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STB orders UP to provide Oklahoma utility rate reparations, reductions

STB orders UP to provide Oklahoma utility rate reparations, reductions

 

Progressive Railroading.com

July 27, 2009

Last week, the Surface Transportation Board (STB) issued a decision that requires Union Pacific Railroad to provide Oklahoma Gas & Electric Co. (OG&E) an estimated $100 million in rate “reparations” and reductions over the next decade.

The utility, which serves more than 750,000 customers in Oklahoma and western Arkansas, has contracted UP to haul about 6 million tons of coal annually from Wyoming's southern Powder River Basin to a power plant in Fort Gibson, Okla. However, after the latest contract expired on Dec. 31, 2008, UP and OG&E could not agree on a new contractual rate.

OG&E asked UP for common-carrier rates, which the utility began paying in January. The utility then challenged the new rates in a complaint with the STB.

Both OG&E and UP agree the power plant is captive to UP and that the common-carrier rates shouldn’t exceed 180 percent of the variable costs of providing transportation. But the STB needed to determine how to calculate the 180 percent revenue-to-variable cost ratio.

The board ruled that the amount of relief owed to OG&E for 2009’s first two quarters ranged from $1.66 to $1.91 per ton in shipper-supplied rail cars, depending on the mine origin. The STB also ordered UP to set common-carrier rates for the next 10 years at 180 percent of variable-costs levels.

The relief to OG&E likely will exceed $10 million annually for the next 10 years based on volumes of 6 million tons per year, the STB said.

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