WASHINGTON - A federal agency has issued an estimated $100 million judgment against Union Pacific Railroad Co. in a rate dispute involving a southern power company, U.S. officials said Monday (July 27), according to the Dow Jones News Service.
The Surface Transportation Board said it ruled Friday that Union Pacific, a unit of Union Pacific Corp. (UNP), must pay an estimated $100 million in reparations and rate reductions over the next decade to Oklahoma Gas & Electric Co., which serves 750,000 customers in Oklahoma and western Arkansas.
(This item was distributed July 28, 2009, by Dow Jones & Company, Inc.)
STB orders $100 million in rate relief & damages for a captive utility plant
(The Surface Transportation Board issued the following on July 27, 2009.)
WASHINGTON, D.C. The Surface Transportation Board issued a decision today granting an estimated $100 million in reparations and rate reductions over the next decade from the Union Pacific Railroad Company (UP) to Oklahoma Gas & Electric Company (OG&E). The utility serves more than 750,000 customers in Oklahoma and western Arkansas.
UP has hauled roughly 6 million tons of coal per year from Wyoming's southern Powder River Basin to OG&E's Muskogee Station power plant in Fort Gibson, Okla. under contracts between the parties. But after the latest contract expired on Dec. 31, 2008, UP and OG&E could not agree on a new contractual rate. So OG&E asked UP for common carrier rates, which the utility began paying in January 2009. OG&E then challenged the new rates in a complaint to the Surface Transportation Board (STB).
Both OG&E and UP agreed that the Muskogee Station is captive to UP, meaning that there is no effective transportation alternative available to OG&E other than using UP. And both parties agreed that the January 2009 common carrier rates should not exceed 180 percent of the variable costs of providing that transportation. The central question put to the STB in this case centered on how to calculate the 180 percent revenue-to-variable cost ratio.
The STB found that the amount of relief owed to OG&E for the first two quarters of 2009 ranged from $1.66 to $1.91 per ton in shipper-supplied rail cars, depending on the particular mine origin. The decision also ordered UP to set common carrier rates for the next 10 years at the 180 percent of variable-costs levels. Assuming historical volumes of 6 million tons a year, the relief to OG&E will likely exceed $10 million a year for the next 10 years.
The Board issued its decision today, July 24, 2009, Oklahoma Gas & Electric Company v. Union Pacific Railroad, STB Docket No. 42111. That decision is available for viewing and downloading, via the Board's Web site at http://www.stb.dot.gov, under "E-LIBRARY," then under "Decisions & Notices," beneath the date "7/24/09."
Union Pacific could repay $100M million to utility
(The following story by John D. Boyd appeared on the Journal of Commerce website on July 27, 2009.)
WASHINGTON, D.C. Union Pacific Railroad will have to repay a captive Oklahoma utility amounts the Surface Transportation Board said could reach $100 million over 10 years, as the STB settled a dispute over how to calculate charges on those UP coal hauls.
The decision comes in a case from November 2008, in which Oklahoma Gas & Electric challenged the reasonableness of new UP rates it would pay to bring coal from 12 Wyoming mines in the Powder River Basin to OG&Es Muskogee Station power plant in Fort Gibson, Okla.
The coal shipments, which total 6 million tons a year and provide electricity to over 750,000 users in Oklahoma and western Arkansas, were under private contracts through the end of last year and therefore outside STB jurisdiction.
But the two sides could not agree on terms for a new contract, and since the utility could only get its PRB coal from UP its shipments went on common carrier tariff this year, making it subject to STB oversight.
Both sides agreed that UP had market dominance in that there was no effective competition, the STB said, and both agreed that a reasonable rate should be that allowed as a rate floor in federal law 180 percent of the carriers variable costs of providing the service.
What they disagreed on was how to figure those costs, and therefore the rates. So the board used its own computations based on its regulatory cost formula, and determined that UP overcharged OG&E over the first two quarters of this year amounts ranging from $1.66 to $1.91 per ton in railcars the shipper supplies.
And it gave both sides instruction they had sought in how to compute the maximum lawful rate on shipments through the end of 2018. All that works out to $10 million a year in reparations and rate relief based on historical volumes, the STB said.
