BEFORE THE SURFACE TRANSPORTATION BOARD FINANCE DOCKET NO ARKANSAS ELECTRIC COOPERATIVE CORPORATION PETITION FOR DECLATORY ORDER

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1 BEFORE THE SURFACE TRANSPORTATION BOARD FINANCE DOCKET NO ARKANSAS ELECTRIC COOPERATIVE CORPORATION PETITION FOR DECLATORY ORDER Reply Verified Statement Of Thmas D. Crwley President L.E. Peabdy & Assciates, Inc. On behalf f Westem Cal Traffic League And Cncemed Captive Cal Shippers Date: April 30,2010

2 -/- TABLE OF CONTENTS PAGE L INTRODUCTION 1 IL SUMMARY AND FINDINGS 2 IIL COAL CONTRIBUTION ANALYSIS 4 IV. BNSF AND UP COAL SERVICE FOR COAL SINCE LIST OF EXHIBITS EXHIBIT NO. (1) EXHIBIT DESCRIPTION (2) _(TDC-4)' Graph f BNSF/UP Cal Revenues and Cntributin t 2008 ' Exhibit N_(TDC-l) thrugh Exhibit N_(TDC-3) were included with my Opening Verified Statement in this prceeding filed n March 16, 2010.

3 I. INTRODUCTION My name is Thmas D. Crwley. 1 submitted a Verified Statement in this prceeding n March 16, 2010 n behalf f the Westem Cal Traffic League and the Cncemed Captive Cal Shippers ("Cal Shippers"). My qualificatins are set frth in my earlier Verified Statement. The BNSF Railway Cmpany ("BNSF") submitted its Opening Evidence n March 16, BNSF states that cal dust is increasing csts n the rail lines fthe Orin Subdivisin^ in the Pwder River Basin ("PRB") and "...such extrardinary maintenance f way activities

4 n. SUMMARY AND FINDINGS In its Opening Evidence, BNSF claims that it cannt cntinue t prperly maintain the cal lines in the PRB thrugh traditinal methds. BNSF's slutin t the maintenance prblems it has raised is t frce shippers t reduce the cal dust frm the trains. 1 d nt agree with BNSF's claims that it cannt maintain the cal lines with fraditinal methds r with BNSF's slutin t the perceived prblem. After a review f BNSF's Opening Evidence as well as ther publicly available data, 1 cnclude that BNSF and UP currently receive sufficient revenues frm cal shippers t maintain the rail lines in the PRB, even at the maintenance levels suggested by BNSF's witnesses in this prceeding. In additin, while BNSF has asserted that increased maintenance due t cal dust has caused trains t slw and has reduced rail capacity, several perating statistics indicate that BNSF and UP cal service has steadily imprved since the 2005 derailments. My specific bservatins and cnclusins, as discussed in mre detail in the remaining sectins f this Verified Statement, are as fllws: 1. Increased traffic levels, including the grwth in PRB cal traffic, will nrmally cause increased csts related t maintenance-f-way. Hwever, increased fraffic levels als create grwth in revenues which can be utilized t pay fr the increased maintenance csts as well as any additinal capital csts fr increasing capacity n the rail lines. 2. In 2005, BNSF and UP's cmbined revenue fr cal equaled $5.18 billin. By 2008, the cmbined cal revenues fr the BNSF and UP equaled $7.96 billin, an increase f $2.78 billin; 3. Between 2005 and 2008, the BNSF and UP's cmbined variable csts t handle its cal traffic increased frm $3.67 billin t $5.78 billin, an increase in variable csts f $2.11 billin. These increased variable csts include thse "extrardinary csts" that the BNSF and UP incurred t maintain the cal rutes, including the rail lines in the PRB;

