STB Rate Decision Disturbs Railroad, Shippers

The Surface Transportation Board's decision to order freight rate repayments by Union Pacific Railroad to U.S. Magnesium over some chlorine hauls has triggered an appeal warning from UP and concern from a shippers' group over future rates.

UP criticized the reasoning behind the board's Jan. 28 decision, which was backed by two of the three members but came with a stiff dissent from the third. The railroad said the ruling "constitutes the essence of arbitrary and capricious decision-making. Accordingly, we plan to appeal."

Meanwhile, the Chlorine Institute — whose members produce and distribute that and some other chemicals — worried the STB might open the door for railroad rates to include the costs of installing crash-prevention "positive train control" systems, as required by law, without adjusting the rates for offsetting benefits from that technology.

The STB majority determined that UP's rates were unreasonably high on chlorine gas from U.S. Magnesium's plant in Utah to two destinations in Arizona. Under a fast-track process the board used in this case, the customer can collect no more than $1 million in rate relief and reparations over five years; however, this is the first of three regulatory cases that USM filed against UP.

UP blasted the STB procedures that favored a rate comparison list submitted by the customer and drawn from a broad group of chemicals, over the railroad's list that was tailored around charges for chlorine loads.

The railroad emphasized special risks of carrying chlorine, one of a small group of toxic inhalation hazard materials that can create a poison cloud if released accidentally, and said rates should reflect those risks. But UP said the STB's rate analysis was "a statistically insignificant exercise that produces a toss-up, has no precedent in case law or rules, and contradicts the board's own findings that chlorine carries greater risks."

UP did not directly address the STB's dismissal of the railroad's argument that its rates should also be high enough to cover PTC investments, required where railroads carry such toxic chemicals. The board said it does not usually allow rates to cover expected investment costs, and that UP anyway had not demonstrated which parts of its PTC expense would be for the USM loads.

Frank Reiner, president of the Chlorine Institute, said "we're concerned that the decision views positive train control as a cost to be attributed to TIH shipments in the future."

The Institute, Reiner said, "believes that there will be significant operational benefits to the railroads from PTC implementation," which have been recognized in a study funded by the Department of Transportation. "Operational benefits for the railroads should be part of any future rate considerations."

See also "STB Backs Shipper on Union Pacific Rates."

- John D. Boyd, The Journal of Commerce.