Western coal producer seeks regulator intervention against BNSF

May 25, 2023

A proceeding before the Surface Transportation Board is raising questions about how a Class I rail carrier should define adequate service under the common carrier obligation.

It comes at a time when some shippers, rail unions and some members of Congress are calling for STB to provide more clarity on the federal guideline. Per federal regulations, the common carrier obligation binds railroads to carry freight, provided that the tendered agreement has reasonable terms and conditions.

In the proceeding involving Navajo Transitional Energy Co. (NTEC) and western U.S. railroad BNSF (NYSE: BRK.B), one of the issues is what adequate service should look like in situations in which network capacity might be constrained.

NTEC wants STB to enact an emergency service order against BNSF because the company claims that BNSF is not meeting its end of the bargain to ship the volumes of coal that NTEC wants shipped.

NTEC is seeking to transport export coal from its Spring Creek mine in Big Horn County, Wyoming, to Westshore Terminal, located at Roberts Bank in British Columbia. The company says it needs BNSF to guarantee that it will provide service so that NTEC’s customers can have sufficient time to arrange for the ocean transport of the coal.

The company, which has offices in Broomfield, Colorado, and Farmington, New Mexico, and is also an electric utility, asked STB to rule that BNSF breached its obligation to provide adequate common carrier service and that it failed to establish and provide safe and adequate service, according to an April 14 filing. The coal producer is asking STB to define the scope of BNSF’s common carrier obligation as well as provide relief.

NTEC acquired the coal assets of Cloud Peak Energy in 2019, after Cloud Peak filed for bankruptcy. The Spring Creek mine produces sub-bituminous thermal coal, and NTEC expects to ship approximately 5.5 million tons for export in 2023.

“Any BNSF service failures directly impact NTEC’s ability to serve those customers and harm the perception and reputation of NTEC as a reliable supplier in the export market,” attorneys representing NTEC said in the April filing. “If BNSF does not provide reasonable rail service consistent with NTEC’s historical and current needs and chooses instead to favor other export coal producers relative to NTEC, then NTEC will face significant and perhaps insurmountable impediments to its ability to market coal successfully going forward. Simply put, customers in Japan and Korea may choose to purchase their coal supplies from the entity or entities that BNSF elects to favor with more reliable rail transportation service.”

NTEC argues that BNSF began to fall short of NTEC’s requirements to transport export-bound coal in the spring of 2022, thus breaching their contract. NTEC subsequently filed a suit against BNSF in the federal courts last December.

In a May 5 filing to the board, NTEC said: “NTEC remains deeply concerned that — absent ongoing, direct attention from the Board — BNSF ultimately may not honor this revised service estimate or may provide unacceptably low train-count estimates and/or service for July or thereafter… Simply put, BNSF only continues to reinforce to NTEC that it will serve NTEC’s export coal traffic at its sole convenience and discretion.”

But BNSF countered in recent filings that an emergency service order is not warranted because its use should be only for true emergencies.

“It is one thing for shippers to face the prospect of losing rail service altogether — such a threat implicates the public interest in ‘access to rail transportation’ entirely. It is quite another thing for a shipper who is already receiving the same or elevated service compared to historic levels to seek a particular incremental level of service or to be put ahead of other shippers in receiving rail transportation service,” attorneys representing BNSF said in a May 5 filing. “A shipper’s desire for additional service on a line to take advantage of market opportunities, as here, clearly falls short of such a public emergency.”

Furthermore, implementing an emergency service order could adversely affect other rail shippers, including other coal producers, BNSF said.

“The pleadings implicate a complex set of facts and competitive relationships involving multiple BNSF coal shippers and a Canadian export terminal operator, as well as coal and non-coal transportation to an important region of the country, all of which use the same common resources as NTEC’s shipments,” BNSF said in an April 17 filing.

BNSF also said legal precedent allows for some discrepancy over how a railroad handles rail service requests under the common carrier obligation because of external factors that can complicate rail shipments.

“Because the inquiry of what constitutes reasonable service focuses on all of the facts and circumstances surrounding the transportation, there is no particular level of service that can constitute an objective, constant standard for adequate service on a month by month basis,” BNSF said. “That is because facts and circumstances vary, markets change, volumes rise and fall, weather fluctuates, and there are not necessarily constant levels of service that would be reasonable every month.

“There are also a number of court and agency cases addressing the scope of a railroad’s common carrier obligation in times of constrained capacity, i.e., when all requests for service are not capable of being fully met with existing resources. The principle that has clearly emerged is that a railroad need not provide additional capacity to meet peak demand. A railroad must have sufficient ability to meet average demand for the services it holds out to the public, but it need not have all capacity necessary to meet peak demand.”

BNSF also said, “To be absolutely clear, BNSF has never taken the position that BNSF can refuse to provide service upon reasonable request from a shipper.”

Countered NTEC on May 16: “BNSF’s latest filing only reinforces NTEC’s grave concerns that, absent Board action and oversight, BNSF will continue to self-define its common carrier obligation and other obligations it owes this Board and the public, while denying NTEC its reasonably requested common carrier service.”

Other coal companies weigh in

At least three coal companies said they are watching the proceeding, in part because they say granting an emergency service order to NTEC could affect their ability to ship coal.

The Crow Tribe of Crow Agency, Montana, said it has been in talks with BNSF since July 2022 to export coal to Westshore Terminals, but BNSF has told the tribe that it would not be able to commit to servicing the tribe until the second quarter of this year.

“I write to express our deep concern that an Emergency Service Order entered by the Board could significantly impact our plans to begin exporting coal as early as 2Q 2023 as well as our ability to trade in the export coal market,” said C.J. Stewart, an energy director for the Crow Tribe, in a May 5 filing to the board. “As such, I urge the Board to carefully consider such competitive impacts in evaluating NTEC’s request for an Emergency Service Order and to take no action that would limit our ability to export Crow coal as early as Q2 2023 and into the future.”

Global Coal Sales Group of Dublin, Ohio, also shared the Crow Tribe’s concerns. Global sells and transports coal from the Signal Peak mine in Roundup, Montana, for Signal Peak Energy.

“An Emergency Service Order resulting in BNSF shifting resources from the transportation of Global’s coal for export would have significant economic, operational, and safety impacts on Global. … Unlike other export coal shippers, Global is almost exclusively dependent (over 95%) on the export market. The majority of Global’s coal is sold through long-term, fully committed contracts with Japanese customers that are dependent upon Global’s secured rail and port capacity,” said Steven J. Read, Global president, in a May 5 filing. “An Emergency Service Order that favors one of our competitors at Global’s expense would jeopardize Global’s ability to meet its obligations under its port and customer contracts, creating significant legal and financial implications for Global.”

Meanwhile, Arch Coal, which uses BNSF to transport coal from its Black Thunder mine in Gillette, Wyoming, said in a May 10 filing: “Arch has experienced impacts similar to the Navajo Transitional Energy Company, LLC (‘NTEC’) related to BNSF service deficiencies, and Arch has serious concerns about how an emergency service order could impact its rail service, which has been erratic over the past two years and is only now beginning to show signs of improvement. Consequently, it urges the Board not to issue any emergency service order that would negatively impact its rail service.”

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