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December 2017
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AAR urges STB to consider competition from natural gas in select coal rate cases
Easily available information makes the case for considering indirect competition

The Association of American Railroads (AAR) petitioned the Surface Transportation Board (STB) to initiate a rulemaking that would propose re-introducing indirect competition – specifically product and geographic competition for fuel used to generate power – as a factor to be considered in determining if the STB has jurisdiction to hear rate cases involving the transportation of coal to coal-fired power plants.  The STB has jurisdiction over rail rates only where a carrier is “market dominant” – that is, where it does not face effective competition.  Where railroads face effective competition, current law allows the market to determine the level of rail rates. While previously the STB found it difficult to determine whether indirect competition was present in a given case, AAR noted there now is ample public information that would allow the STB to determine where indirect competition in wholesale power markets exists and whether it effectively puts downward pressure on coal rail transportation rates, particularly given the low price of natural gas in recent years. “Considering that nearly two-thirds of all rate cases brought before the Board over the last 15 or so years involved coal, we believe  the STB should consider the now-easily available evidence in relevant coal rate cases, ” said AAR President and CEO Edward R. Hamberger. “Times have changed, and today more information is publicly available.  Where indirect competition is present, we believe it should be factored into any Board determination of whether to review the level of rail rates for coal.” Prior to 1998, the STB considered indirect competition in rate cases, but that year decided it was too difficult or burdensome to collect the information necessary to determine the effect indirect competition had on rail rates.  The STB eliminated consideration of indirect competition, but the Board acknowledged at that time indirect competition in many cases did exist and had an effect on rail rates. “We’re hopeful that the STB will take note of the additional data that is now available and of the changes in the energy market and consider the petition and propose a rule that would allow parties to present evidence of indirect competition in individual rate cases,” Hamberger added.  “The STB has in the past acknowledged that indirect competition can exist, and the AAR believes that it has effectively addressed the concerns the STB has previously raised.”