5 4. BNSF and UP's cnfributin frm the cal it transprts, as defined by revenues less variable csts, increased frm $1.52 billin in 2005 t $2.18 billin in 2008, an increase f $0.67 billin. 5. BNSF and UP have nt experienced any significant derailments n the PRB Jint Line since the derailments in Even with slw rders and delays assciated with maintenance, BNSF and UP have experienced increasing average train speeds fr cal service. Between 4Q06 and 4Q09, BNSF's average speeds fr cal trains increased frm 18.1 miles per hur ("mph") t 23.5 mph, an increase f 30 percent. Fr UP, the average speeds fr cal trains between 4(J06 and 4Q09 increased frm 20.9 mph t 26.0 mph, an increase f 24 percent. 6. The UP has als decreased the average dwell times at its majr cal yard in Nrth Platte. Between 2005 and 2009, the average dwell time at UP's Nrth Platte East Yard decreased 8 percent, frm 28.4 hurs t 26.1 hurs. Fr UP's Nrth Platte West Yard, the average dwell time between 2005 and 2009 decreased frm 33.9 hurs t 28.9 hurs, a decrease f 15 percent. These reductins in dwell times are anther factr that allws UP t transprt mre gds withut adding capacity. The details supprting my cnclusins are discussed in the remainder f this Reply Verified Statement.

6 III. FEASIBILITY OF TRADITIONAL MAINTENANCE TECHNIOUES The maintenance issues discussed by BNSF (and UP) are nt unique t the PRB. Increased traffic levels, including the grwth in PRB cal traffic, will cause increased variable csts related t maintenance-f-way. The increased need fr maintenance can als cnsume the capacity f a rail line. At this level f the discussin, I d nt disagree with BNSF. Hwever, where I disagree with BNSF is in the capability f viable, traditinal maintenance-f-way techniques t maintain the cal lines and the railrads' ability t cver the increased csts. As nted in the Verified Statement and Reply Verified Statement f Cal Shippers' witness Richard McDnald, the PRB rail lines can be prperly maintained with traditinal techniques. BNSF has sufficient resurces t prvide fr the required maintenance. Frm a financial perspective, increased traffic levels als create increased revenues which can be utilized t pay fr the increased maintenance csts as well as any additinal capital csts assciated with increasing capacity n the rail lines. The BNSF's claimed difficulties with maintenance and capacity issues ignre the fact that BNSF (and UP) bth receive vast revenues fr shipping cal ver the PRB rail lines. The revenues received by the railrads cver the variable maintenance and incremental rad prperty investment assciated with transprting the traffic as well as prviding substantial cntributins t each railrad's fixed csts and prfits. With this cntributin, it is feasible fr BNSF and UP t maintain the rail lines using traditinal techniques and add capacity where needed. BNSF states that because f cal dust frm railcars, it is nw required t perfrm extrardinary measures t prperly maintain the cal lines in the PRB. BNSF's Mr. Fx acknwledges that "[sjince the 1970's, BNSF and its predecessr Burlingtn Nrthern has had

7 t deal with cal dust accumulatins n the right f way."^ The issue that makes the PRB unique is nt that cal dust is accumulating but rather, the amunt f cal dust. The amunt f cal dust is nt unexpected because as BNSF recgnizes the "PRB rail lines are amng the highest vlume rail lines in the wrld."^ The vlume that BNSF and UP transprt ver the PRB rail lines necessitates higher levels f maintenance fr all items, nt slely the type f maintenance (e.g., undercutting ballast) that is related t cal dust. BNSF asserts that traditinal maintenance-f-way techniques are nt sufficient t prperly maintain the PRB rail lines. BNSF's witness Craig Slggett, details sme fthe "extrardinary maintenance effrts" that BNSF perfrms n the PRB lines.* The effrts described in his Verified Statement include: 1. Mre frequent undercutting (page 7); 2. Shulder ballast cleaning (page 8); and 3. Vacuum trucks t pick up cal dust (page 8). In rder t evaluate the funds available t BNSF and UP t pay fr maintenance-f-way csts and additinal capital expenditures t increase capacity, 1 have evaluated the cntributin that BNSF and UP receive frm cal. My analysis summarizes the cal revenues reprted by the railrads t the STB fr 2005 thrugh 2008.^ 1 als calculated the aggregate variable csts fr the cal shipped by BNSF and UP fr the same time perid. The average service units fr westem cal (net lad per car, cars per train, etc,) were determined frm the STB's public use waybill sample. Variable csts fr 2005 thrugh 2008 fr the BNSF and UP were calculated * V.S. f Gregry C. Fx, page 2. It is wrth nting that Mr. Fx, at page 6 acknwledged that BNSF "...has never claimed that cal dust was the sle cause fthe derailments..." in May 200S. ^ BNSF Opening Evidence, Cunsel's Summary f Evidence and Legal Argument, page 9. ' V.S.fSlggett, page6. ^ While BNSF and UP riginate cal frm regins ther than the PRB, the vast majrity fthe cal handled by these tw railrads riginates in the PRB.

