STB rules in Union Pacific rate case

STB rules in Union Pacific rate case    The Surface Transportation Board issued a decision last Friday granting an estimated $100 million in reparations and rate reductions over the next decade from the Union Pacific Railroad Co. to Oklahoma Gas & Electric Co. (OG&E).
   UP has hauled roughly 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., under contracts between the parties. But after the latest contract expired on Dec. 31, UP and OG&E could not agree on a new contractual rate. So OG&E asked UP for common carrier rates, which the utility began paying in January. OG&E then challenged the new rates in a complaint to the STB.
   Both OG&E and UP agreed that the Muskogee Station is captive to UP, meaning that there is no effective transportation alternative available to OG&E other than using UP. And both parties agreed that the January common carrier rates should not exceed 180 percent of the variable costs of providing that transportation. The central question put to the STB in this case centered on how to calculate the 180 percent revenue-to-variable cost ratio.
   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 decision also ordered UP to set common carrier rates for the next 10 years at the 180 percent 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.
   The utility serves more than 750,000 customers in Oklahoma and western Arkansas. ' Chris Dupin