Seminole Electric Co-op and CSX had their day in court on Friday, reports the Washington Examiner.

In this case, it was the three-member Surface Transportation Board. The board did not indicate when they would issue their decision. At issue are rates CSX charges Seminole; Seminole argued it is a captive shipper.

Not so, said CSX, and they went so far to show how Seminole could use ships and barges, and even use another railroad to get coal to its generating plant in Palatka.

Seminole argued CSX’s plans are impractical.

The hearing was held in Washington, D.C. at STB headquarters where STB Chairman Daniel R. Elliott III presided, and was joined by Vice Chairman Francis P. Mulvey and member Charles D. “Chip” Nottingham.

The formal name of the proceeding was Seminole Electric Cooperative, Inc. v. CSX Transportation, Inc., Docket No. NOR 42110. Each side was given 20 minutes to argue its case, and six minutes for rebuttal. Both attorneys avoided what they termed “confidential information.”

Washington attorney Kelvin J. Dowd said Seminole was charged 4.9 mills per ton-mile while other Florida utilities were charged 2 to 3 mills. The numbers appeared on a chart of selected utilities.

He said, “According to CSX, the board ‘need only decide whether some configuration of water transportation could work.’” He said that was not the applicable test, and it would “stretch the inquiry to an unrealistic degree.”

He added, “The correct test is where there are any alternatives sufficiently competitive to bring market discipline to a railroad’s pricing,” and that an alternative does not exist, and “the inquiry should be sharper and even more skeptical.”

He said CSX does not claim there is an alternative to their transportation mode, but that “If Seminole would invest substantially more than $300million in equipment and infrastructure it could create an alternative.”

Dowd suggested CSX outlined an eight-step water delivery system, first coming down the Mississippi River on barges, transloading to ocean-going barges at the southern end of the river, sailing around the Florida Peninsula to the mouth of St. Johns River in Jacksonville, transloading again to river barges, and continuing southward to Seminole.

Dowd said that was impractical because Seminole doesn’t have room on the river to build such a large plant to remove the coal from the barges. He said CSX stated Seminole would have to buy the river barges and no locations currently exist to make the transloads in Jacksonville.

Dowd said emphatically, “We’ve demonstrated that the CSX plan is not operationally feasible, it’s not economically feasible, and there’s no evidence that the alleged threat has constrained CSX’s pricing at all.”

Responding to questions from Nottingham, he said Seminole has used barges in the past, but not for the entire journey.

“For a number of years, Seminole used a barge transport systems for a portion of the routing to Florida. It has never delivered coal by water to the plant,” and has never been able to do so. He said CSX has always delivered coal to the plant. He also noted ocean-going vessels draft at 35 feet, so cannot be used on rivers.

Vice chairman Mulvey noted, “Your client is not the poster child for captivity. You’re located on a navigable waterway for the very reason of having the barge option, and that’s clearly spelled out in the environmental permitting documentation when the facility was opened…. and you’re only three-and-a-half miles from a competing railroad, Norfolk Southern, which has trackage rights into the Palatka Georgia-Pacific plant.”

That plant is located at 215 C.R. 216, west of U.S. 17 and southwest of the Seminole plant. CSX owns the tracks throughout that area.

Mulvey wanted to know why the board should not consider why Seminole should not consider self-help steps to seek competitive options.

Dowd replied, “I don’t believe there is a poster child for captivity. Every situation has to be judged on its own facts and its own merits.” In this case, the important thing for Seminole “was water supply, not water transportation. Its original site certification is for rail delivery.” Water is used to cool towers and comes from the St. Johns River. The plant opened in 1984. 

CSX attorney G. Paul Moates countered “We have a serious problem here today with this case. The problem is stated very simply: In their complaint, Seminole said two lines about market dominance. They said there are no navigable waterways to the plant, and the only way they could ship coal was by rail. We answered and denied that and said absolutely untrue. We’ll demonstrate that there are alternatives.”

Moates noted, “eleven months later… they filed three-and-a-half pages on powerage alternatives dealing with why a marginal alternative is not viable. In our one-and-only filing that we’re permitted to make in a stand-alone cost case… yes, it is a much longer route and there are transloads and certainly there are issues that need to be dealt with, but this utility knows how to deal with them. This should tell you that in the history of this plant it has moved more coal to that plant than by water that is has by rail. This utility spent $100 million to buy its own private barge fleet when it built that plant.”

He said “CSX, in a very aggressive move, essentially helped them buy out of that contract when we first got this business by rail that helped them with such a good rate package that they were able to get out from their barge contract.”

Elliott asked if Seminole’s initial filing was “somewhat of a skeleton product. I think that is a serious concern for the board because the process won’t work if you can’t respond to the full argument.”

He asked if the rates charged were not evidence of market dominance in itself.

Moates replied, “No. because of that contract I referred to, it was a very low rate.”

He did not specify what the rate was.

“Over the period of that contract, the rate got lower and lower compared to the other utilities in Florida, compared to what the market was doing. By the time their contract expired, they were way below the market in Florida, and CSX attempted to negotiate with them for a new contract at a higher rate – I won’t say it was as high as the rate being challenged here today. I don’t think the board will be shocked to know that railroads typically will make a better rate in a contract than they will in a common carrier rate because there are other items in a contract – volumes, deals on equipment, deals on scheduling; lots of other things [including] refunds – so with all respect, I don’t think so. Our belief is that we brought their rate up much closer to the market for other Florida utilities…. They are now higher than they were, no doubt about that, but in our reply you’ll see a chart that they went from the very lowest delivery cost… to about the middle of the range.”

On what he termed a fundamental fairness point, Moates reiterated Seminole’s three-and-a-half pages on why barges would not work, “On rebuttal, they put in 133 pages. We have literally no chance to respond to that other than to brief and my obviously inadequate efforts here today. I’m not on that; I’m not testifying. I’m a lawyer arguing for the record.”

Moates said, “You were very clear on your market dominance rules to say that party with a burden of proof must put in all of its evidence in its opening case.… They didn’t do that – they didn’t come close to doing that. If you allow them to get away with that that you’re going to give a signal to other complainants that it is not going to be a helpful and fair one.”

Elliott said the STB will take the case under advisement.

(The preceding article was published by the Washington Examiner.)