Consumers Energy vs. CSX

[railohio]

1. Consumers and CSXT are directed to meet and confer on the discovery issues raised in Consumers’ motion to compel discovery. The parties are further instructed to report to the Board by April 10, 2015, on the status of these discovery issues and whether there are any outstanding issues from the motion to compel discovery that cannot be resolved by the parties.

On January 13, 2015, Consumers Energy Company (Consumers) filed a complaint challenging the reasonableness of rates established by CSX Transportation, Inc. (CSXT) for unit train coal transportation service in shipper-supplied rail cars to Consumers’ generating station near West Olive, Mich., from CSXT’s established railroad interchange with BNSF Railway Company in the vicinity of Chicago, Ill. Consumers alleges that CSXT possesses market dominance over the traffic and that CSXT’s rates are unreasonable under both the Stand-Alone Cost constraint and the Revenue Adequacy constraint. CSXT filed its answer to the complaint on February 2, 2015.[1] The Board entered a protective order in this proceeding on March 18, 2015.

Source and background: http://www.stb.dot.gov/decisions/readin ... enDocument

[CSX_CO]

1. Consumers and CSXT are directed to meet and confer on the discovery issues raised in Consumers’ motion to compel discovery. The parties are further instructed to report to the Board by April 10, 2015, on the status of these discovery issues and whether there are any outstanding issues from the motion to compel discovery that cannot be resolved by the parties.

On January 13, 2015, Consumers Energy Company (Consumers) filed a complaint challenging the reasonableness of rates established by CSX Transportation, Inc. (CSXT) for unit train coal transportation service in shipper-supplied rail cars to Consumers’ generating station near West Olive, Mich., from CSXT’s established railroad interchange with BNSF Railway Company in the vicinity of Chicago, Ill. Consumers alleges that CSXT possesses market dominance over the traffic and that CSXT’s rates are unreasonable under both the Stand-Alone Cost constraint and the Revenue Adequacy constraint. CSXT filed its answer to the complaint on February 2, 2015.[1] The Board entered a protective order in this proceeding on March 18, 2015.

Source and background: http://www.stb.dot.gov/decisions/readin ... enDocument

Ah yes. The good ole electric utilities crying about lack of access to competitors, and having to pay the established rates. Funny how they have no problems forcing their customers to do the same thing, while not allowing 'open access' to the electrical grid, so *I* can shop around for the best rates. Such hypocrites.

[NYCMan]

I am sorry to say, Mr. CSX_CO, that you are very off base on your comment. Public utilities in Michigan have competition: electric, telephone, gas, and cable. The competitive utility carriers have not come to all areas yet, but their "footprints" are expanding. At my home, I can get LOCAL telephone service from any of 7 different Competitive Local Exchange Carriers (CLECs). I can get electric from 3 different utilities. And, I can get gas from 2 different companies.

Did you know that if you generate your own electricity that the electric utilities, by law, must buy your excess power? That is part of the reason that wind generation farms were in the new a couple of years back.

And, as far as railroad rates are concerned, the railroads will generally charge as much as they can get. In the 4 decades that I worked on the railroads, I never understood how rates were arrived at, because they never made any sense. For example, a ton of gonkulators could ride the rails for $X, but a ton of widgets would be charged $Z. Why? It takes the same effort and expense for a railroad to move a ton of whatever, so it makes little sense that different rates get charged to different commodities. It all boils down to that the railroads can do it and have done it since the days of Adam and Eve.

[Super Chief]

Well NYCman must have a unique situation. The onlty gas company in Three Rivers is Semco, only phone compsny is Frontier they suck and the only power company is Midwest Energy. They promised high speed internet 40 years ago to date nothingbut a lot of money spent for what. They sign 35 year agreements for purchased power from Wolverine in Cadillac after 30 years with Wabash Power in Indiana. No incentive to get cheaper power for 35 years when the MPSC lets them do it.Wolverine cancelled the Rogers City powerplant so no coal trains there. They just got permission for a peaker plant gas fired in Gaylord and wantt to upgrade Marquette Mi. power plant for Wisconsin Electric. These people have somebody else in mind not the customers. Nuf said.

[hoborich]

And my personal favorite, the Uncollectible Surcharge, wherein they charge the customers who pay, for the ones who don't. It's a win/win game for the utilities.

[chapmaja]

I found something interesting. TO has a thread on this. One of the items posted apparently is the costs of the contract as supplied in the STB filing.

CSX is making a ton of money on the coal hauls.

The rate from Chicago to West Olive appears to be $14.95 per net ton. With train lengths of 130 cars coming from BNSF that is a lot of money worth of coal train haulage.

If the cars are 286,000 pound cars, the weight of the coal is roughly 220,000 pounds, or 110 tons. The train would have a weight of 37.18 million pounds or 18590 tons. The load weight would be 28.60 million pounds or tons, 14300 tons. If the charge from 22nd St in Chicago to West Olive is $14.95 per ton, that train alone is making $213,785 in revenue for CSX.

