BNSF, Union Pacific Ordered to Pay Reparations

On April 27, the Surface Transportation Board (STB) ordered BNSF Railway and Union Pacific Railroad to pay reparations totaling $9,244,144 to Arizona Electric Power Cooperative (AEPCO) for rate overcharges for the movement of utility coal.

In its decision, the STB explained, “ In 2008, AEPCO filed a complaint challenging the reasonableness of the joint rates established by BNSF Railway Company and Union Pacific Railroad Company for unit train coal transportation service from New Mexico and the northern portion of the Powder River Basin in Wyoming and Montana to AEPCO’s Apache Generating Station located near Cochise, Arizona.

“In a decision served Nov. 22, 2011, the Board found that AEPCO had shown that defendants have market dominance over those movements, and that their rates were unreasonable. Accordingly, the Board ordered defendants to reimburse AEPCO for amounts collected above prescribed levels. The Board ordered defendants to establish and maintain rates for movements of the traffic that do not exceed 180 percent of the variable costs of the service.”

The Surface Transportation Board is the regulatory agency created by Congress to resolve railroad rate and service disputes and reviewing proposed railroad mergers. The STB is administratively affiliated with the U.S. Department of Transportation and is governed by a three member board.  Each member is appointed by the president and confirmed by the Senate.  

Revenue to Variable Cost Ratios (R/VC) are used by the STB to evaluate and measure the profitability and reasonableness associated with railroad freight charges.  For example, if a railroad’s freight charges are $2,000 per carload and the variable costs for that movement are $1,000 per carload, the R/VC would be 200 percent.  In order for a rate to be regarded as potentially excessive, and subject to STB jurisdiction, the R/VC ratio must be equal to or greater than 180 percent.