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Show minimi " 11,11111111 1 '"I i i iiiiiiiiiiiiiiiiiin i ,ii,, Western Resources WRAP-UP uiiiiiiiiJiiiniiiiiJiiiiMJiiiii jujiiiAhMinnriijuiimiitiuiiiJiiJiiiJiiii.jn...... . IIP1 ' """""HHIIIIIIIIIIHIIIMIIIIHIIIII Transportation of fuels, part 1 By Holone C. Monberg, Vernal Express Washington Correspondent Washington Cost of shipping Western coal notably out of the coal-rich Powder i-yer Basin in Northeastern Wyoming, is so high that it is literally throttling the market for Western coal, Ken Holum, Kneral manager of Western Fuels Association, charged on April 8. "Although we have six long-term coal contracts in the Powder River Basin, we aren't going to sign any new contracts," Holum told Western Resources Wrap-up (WRW) in an interview. His reason: Western Fuels has been unable to get a handle on shipping costs. "The situation is so bad," Holum complained, com-plained, "that some of our members plan lo dig up carbonaceous dirt in Texas, Louisiana and Arkansas rather buy more Powder River coal to fuel new power plants." His reference was to Cajun Electric Power Cooperative of Baton Rouge, La., which is planning a new mine-mouth power plant using low-grade Louisiana lignite. Cajun Electric completed its third unit ol its Big Cajun power plant 2 at New Roads, La., in 1982. Cajun is shipping coal from the Powder River Basin by rail to St. Louis and barging it down the Mississippi River to fuel the new plant. But Cajun's managers, now planning a new power plant to meet its growing needs, are opting for lower-grade cheaper coal in Louisiana because the cost of shipping Powder River coal, especially by rail, from Wyoming to Louisiana, "is just too high," according 1 to Holum. "Western Fuels will never again make a long-term commitment for coal without simultaneously working out an ironclad commitment from the transportation transpor-tation companies (ie., railroads) as to rates and escalation" over the same period. "We cannot do otherwise and still, in good faith, protect the interests of our coal-burning members," Holum told a coal conference in Dallas on March !. "Because of transportation costs, a couple of acres of Wyoming coal in a seam a hundred feet thick (in the Powder River Basin) has become worth considerably con-siderably less to a utility than hundreds it acres of lignite in a thin seam in Texas vhich might better be left to 'mature' or grow corn and cotton," Holum said. Holum's wrath is centered on specific toal carrying railroad, the Burlington Northern (BN) headquartered in St. Paul, Minn., for eroding away much of what Holum calls "the natural market lor Powder River coal the West and Midwest." through BN escalating its rates so far and so fast in recent months, ilhas "damaged" Western Fuels, its 32 members, Powder River coal producers md the general public using Powder River coal in the form of electricity, Holum told WRW. "There is a limit. We aren't taking this rate hikes) lying down," Holum said. BN breached that limit with Western Fuels last fall when it unilaterally ratcheted rat-cheted up its rates to Western Fuels on H two movements of coal, at an additional addi-tional cost of $973,000 during 1983, accor-H accor-H to Western Fuels' calculations, to !o key members' power plants. So Western Fuels has thrown the book HBurlington Northern. It filed a law suit gainst BN in the U.S. District Court in yenne, Wyo., on Oct. 25, 1982, alleg-discrimination, alleg-discrimination, breach of contract wd restraint of trade against BN. r Western Fuels is, among other things, Wng triple damages against BN for "leged "false representations" which e "outrageous, malicious, willful and anton," according to the suit. Western wis' main complaint against BN : lack "competition. The trial is scheduled to begin in yenne on Aug. 1. It is expected to ""le a landmark case involving "stern coal from the famed Powder r Basin. Discovery and other pre-1 pre-1 procedures are already going on '; jr the watchful eye of the U.S. 'Warn C. Beamen, a U.S. magistrate, Jieyenne prior to the start of the jury in August. COLLISION INEVITABLE collision was inevitable between ,esl"n Fuels and BN, given the ground of the two parties to this , Me- At age 67, Holum is an ex--: " from South Dakota with an at- ounent to and belief in the rural elec-l elec-l J..cooPerative movement and the '", Z Per movement that is com-f com-f ""Me to a religion. fl!rm was able to strengthen the rural K Utcl!movement when he was Assis- , J retary of Interior for water and nZ 6 the Kennedy-Johnson Ad-t,ter Ad-t,ter '?tlons from 1961-S9 by pushing J' i Hh opment and a beefing up of 4' !!ral Pwer transmission system, s ;' ljjJ T011 Administration came in, kZ amea consult primarily in lin-V' lin-V' tps pcoa' sources for rural electric co- !': Hoi esJ!"" as a prime mover in the H!v Z ent of Western Fuels on July Vi- ma J' and he became its first general P W; r Wlth its headquarters office in ""igton, D.C. Western Fuels is a , C,rg"based not-for-profit Is tal ve association owned utilities ; '""Tose is to provide coal to its members at the lowest cost possible. BN is an old-line coal-carrying railroad which has continued to operate in the Northern Tier portion of the country in good times and bad. When the United States was hit by the oil embargo in 1973, energy companies rushed to the Powder River Basin in Eastern Montana and Northeastern Wyoming to develop Powder River's thick coal seams that lie close to the surface, hence can be easily strip-mined. BN at present is the only railroad serving ser-ving the Powder River Basin. So it is under pressure from its stockholders and its holding company, Burlington Northern, Nor-thern, Inc., headquartered in Seattle, to turn a handsome profit on Powder River coal shipments. Until very recently, contracts were not the rule in shipping coal. Coal was moved mov-ed on a spot basis by agreement between the coal shippers and the railroads. The Interstate Commerce Commission ( ICC) , which was established to regulate railroads a century ago, tended to take a dim view on contracts on grounds that they encouraged railroads to discriminate against some shippers by offering some better deals than others. But Holum is out of the Midwest farm tradition where a handshake agreement between two farmers is as good as or better bet-ter than a written contract. Before the Laramie River Station was built near Wheatland, Wyo., Holum began to have discussions with BN about the cost of shipping coal from the Powder River Basin in Northeastern Wyoming to Wheatland in Southeastern Wyoming. "The cost of transportation of coal... was one of the important considerations con-siderations involved in the site selection process for the Laramie River Station," the Western Fuels complaint states. Those discussions in their early stages revolved around shipping coal from Powder River to Moba, Wyo., where the coal for the Laramie River Station is unloaded, and to Nearman, Kan., where coal for the Nearman power plant is unloaded. Both plants are owned by Western Fuels' members, notably by Basin Electric Elec-tric Power Cooperative, a big G&T headquartered head-quartered in Bismarck, N.D., and Tri-State Tri-State Generation & Transmission Association, Inc., a big G&T headquartered head-quartered at Thornton, Colo., which own most of the generation in the Laramie River station; and the Kansas City, Kan., Board of Public Utilities, which owns the Nearman Creek Station. "LET THEM CHOP ON MY NECK" The negotiations between Holum and the BN negotiators, Norman Lorentzsen, president of BN, and A.E. Michon, a vice president of BN, were frought with difficulties dif-ficulties from the beginning. "I put my head on a block and let them chop on my neck," is the way that Holum described the negotiations to WRW. There is agreement on one point: BN on June 15, 1973, furnished Holum with a "planning rate" of $1.19 per ton of coal to be transported from the Powder River Basin near Gillette, Wyo., to Wheatland, Wyo. BN calls it "an estimated rate." There are differences on the second key point. Western Fuels alleges in its complaint that late in 1978 and 1979 BN and Western Fuels "negotiated the terms of new tariffs for the shipment of coal from the Powder River Basin to both Wheatland, Wyo., and Nearman, Kan.," and "through an exchange of correspondence cor-respondence and documents, entered into in-to contracts between Western Fuels and BN establishing the rates to be charged for the hauling of the coal to the two stations, sta-tions, together with agreed escalation in the event of increased costs." BN denies that "any binding contracts" were entered into. In any event, Western Fuels alleges that it paid BN $35,676,531 to ship 9,622,358.65 tons of coal from Gillette to Moba Wyo., for the Laramie River plant from 1979 through September 1982, and that it paid BN $11,138,508 to ship 849,703.85 tons of coal from Gillette, Wyo., to Nearman, Kan., for the Near-man Near-man plant from 1980 through September 1982 "in accordance with the contracts." BN claims the payments were paid under established tariffs "then in effect and on file with the appropriate regulatory commissions," mainly the ICC and the Wyoming Public Service Commission. There is no way for the press to tell whether these were, in fact, contracts, as alleged by Western Fuels, as they were not made available to WRW, on in-auiry, in-auiry, on grounds they contained "proprietary "pro-prietary information," Western Fuels General Counsel Fredrick D. Palmer told WRW on April 8. MONOPOLY Besides both Holum and Palmer maintain, the bottom line is the allegation allega-tion in the Western Fuels complaint that BN is operating as a monopoly to throttle throt-tle competition and in restraint of trade in violation of the Sherman Anti-Trust Act "BN has market power by virtue of its sole rail access to a large portion of the coal deposits in the Powder River Basin...through the use of Us market power, it is attempting to obtain and maintain a monopoly power withm the geographic and product markets for Powder River Basin coal. Among the points that Holum and Palmer made to WRW and appear in its complaint all denied by BN are: That passage of the Staggers Act in 1980 by Congress and actions taken by ICC since then have effectively terminated ter-minated any railroad regulation by the ICC, so there is no protection at this time for captive shippers like Western Fuels unless such shippers redress in the courts. So BN on Oct. 22, 1982, unilaterally unilateral-ly boosted its rates, Western Fuels claims. That BN initially used "alleged misrepresentation and fraud in inducing Western Fuels and its members to use Powder River Basin coal," but after the long-term contracts to buy such coal had been entered into, BN proceeded "to extract ex-tract the maximum tribute" in shipping charges. Holum said BN was using, and ICC was letting it use, rates assuring return on investment based on replacement replace-ment rather than historical costs. That BN and other railroads have used us-ed their competitive advantage to block coal slurry pipelines and other modes of transportation from entering the coal transportation market. In particular, Western Fuels alleges that BN and other rail coal shippers have effectively prevented Energy Transportation Systems, Inc., and others "from acquiring acquir-ing the necessary land, permits, water, capital and technology to build an operating pipeline." That BN and Chicago and North Western Transportation Co., also a coal-carrying coal-carrying railroad, on May 22, 1975 and subsequently have made a joint filing before ICC to build a new rail line in Eastern Wyoming, to connect with existing ex-isting lines to both railroads. But the agreement denies access to Northwestern Nor-thwestern to build into the richest area around Gillette where five miles serve Western Fuels under long-term contracts, con-tracts, Western Fuels alleges in its monopoly and restraint-of-trade complaints. |