According to Consumers, the plants use 6 million tons of coal per year, all of which arrives by rail IIRC. I am speculating here, but given the information on the Consumers site, I would say 5 million tons in western and 1 million is eastern coal. If CSX is bringing in 5 million tons of western coal, that would be approximately 349 train loads of western coal. If the revenue per train load is about what I stated above, the total revenue for the CSX portion of the haul, at $14.95 per ton is 74.75 million dollars. This doesn't include the 1 million tons of eastern coal, which follows a mostly if not all CSX routing. I think the cars are slightly smaller, so lets say 100 tons per car in a 100 car train, so 10000 tons per train. This would mean 100 eastern coal trains. Given the mine origins, and the costs of transportation listed, you are looking at somewhere between 26 and 39 million dollars (1,000,000 tons at 26-39 per ton based on origin.)

Does CSX really run that much eastern coal to West Olive? I don't recall seeing or hearing of many coal trains heading west through Howell. Are they running coal a different routing, or is the consumers infor out of date and they are not using much eastern coal at W. Olive.

Either way, I think this would explain why CSX would have no desire to dispose of the Plymouth Subdivision. They are making a lot of money on the coal hauls.

[Saturnalia]

It is easily 90% western I'd guess.

Not sure how accurate all that figuring is, but let's not forget the costs the railroad must incur to move that.

Surely, if one looks at a railroad's monetary reports, you find the profit is small compared to the revenue. So much overhead.

[chapmaja]

It is easily 90% western I'd guess.

Not sure how accurate all that figuring is, but let's not forget the costs the railroad must incur to move that.

Surely, if one looks at a railroad's monetary reports, you find the profit is small compared to the revenue. So much overhead.

There is a lot of costs, but the western coal is making CSX a lot of money running Chicago to West Olive. Let's not kid ourselves. Even with substantial overhead, that traffic is making a lot of money for CSX.

I don't know how much the crew gets paid, but I would guess Chicago to West Olive is a two crew trip (or it should be at least, but it is Chicago). That's 4 crews when we consider the returning empties. A train per day, which is close to what CSX is running based on my numbers, means a lot of revenue for the crews. CSX's portion of the fuel cost is substantial, but the total on CSX rails is roughly 330 miles lets say.

Assuming the fuel economy is 400 miles per ton per gallon of fuel.(slightly less than CSX's claims of 450-500). This means the coal, from the interchange to West Olive runs roughly 200 miles on CSX rails. If I did the math correctly (and I'm not sure I did), the train would use 7150 gallons of fuel, or a cost of $21,450 ($3 per gallon). That cuts into revenue some, but still leads to a lot of profit for the railroad for that trip.

[SD80MAC]

Usually 2 crews for the loads and 1 for the empties between Chicago and West Olive.

[Raildudes dad]

Apparently locomotives are free, their maintenance is free, track gangs are free, signal upgrades are free, pushers are free, they don't use any fuel, the property is tax free. Really guys, I really don't think the coal trains are the cash cows you think they are, profitable yes.

[chapmaja]

Apparently locomotives are free, their maintenance is free, track gangs are free, signal upgrades are free, pushers are free, they don't use any fuel, the property is tax free. Really guys, I really don't think the coal trains are the cash cows you think they are, profitable yes.

Please note, I said revenue not profit.

Yes, those things cost money, but CSX is making a lot of money on these trains. Even when you take out the cost of the power, the track maintenance and other costs, there is a lot of profit to be made. Please note, I have already addressed the idea of fuel as well, based on CSX's own published figures.

Let's also not forget that all of the costs you mention are not along covered by the coal trains, but also by the other traffic that uses the same railroad tracks. All of these costs are spread over EVERY revenue carload and every locomotive on the system.

Simply put, the coal running from BNSF in Chicago to West Olive is making CSX a ton of revenue. This operation has to be very cash positive for the railroad, and covers expenses elsewhere on the railroad where things are not as profitable.

Let's look at crew costs for a second. Per the comment above, CSX is paying for 3 crews total for these trains (2 for loads, 1 for empties). I don't know what the average crew member makes, but based on the information I can find, the salaries for an engineer range up to 100K and the conductor up to 60K. This means a 2 person crew costs the railroad 160K in salaries. Add in another 50K in benefits and we are looking at the costs for the operating crew of 210K per year. With 3 crews per round trip, we are looking at roughly 610K in costs. Now, sometimes these normal crews don't get all the work, so let's up the total to 5 crews working these trains, to cover OT, other issues. The crew costs for these trains, assuming 2 person crews is about 1 million per year. Out of revenue in the vicinity of 70 million, there is still a bunch of profit. Even if the costs of maintenance are $100,000 per mile, we are looking at maybe 20 million per year for this line. Now considering the fact this line not only sees coal trains, but also daily freight traffic which shares in the costs, the simple fact is CSX is still making a lot of money on these coal trains to West Olive. Any way you slice it, CSX is making a nice chunk of change on this line.

[chapmaja]

One more thing.

We are talking about the trains to West Olive making money in large part because of volume. Currently, by my estimates there are 300 or so trains running per year to this plant complex. That means roughly 39000 carloads. CSX is making money because they are running a large volume of loads over this section of track. The revenue per car is still pretty nice, based on these rates, but isn't spectacular. Where they are making the money is the fact they are running 39,000 carloads per year.

