STB Sees BNSF Off Track

When the Surface Transportation Board hit BNSF Railway with its largest-ever penalty for overcharging a utility customer, the smackdown could be heard all across the country.

The board ruled last month that BNSF has charged “unlawfully high” freight rates ever since a long-term coal transportation contract expired in 2004 to deliver 8 million tons yearly of Powder River Basin coal to a Wyoming power plant.

The railroad quickly moved to challenge the decision, which certainly ran counter to the STB’s reputation of favoring big railroads over their shipper customers.

The STB ordered a combination of penalties estimated at $345 million in long-term rate cuts and soon-to-come reparations payments. Included are 15 years of charging the plant rates that are 60 percent lower, plus $100 million or more in reparations.

The winners are the Western Fuels Association and the Basin Electric Power Cooperative, which had been chafing under BNSF’s tariff since late 2004 to supply WFA’s Laramie River electricity plant at Moba Junction, Wyo. It sells power across a broad expanse of the Rocky Mountain and High Plains regions.

The nation’s largest railroad, signaling an appeal is on the way, suggested the STB stacked the deck to produce “an outcome-oriented decision in favor of this shipper.”

After earlier determining BNSF’s rates were reasonable, the railroad said, the STB allowed WFA to refile its complaint under revamped rules for major rate cases.

That is “a manipulation of the new rules,” the railroad said. “BNSF strongly opposes the STB’s decision on its merits and believes the process used to arrive at this result is unfair,” the carrier said shortly after the STB’s Feb. 18 ruling. “We are currently reviewing the decision and intend to pursue all legal remedies.”

It can challenge the findings directly at the STB in the next few weeks, but if it does not get satisfaction there it can go to the U.S. Court of Appeals. Meanwhile, BNSF said it has only set aside money to cover about half the reparations.

The STB is likely to stand its ground, since it changed its large-case rules in 2006, well before the 2007 initial rate decision that favored BNSF.

That gave the WFA a chance to file its case anew, and the result was a dramatic change.

“It is now clear,” the STB said, “that BNSF has been forcing WFA to cross-subsidize other parts of BNSF’s broader rail network” with its charges on this single run.

A measure of the decision’s significance came from an aggressive shippers’ coalition that has been sharply critical of STB decisions, often blasting even pro-customer STB rulings as falling short of needed regulation.

Consumers United for Rail Equity says the top tier of North American railroads have a monopoly over rail transportation, cozily dividing up territory to create large areas of shippers “captive” to a single big rail line, and only Congress can fix the disparity.

CURE called the Laramie River decision “an important victory” for captive shippers and consumers “in their fight against the monopoly pricing power.”

STB Chairman Charles D. Nottingham made clear he sees the action as an indication the board can crack the whip on rail overcharges.

It “demonstrates the board’s commitment to delivering strong regulatory oversight over the freight rail market when necessary to protect captive shippers from monopoly pricing,” he said.

There’s still skepticism, however, that one ruling sets the railroad industry on a different track with the STB.

Wall Street investment analysts called it a negative for railroads but not one that changes the game, an assessment even the shipper group agreed with.

“Rate relief from the STB remains out of reach for the overwhelming majority of captive rail customers,” said CURE’s executive director, Robert Szabo.

John D. Boyd may be contacted at jboyd@joc.com.