Another railroad fined in captive shipper ruling
STB rules in shipper's favor and fines Union Pacific $100 million
Dave Hannon -- Purchasing, 8/14/2009 3:20:19 PM
Union Pacific gets fined by STB
In a late July ruling, the Surface Transportation Board quietly granted an estimated $100 million to Oklahoma Gas & Electric Company (OG&E), in reparations and rate reductions over the next decade in a rate complaint case filed against Union Pacific Railroad.
According to the STB, OG&E serves more than 750,000 customers in Oklahoma and western Arkansas. Union Pacific hauls more than 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. The dispute in this case was not about whether the location was a captive location to UP-both OG&E and UP agreed that the Muskogee Station is captive to UP-or even how high the carrier's rates should go-both parties agreed that the January 2009 common carrier rates should not exceed 180% of the variable costs of providing that transportation. The case that OG&E brought to the STB was how exactly that 180% should be calculated.
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 STB also ordered UP to set common carrier rates for the next 10 years at the 180% 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.
On a recent conference call hosted by analysts Stifel, Nicolaus & Co., Jeff Elliot,, is a partner in Oliver Wyman's manufacturing, transportation, and energy unit, said "The methodology for calculating it ended up costing the railroad money as the STB took its most recent calculations and found that the railroad had in fact charged rates above that regulatory threshold."
In February, Purchasing.com reported that BNSF was fined $345M for unlawful rates. And last year, STB forced CSX to drop "unreasonably high" rail rates.
See also: Railroads face more heat on rates and pricing
BNSF fined $345M for unlawful rates
02/18/2009STB approves railroad merger
09/30/2008BNSF Fined $345M on Rates
03/11/2009
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