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Surface Transportation Board may soon address issues affecting coal shippers

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A BNSF Railway Co. train sits near a loading tower at Peabody Energy Corp.'s Rawhide mine.
Source: S&P Global Market Intelligence

Two attorneys with expertise regarding the U.S. Surface Transportation Board said the regulatory body may soon address several issues that could benefit the coal sector.

The Surface Transportation Board, or STB, is evaluating and monitoring several topics that may affect coal shippers, including potential reforms to its rate review processes; issues pertaining to demurrage and accessorial charges placed on rail customers; and tension around the implementation of precision scheduled railroading, a method aimed at reducing inventories and improving asset utilization to improve the network's consistency and reliability.

In an interview following his presentation before the National Coal Transportation Association's 45th Annual Business Meeting and Conference in Baltimore, Kelvin Dowd, a partner with the law firm Slover & Loftus LLP, said that depending on which issues the board decides to take up, there could be significant benefits to U.S. coal shippers without them having to litigate on their own.

"If there was a fair and a balanced alternative dispute resolution mechanism, maybe for things like some of these demurrage and accessorial charges and these kinds of practices, that's something that could be very, very valuable," Dowd said Sept. 10.

Until recently, there have not been as many issues before the board pertaining to the coal sector. The industry has been able to negotiate favorable transportation terms without having to turn to the regulatory agency, he said. But he does not think the recent uptick in coal-related transportation issues signals a declining relationship between coal producers, consumers and the railroads. Rather, the disputes now are more amendable to a resolution by the board.

While the railroads used to dictate everything and the parties often turned to government agencies for help, Dowd said, "if things get adversarial now, it is truly a last resort."

"I would give [the major railroads] credit, especially in the last few years, for trying very hard to understand more about how the utility industry actually works and the pressure that coal assets are under," he said.

Patrick Fuchs, vice chairman of the STB, told attendees that the board intends to more formally consider action on reforming its rate case processes by the end of the summer, which he defined as Sept. 23.

The board held a two-day hearing in May for interested parties to discuss demurrage and accessorial charges as well. While demurrage serves a useful purpose by compensating railroads for their assets and incentivizing prompt loading and unloading, the board member said, there has been a large increase in revenue collected by railroads from the charges.

"I think that the concerns really have continued to mount," Fuchs said. "This is another area where we are hard at work, and I think you all should expect the board to more formally consider action in the next several weeks."

Additionally, while the board has seen an improvement in some operating metrics following several railroads' implementation of precision scheduled railroading, he said, the board is "very much in oversight mode" and actively monitoring the process and complaints.

Sandra Brown, a partner in the transportation group of law firm Thompson Hine, said the board's decisions could force railroads to compete more, potentially reducing costs for coal shippers at captive plants, meaning those served by a single railroad.

"Anytime the STB looks at issues and dives into the issues, it can have a meaningful impact on all shippers and definitely coal shippers who tend to have a lot of plants that are captive," Brown said. "So several of the proposals would look at potentially captive issues, rate issues."

Given the declining state of the U.S. thermal coal industry, she said, the sector could use a break.

Alan Shaw, Norfolk Southern Corp.'s executive vice president and chief marketing officer who also spoke at the conference, said coal represents about 15% of the railroad's revenue base and he expects that percentage to decline over the next few years. Norfolk Southern is working on controlling costs and, like several of its competitors, implementing precision scheduled railroading, he said. He said the company's focus has been to pull resources out of the network later in the process to avoid disruptions, while other railroads have pulled assets out earlier and caused service issues as a result.

"We're committed to working with our customers to make coal very competitive in the marketplace and try to minimize those reductions," he told attendees.