Coal Companies Say Railroad Monopoly Is Driving Up Electric Bills Nationwide

WASHINGTON - - Two major railroads profited from deregulation by fixing freight prices for coal and other goods, driving up consumers' electric bills and imposing "broad adverse effects on the national economy," coal and petroleum coke mines say in a federal antitrust complaint.

Oxbow Mining claims that Union Pacific and BNSF Railway colluded with nonparties CSX Transportation and Norfolk Southern Railway to take advantage of a deregulated railroad industry and fix prices for freight.

"Between July 2003 and June 2007, the defendants increased their market capitalization from approximately $40 billion to approximately $105 billion, or an increase of about 160 percent," the complaint states.

Congress deregulated the railroads in 1980 with the intention of introducing competition, but Oxbow says the railroads have "abused the freedoms granted them by deregulation in a number of ways."

One way is through a price-gouging fuel surcharge that is unrelated to actual fuel costs, Oxbow says.

"That surcharge yielded enormous revenues to the Railroads, far in excess of the actual costs for fuel incurred by the Railroads. UP boasted to its shareholders that its revenues from this surcharge were over $1 billion in 2005," according to the complaint.

As a direct purchaser of rail freight services, Oxbow says it has paid more than $30 million in wrongfully imposed fuel surcharges. All six named plaintiffs are Oxbow entities, or operate out of Oxbow's West Palm Beach address.

Oxbow says the defendants also collude to raise prices by controlling where coal is shipped and the route by which it's sent. This drives up the cost of coal and "causes the public to pay inflated prices for electricity and other products," according to the complaint.

Before deregulation, freight rates had to be published in tariffs filed with the Interstate Commerce Commission. The 1980 Staggers Act deregulated the industry, which allowed railroad companies to establish contracts without review by the Commission.

Congress replaced the ICC in 1995 with the Surface Transportation Board, which Oxbow says had even more restricted powers to oversee shipping rates.

Only seven Class I railroads operate in the United States today, and Union Pacific and BNSF, along with CSX and Norfolk Southern Railroad, control the "vast majority" of freight shipments, Oxbow says.

"UP has arrogantly boasted of its monopoly, of its control of shippers and other customers, and of its billions of dollars of excessive profits," Oxbow claims.

United Pacific and BNSF have unjustly profited by the fact that shipping coal by trucks or barges are not economically feasible options, Oxbow says.

"UP's monopoly power in rail shipment and rail shipment of coal in the Western United States is evidenced by its market shares in excess of 70 percent in the Western United States and close to 100 percent in the Western United States in conjunction with BNSF," the complaint states.

Oxbow says that when it ships coal from, for example, the Powder River Basin of Montana and Wyoming, it must choose between United Pacific and BNSF. And it says that United Pacific won't ship Oxbow coal west, so the company does not compete with BSNF customers.

"As a result of defendants' anticompetitive conduct, the defendants received increased profits that were not attributable to any changes in their costs. In fact, by 2008, UP's average revenue per carload had 54.5 percent over what it was in 2004 and its overall revenues for coal shipments from Colorado/Utah increased [by] over $300 million during that period," Oxbow claims.

Oxbow seeks treble damages for violations of the Sherman Act.

Its lead counsel is John Gerstein with Troutman Sanders. Boies, Schiller and Flexner is co-counsel.


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