Freight railroad customers complain about prices, service

About 20% of rail traffic is from shippers served by one railroad and who have no other viable option, Grimm says. Partly as a result of sharp price increases in captive areas, average freight rail rates rose 9% in 2005, the largest jump in 20 years, the GAO said this week.

Shippers also say railroads have improperly passed along much of the price increases in the guise of fuel surcharges that far exceed their actual fuel costs. Miscellaneous revenue, including fuel surcharges, jumped from $141 million in 2000 to $1.7 billion in 2005, the GAO says. In January, the federal Surface Transportation Board, which oversees railroads and is successor to the Interstate Commerce Commission, barred carriers from imposing excessive fuel surcharges.

Among those complaining:

•Utilities. About 500,000 electric customers in Wisconsin, Minnesota, Iowa and Illinois were hit with an $11 monthly bill increase last year after Dairyland Power Cooperative passed on a 93% rate increase from Burlington Northern Santa Fe bni for coal delivery. The wholesaler now pays $75 million a year in rail costs, more than twice the cost of the coal itself, says procurement director Dennis Rackers.

In a statement, Burlington says, "Railroad pricing reflects the value the market attached to the delivered cost of energy," as well as the need for capital improvements.

Arkansas Electric Cooperative says it hasn't gotten a full coal allotment from Union Pacific unp in three years, including a 20% shortage in 2005, says principal engineer Steve Sharp. The gap has forced the power wholesaler to import about 3% of its coal from Indonesia, boosting electric bills, though the USA has the world's richest coal reserves.

Union Pacific's Kathryn Blackwell blames the 2005 shortages on rail closures due to the buildup of coal dust on tracks from mines in the Powder River Basin and says the problem has been fixed. But Sharp says shortages began before 2005 and are still running about 5%.

•Chemicals. DuPont is challenging CSX rate increases of 30% to 176% on seven routes.

Two-thirds of U.S. chemical plants that rely on railroads are served by one carrier, the American Chemistry Council says. In the next decade, 120 chemical plants costing at least $1 billion each are scheduled to be built worldwide — none in the USA. While high natural gas prices in the USA are the main culprit, exorbitant rail rates are the No. 2 factor, says council chief Jack Gerard.

•Grain. About 10 million bushels of wheat piled up in Colorado last month, mainly in single-railroad towns, as rail pickups ran about two weeks late, says Darrell Hanavan, head of the Colorado Association of Wheat Growers.

The state's farmers are paying an extra 40 cents a bushel, or a total of about $30 million, in additional costs to ensure rail pickups, he says.

Hamberger says rail systems aren't designed to handle the peak demands of a harvest: "You don't build a church for Easter Sunday."

Hard to challenge rates

Customers can challenge high rail rates before the Surface Transportation Board, but winning is tough. It costs $178,000 to file a rate case, and a customer must prove it could build a hypothetical railroad without charging as much as its carrier.

A bill by Transportation Committee Chairman James Oberstar, D-Minn., would slash filing fees and create a simpler standard of proof.

The big railroads say the bill would impede their ability to make $135 billion in necessary system upgrades over the next 30 years.

"You would eventually see capital fleeing the sector, like back in the '70s," Hamberger says.

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