Saturday, April 30, 2011

What impact on Class II and III?

Written by  Roy Blanchard, Contributing Editor

Although the Railroad Safety Improvement Act of 2008 was written primarily for the Class I's, many of the short line and regional railroads that touch roughly one out of every five carloads the Class I's handle will have to deal with this mostly unfunded mandate. 

The good news for the 550-plus Class II and III railroads is that fewer than 100 such carriers are directly affected by the RSIA's PTC provisions. However, the roads that have to play in this complicated sandbox could find their margins sorely squeezed and some of their customers may find themselves without the rail option.

The American Short Line and Regional Railroad Association looked into the exposure of its membership and figured it will cost those 100 carriers roughly $2.6 million per year in maintenance costs after upfront installation expenditures of about $16 million, 75% of which will go for installing locomotive onboard PTC equipment. "Undoubtedly," says ASLRRA President Richard Timmons, "the total cost likely will rise after the Class I's, Amtrak, and commuter railroads submit implementation plans to the FRA."

The bottom line is that without PTC in place on their locomotives, some Class II and Class III railroads may find themselves barred from going all the places they used to go and some of their current customers will lose the rail option. This comes at a time when railroads are looking to add customers and when current customers are using more rail.

Let's review the basics of the RSIA and see what triggers a PTC requirement by the December 2015 deadline. First are lines where regularly scheduled intercity and commuter passenger trains are operated, yard and terminal trackage excluded.

Short line operators with non-scheduled tourist trains are exempt as of this writing, according to ASLRRA General Counsel Keith Borman.

Then come the Class I main lines carrying five million gross tons or more annually and carrying commodities that are considered TIH. Short lines and regional railroads are exempt unless they host regularly scheduled passenger trains, even if they have TIH customers.

It gets interesting where non-Class I railroads' trains have rights over Class I lines that are required to have PTC installed. The regulation permits non-PTC-equipped power of connecting short line and regional railroads to run on these Class I's for distances of up to 20 miles. Feedback from Class I's and small roads indicates that if the Class I requires PTC on its own power used on the line segment it will require the same of its trackage-rights tenants.

About 75% of a Class II or III railroad's upfront PTC cost is on the locomotive. Locomotives built in the past 20 years or so have come equipped with microprocessor-based control systems, but older units present a challenge. The cost of the onboard PTC equipment in a microprocessor-equipped locomotive is on the order of $50,000. Older locomotives, like first-generation diesels, lack the modern electronics and may require $95,000 to $140,000 for PTC. Who's going to put six figures worth of PTC on a locomotive worth five figures? Even worse, that tab doesn't take into account ongoing maintenance costs, which in the long run will eclipse the equipment purchase price.