. The environmentalists dont want coal to be burned (what are we supposed to do, go to nuclear? or back to the caves?).
I think this upcoming debate over energy will really shape our policy for years to come. Not only coal, but also oil, corn (fuel or food?) and others.
The amount of capital available for investment is at a high water mark. Private equity funds are flush with cheap money in the form of loans. Yet DME cannot (yet) get funded. What does that tell you? PE funds are looking for steady cash flow in order to pay down the high levels of debt they take on for buyouts.
Comment was made earlier that Buffett and BH was investing in BNSF, not DME...well, are you sure that he isnt also into DME? Remember that BH owns considerable energy, I believe it is in Iowa. Hmmm...vertical integration? Wouldnt put it past him.
ed
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