8 using the STB's URCS unit csts.* The cntributin in the analysis belw is calculated after the railrads have cvered the csts t perfrm the maintenance activities and paid fr the incremental rad prperty investment required fr the high vlume f cal, even if extrardinary effrts were needed due t cal dust. Table 1 belw summarizes the results f my analysis. Table 1 1 Cmparisn f BNSF and UP Revenues and Cntributin fr Cal t Year 0) Aeereeate Amunt fr Cal fmillini 1 Variable Revenues (2) Csts (3) Cntributin 1/ (4) 2005 $5,183 $3,668 $1, $6,066 $4,094 $1, $6,557 $4,691 $1, $7,964 $5,780 $2,184 1/ Clumn (2) minus Clumn (3). ' The STB and railrads have recgnized that the STB's system average Phase III csting prcedure that is utilized t determine the jurisdictinal threshld in maximum rate cases verstates the railrads actual mvement specific variable csts. T recgnize this difference, I have applied the relatinship fthe mvement specific csts t Phase III system average csts fbr this cntributin analysis. The relatinship I use is based n the mvement specific csts develped in the last tw STB prceedings (TMPA and WPL') befre the STB switched t system average csting. A cmparisn fthe mvement-specific variable csts fr shipper-wned railcars in the STB's May 9, 2002 decisin in WPL t Phase III system average csts indicates that mvement-specific csts are 83.6% f system-average csts. A cmparisn fthe mvement-specific variable csts fr railrad-wned railcars in the STB's March 21, 2003 decisin in TMPA t Phase III system average csts indicates that mvement-specific csts are 82.8% f system-average csts. In my analysis fthe variable csts fr BNSF and UP cal traffic, I have applied the rati f 83.6% t cal traffic mving in shipper-wned equipment and 82.8% t cal traffic mving in railrad-wned equipment.

9 The Table 1 results abve are shwn graphically in Exhibit ^(TDC-4) t this Reply Verified Statement.' As shwn in Clumn (2) f Table 1 abve, in 2005 BNSF and UP's cmbined revenue fr cal equaled $5.18 billin and has increased in each subsequent year. By 2008, the cmbined cal revenues fr the BNSF and UP equaled $7.96 billin, an increase f $2.78 billin. As shwn in Clumn (3) f Table 1 abve, in 2005 BNSF and UP's aggregate variable csts t handle the cal traffic equaled $3.67 billin. By 2008, the BNSF and UP's cmbined variable csts t handle their cal traffic had increased t $5.78 billin, an increase in variable csts f $2.11 billin. These increased variable csts include thse "extrardinary csts" that the BNSF and UP have incurred t maintain their principal cal rutes, including the PRB Jint Line and the Black Hills Subdivisin. BNSF and UP's cntributin frm the cal it transprts as shwn in Clumn (4) f Table 1 abve increased frm $1.52 billin in 2005 t $2.18 billin in 2008, an increase f $670 millin. ' Exhibit ^(TDC-1) thrugh Exhibit ^(TDC-3) are included in my Opening Verified Statement in this prceeding. -7-