Would this be as profitable if it was a stand alone run without any other traffic also using the line? No. All the traffic which runs over the line from Holland to Chicago shares in the cost of maintaining the tracks. All of the trains from Muskegon to Holland (Michigan Shore), that use the West Olive to Holland portion of the line are paying a part to maintain the tracks. When you consider the total number of carloads on this line, the amount of costs per carload substantially decreases.


How many carloads of other unit train traffic and general freight are run between Holland and Chicago each year. I suspect the 39000 carloads plus of coal are possibly only about half the cars per year covering the line.

[Saturnalia]

How you account for maintenance and whatnot gets tricky based on how you spread it out and whatnot. Basically, some things make a profit, some things don't depending on how you account for it. At the end of the day, if the bottom like is black, I guess it all worked.

[chapmaja]

How you account for maintenance and whatnot gets tricky based on how you spread it out and whatnot. Basically, some things make a profit, some things don't depending on how you account for it. At the end of the day, if the bottom like is black, I guess it all worked.

Can't argue with that, you can bet the CSX and Consumers will be arguing it. CSX will say the coal trains kill the tracks and Consumers will point out the other traffic on the majority of the line.

I heard from a business leader once "You can manipulate anything to make it look profitable or not profitable if you want to."

[Saturnalia]

How you account for maintenance and whatnot gets tricky based on how you spread it out and whatnot. Basically, some things make a profit, some things don't depending on how you account for it. At the end of the day, if the bottom like is black, I guess it all worked.

Can't argue with that, you can bet the CSX and Consumers will be arguing it. CSX will say the coal trains kill the tracks and Consumers will point out the other traffic on the majority of the line.

I heard from a business leader once "You can manipulate anything to make it look profitable or not profitable if you want to."

Well it is like Amtrak and their "profitable" Acela. They neglect to tell you that they make the OTHER NEC trains shoulder all of the trackwork and whatnot. The Acelas thus have less operating costs, so their revenues cover them. I'm sure if they shifted all costs from the NE Regionals onto the other trains, they could be profitable, too.

[Doktor No]

Standard lawyer type excercises that helps them keep their jobs. Make a lot of noise, throw around a lot of paper, book a few trips on Das Plane and call it good after awhile. All the major shippers/recievers do it to all the major railroads, always have and always will.
Just watch the trains go by and forget about the heavy stuff. Just gets you aggrivated for no reason. I have $200K in stock in the frikkin company and it doesn't bother me.
C'est la vie.

[Raildudes dad]

$14.95 / ton for the loaded 200 miles is $0.075 / ton mile
CSX has a published rate for 100 tons of lumber from Birmingham AL to GR (730 miles) for $6500. That rate is $0.089 / ton mile KittyLitter has it figured out

Standard lawyer type exercises that helps them keep their jobs. Make a lot of noise, throw around a lot of paper, book a few trips on Das Plane and call it good after awhile. All the major shippers/receivers do it to all the major railroads, always have and always will.
Just watch the trains go by and forget about the heavy stuff. Just gets you aggravated for no reason. I have $200K in stock in the frikkin company and it doesn't bother me.
C'est la vie.

[JStryker722]

$14.95 / ton for the loaded 200 miles is $0.075 / ton mile
CSX has a published rate for 100 tons of lumber from Birmingham AL to GR (730 miles) for $6500. That rate is $0.089 / ton mile KittyLitter has it figured out

Standard lawyer type exercises that helps them keep their jobs. Make a lot of noise, throw around a lot of paper, book a few trips on Das Plane and call it good after awhile. All the major shippers/receivers do it to all the major railroads, always have and always will.
Just watch the trains go by and forget about the heavy stuff. Just gets you aggravated for no reason. I have $200K in stock in the frikkin company and it doesn't bother me.
C'est la vie.

Lets do simplified money math.Times $.075 by 110 to get $8.25/car-mile...dang! Times that by say 130 cars for a typical coal train and CSX is making $1072.50 for every mile it hauls the train.This comes out to a minimum of $214,500 for every run before surcharges and all that kick in!consider that it was stated above it costs $1 million/year in crews to operate it,you only need 5 loaded trains to make it profitable.the other 295 trains a year creates a minimum of $63,277,500 in profit. I know it takes $1 million/mile to build track,so lets say it takes $250,000/mile to maintain the good track for 200 miles to West Olive. That's $50 million/year. The profit from the coal trains alone more than cover that stretch of track!throw in locomotive maintenance and car maintenance for the Grand Rapids subdivision and just the coal trains pay for most of the whole operation on the Grand Rapids subdivision.The other freight trains only need to pay for the rest of it and a good chunk of the rest of the revenue from the general freights is pure profit.

[Saturnalia]

Don't forget, they only get paid loaded, too.

[JStryker722]

Don't forget, they only get paid loaded, too.

Well then if it is not 300 loaded trains a year but 150 loaded and 150 empties,just cut my estimate revenue numbers in half.that still pays for a substantial portion of costs on the Grand Rapids subdivision.