STB orders Tongue River Railroad backers to reveal more coal market information – SNL Sept. 10, 2014

September 10, 2014

Categories: Coal, News

By Darren Epps

The STB’s decision addressed a motion filed by coal opponent Northern Plains Resource Council, or NPRC, which asked the agency to require TRRC and two of its owners — Arch and BNSF — to provide more detailed information. In phone interviews, NPRC attorneys celebrated the decision as an opportunity to prove the railroad will not meet financial viability requirements or the public necessity standard.The U.S. Surface Transportation Board ordered Arch Coal Inc. and BNSF Railway Co. to produce additional information regarding coal markets and finances related to the Tongue River Railroad Co. Inc. project in Montana, according to a decision filed Sept. 10.

“It seems this project isn’t going to get rubber-stamped like Tongue River would hope,” NPRC attorney Kenneth Rumelt said. “There’s a real question as to whether investors are willing to put money into this project. If you look at this project, it ultimately depends on how much coal this railroad can transport over it. The coal markets domestically are not that great and the ability to move to foreign markets is significantly constrained. That’s what this is all about.”

Tongue River is proposing to construct a 42-mile rail line to serve coal mines in Montana, including Arch’s proposed Otter Creek mine in the Powder River Basin. Arch owns one-third of the Tongue River project. BNSF and billionaire Forrest Mars own the remaining two-thirds. BNSF would be the sole operator of the new line. The project has been fiercely opposed and incurred numerous delays, the latest pushing back the environmental review of the project to April 2015.

In its ruling, the STB granted NPRC’s request that Tongue River parties produce documents related to projected revenue, expenses and profits for the Otter Creek mine. NPRC also sought documents related to the estimated shipping costs for coal from the mine.

“Information concerning potential production at the Otter Creek mine may be relevant to whether the proposed rail line is inconsistent with the public convenience and necessity,” the STB said in its decision. “While responding to these requests may burden TRRC to some degree, and TRRC may have already produced some responsive documents, the relevance of the requested documents outweighs the burden TRRC claims it would bear.”

The STB rejected NPRC’s attempt to obtain information on potential customers for Otter Creek coal and whether Arch might sell the Otter Creek mine. Arch is still awaiting a draft environmental impact statement for Otter Creek by Montana state regulators and has not identified specific customers for Otter Creek, the STB said. The STB said that, in Arch’s experience, international customers do not purchase coal more than one year in advance.

Arch did not respond to a request for comment. In an email, BNSF spokesman Matt Jones said Tongue River was pleased the STB resolved the discovery dispute.

“The Board agreed in several instances that requests for certain information were overly broad or too attenuated,” he said. “The decision clarifies the scope of discovery and will move the review process forward.”

Tongue River officials also must produce all documents related to the competitiveness of coal carried by Tongue River as affected by natural gas, environmental regulations on coal and the decommissioning of power plants. The STB also granted NPRC’s motion to compel Tongue River parties to produce information about the competitiveness of Otter Creek coal with coal mined in Wyoming.

“Specifically, the question of whether this coal from the Montana PRB would be competitive with the coal from the Wyoming PRB may be relevant to the demand for Montana PRB coal,” the STB said.

Additionally, the STB granted a motion by NPRC to require Tongue River parties to produce documents regarding coal analyses and information on market conditions that pre-date the STB proceeding. The STB also granted NPRC’s motion to compel Tongue River to provide the company’s policies and procedures for authorizing expenditures of funds, solicitation of additional funds from its owners, funds requested or received from the railroad’s owners and actions the railroad is prohibited from taking without authorization from the parent company or the owners of the parent company.

“This ruling gives us most of what we were interested in to build our argument. We got 90% of what we asked for,” NPRC attorney Jack Tuholske said. “We need the basis for their statements. If the coal is going to China, we want to see the basis for that. They still think there’s a market in the upper Midwest. I want to see that. We don’t think they can make a case for either, but we want to know. It’s a huge concern for those folks who have ranched there for 100 years.”

Tongue River has undergone several changes since it was first proposed in 1983. The STB approved a 130-mile line at one point, but the railroad scaled that back to 83 miles following the sale of the company in 2011 to BNSF, Arch and Mars.

In late 2012, Tongue River proposed the 42-mile route and said the shorter mileage would substantially reduce environmental impacts. But the route change has not quelled the fears of local ranchers.

“We shouldn’t condemn land over speculation,” said Jeanie Alderson, a rancher and co-chair of NPRC’s Tongue River Railroad task force. “Now, we get to see the picture as to if there is a market.”

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