10 IV. BNSF AND UP COAL SERVICE SINCE 2005 There is n argument that the BNSF and UP exhibited severe service prblems after the tw PRB derailments in May All cal frains were slwed and empty cal trains were required t wait lnger in yards due in large part t extrardinary catch-up maintenance resulting frm deferred maintenance prir t In this current prceeding, BNSF and UP cntinue this theme. Specifically, BNSF and UP prtray the current cal dust issue as smething that is causing service prblems. Mr. Slggett stated that in rder t perfrm the maintenance wrk required by cal dust "...BNSF must slw r stp train traffic n the railrad line n r near where this wrk is being perfrmed t ensure the safety f ur wrkers and t ensure the safe passage f trains as we wrk n the track structure itself""^ BNSF argues that "[mjaintenance effectively cnsumes capacity n the railrad..."" The BNSF is crrect that maintenance causes slw rders and in sme instances the stppage f trains. BNSF is als crrect that maintenance utages reduce the effective capacity f a rail line segment. Hwever, nce again, BNSF attempts t misdirect the reader away frm the real pint f this issue. All maintenance, nt just the maintenance caused by cal dust, ptentially creates slw rders and in sme instances the stppage f trains. In additin, the BNSF and UP respnd t capacity issues in the PRB (and elsewhere n their systems) t accunt fr increases in vlumes as well as increased maintenance activities. BNSF and UP have nt shwn that the maintenance activities necessary t handle cal dust have harmed the level f their cal peratins. Actually, recent experience shws the ppsite. Since 2005, average train speeds have increased. BNSF and UP prvided average train speeds fr cal train t the STB's Rail Energy Transprtatin Advisry Cmmittee '" V.S. f Slggett, page 9 " BNSF Opening Evidence, Cunsel's Summary f Evidence and Legal Argument, pagel3. -8-

11 ("RETAC") which demnstrated an increase in speed. Between 4Q06 and 4Q09, BNSF's average train speed fr cal increased frm 18.1 mph t 23.5 mph, an increase f 30 percent. Over the same time perid, UP's average train speed fr cal increased frm 20.9 mph t 26.0 mph, an increase f 24 percent.'^ Anther efficiency measure fr cal trains is yard dwell time. BNSF des nt prvide any publicly available data fr its majr cal yards. Hwever, UP des prvide dwell time data fr its majr yards, including its primary cal yard at Nrth Platte, Nebraska. In 2005, the average dwell time fr all trains mving thrugh these yards equaled 28.4 hurs fr the Nrth Platte East Yard and 33.9 hurs fr the Nrth Platte West Yard. In 2006, the average dwell times were reduced t 26.7 hurs (Nrth Platte East Yard) and 32.9 hurs (Nrth Platte West Yard). Since that time, the average dwell time has further declined resulting in the 2009 average dwell time f 26.1 hurs (Nrth Platte East Yard) and 28.9 hurs (Nrth Platte West Yard). In summary, between 2005 and 2009, the average dwell time at UP's Nrth Platte East Yard has decreased 8 percent, frm 28.4 hurs t 26.1 hurs. Fr UP's Nrth Platte West Yard, the average dwell time between 2005 and 2009 decreased frm 33.9 hurs t 28.9 hurs, a decrease f 15 percent. '^ BNSF did nt prvide data fr Hwever, UP data shws that between 4Q05 and 4Q09, UP average train speeds fr cal trains increased by 28 percent. -9-

12 VERIFICATION COMMONWEALTH OF VIRGINIA ) CITY OF ALEXANDRIA ) ) I, THOMAS D. CROWLEY, verify under penalty f perjury that 1 have read the freging Verified Statement f Thmas D. Crwley, that I knw the cntents theref, and that the same are tme and crrect. Further, 1 certify that I am qualified and authrized t file this statement. Swm t and subscribed befre me this 30th day f April, 2010 /(^( -<.< < -'') Z «. A_ X t < -/f- Diane R. Kavunis Ntary Public fr the State f Virginia My Cmmissin Expires: Nvember 30,2012 Regisfratin Number:

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