STB’s Latest Service Case: NTEC vs. BNSF (Updated 4/21)

The Navajo Transitional Energy Company, LLC (NTEC) has filed a complaint and petition for declaratory order with the Surface Transportation Board (STB) to address what it calls BNSF’s failure to provide adequate common carrier transportation service. It also seeks an STB emergency service order, directing the Class I “to restore and maintain adequate coal transportation service” from its Spring Creek Mine in Big Horn County, Mont., to the Westshore Terminals facility in British Columbia, Canada. The mine is solely served by BNSF, which has now filed a formal response to the emergency service order.

“Predictable and reliable rail transportation are critical to NTEC’s ability to compete in the export coal market (both in terms of the bidding process and in terms of fulfilling actual coal sales contracts),” NTEC wrote in its complaint and petition, filed April 14 (download below). “Any BNSF service failures directly impact NTEC’s ability to serve those customers and harm the perception and reputation of NTEC as a reliable supplier in the export market.” That market includes Japan and Korea.

NTEC wrote that it was seeking determinations that BNSF has “breached its obligation to provide adequate common carrier service on reasonable request”; “engaged in unreasonable practices in establishing and implementing the terms for such service”; and “failed to provide safe and adequate car service.”

Additionally, NTEC asked STB to provide “a declaration as to the scope of BNSF’s common carrier obligation”; “injunctive relief as may be necessary to restore adequate service”; and “an award of monetary damages pertaining to certain BNSF actions, inactions, and practices.”

According to NTEC’s emergency service order, also filed April 14 (download below), the “minimum adequate” service from Spring Creek to Westshore requires approximately 29 trains per month starting May 1. This, it said, accounts for the delivery of about 438,625 tons of coal per month in BNSF-supplied railcars or 15,125 tons per train.

NTEC reported that 29 trains per month is consistent with service levels BNSF provided in 2021 and with the common carrier request for service that NTEC said it identified Nov. 1, 2022 and to which BNSF did not object.

NTEC said BNSF moved only 17 trains in February, and only 22 trains in March. “BNSF has warned NTEC that monthly service levels actually will fall even further as of June” to 16 trains per month, reported the energy company, which noted that this level of service “would profoundly hinder NTEC’s ability to run its business, to satisfy its existing contractual obligations, and to market export coal for future sales.”

According to NTEC, “BNSF’s 2023 service deficiencies are an extension of its performance in 2022 during which BNSF’s contract-based deliveries of NTEC export coal fell well short of NTEC’s requirements, even though overall volumes on the lines used to transport export coal from the PRB [Powder River Basin] to Westshore increased for a substantial share of 2022 (relative to 2021). Those 2022 BNSF service deficiencies led NTEC to file a Complaint against BNSF in the United States District Court for the District of Montana on December 19, 2022. … Through its federal-court Complaint, NTEC seeks damages for BNSF’s 2022 breach of contract and its 2022 breach of the duty of good faith and fair dealing.”

BNSF, in an April 17 STB filing (download below), reported that the two companies “have been involved in commercial discussions regarding NTEC’s desired service levels for nearly a year and have been involved in litigation in federal court in Montana since December 2022. Throughout that time, BNSF has consistently communicated to NTEC realistic expectations about BNSF’s anticipated service levels to provide NTEC as much information as possible to plan its ongoing business operations.” The Class I noted that NTEC’s filings, totaling nearly 100 pages, “have obviously been in preparation for quite some time, and yet NTEC had not previously notified BNSF of its claim that a sudden state of emergency now exists. The pleadings implicate a complex set of facts and competitive relationships involving multiple BNSF coal shippers and a Canadian export terminal operator, as well as coal and non-coal transportation to an important region of the country, all of which use the same common resources as NTEC’s shipments.”

NTEC is seeking an expedited emergency service order from the STB by April 24, 2023. BNSF said it would respond by April 19. “Even though BNSF believes that NTEC’s request is not an appropriate use of the Board’s emergency service authority, the timing of BNSF’s response will allow the Board to decide the issue on the expedited timeline requested by NTEC if it so chooses,” BNSF reported. “In our reply, BNSF will explain why there is no emergency situation necessitating immediate Board action and why the injunctive relief sought in the alternative would not only be unwarranted but would be harmful to the public interest. The reply will also detail BNSF’s efforts to transparently communicate with NTEC over a long period of time regarding constraints on capacity and realistic projections of available resources, as well as BNSF’s ongoing efforts to meet NTEC’s transportation requests both when NTEC was tendering shipments pursuant to multiple transportation contracts with BNSF, and more recently as NTEC has chosen to tender shipments pursuant to BNSF’s common carrier pricing authority.”

Both companies reported engaging with the STB staff through the Rail Customer and Public Assistance Program regarding their dispute.

BNSF’s Emergency Service Order Reply

BNSF, in filing dated April 19 (download below), formally requested that STB “deny NTEC’s request for an
emergency service order and request for a preliminary injunction.” However, the Class I said that it would be “happy to re-engage in the conversations with the [STB] Rail Customer Assistance Program regarding this dispute if the Board believes it would be productive to do so.”

According to BNSF’s filing, neither an emergency service order nor an injunction—“extraordinary remedies”—are justified. “Most importantly,” the railroad said, “there is no emergency. There is no threat to a water supply or potential disruption of the food chain, as in other emergency service situations recently addressed by the Board, nor is there a service disruption to other sectors identified by the Board as affecting the public welfare, such as energy supply … Nor has there been a sudden decrease in shipments that threatens the financial viability of a shipper, or any threats to terminate a particular transportation service. Rather, NTEC simply wants to get extra service to expand its profitable sales of export coal to Asian markets.” BNSF said that NTEC “already receives significantly more than the average amount of coal shipped by BNSF to its domestic coal shippers. NTEC is asking the Board to order BNSF to provide extra service—to increase its minimum monthly volume of coal transportation to NTEC to a level that NTEC has previously received in only four of the prior 38 months that NTEC has been in this export market. The market for coal exports to Asia is very attractive right now, and NTEC’s desire to dramatically increase its business in that market is understandable. But it does not create an emergency that justifies extraordinary Board action.”

The railroad pointed out that the emergency service request “seeks to allocate constrained capacity in a way that necessarily implicates the interests of numerous other shippers and third parties. NTEC’s claim is not about failure of service, but instead about getting extra service allocated in a constrained market. This raises complex allocation issues that are not appropriate to address in the context of an emergency service request, where the requested relief directly implicates the interests of other non-parties.”

The railroad noted that all U.S. rail service has struggled since late 2021, and “BNSF has been working hard to restore service to levels that meet our customers’ expectations and growth plans, and NTEC acknowledges recent service improvements … But rail capacity remains constrained in several important areas, including the Pacific Northwest. When there are constraints on capacity, as here, a forced increase in the allocation of resources to one shipper (e.g., NTEC) would inevitably result in a forced decrease in the ability to allocate resources to shipments tendered by other shippers. Where no actual emergency exists, there is no justification to order the allocation of dramatically more resources to NTEC’s shipments at the expense of other shippers.”

Additionally, BNSF said, an injunction is unwarranted. “Injunctions are often used to preserve the status quo, but NTEC wants the Board to order BNSF to dramatically increase its service, not to preserve its existing service levels.” Prior to 2023, the railroad explained, “BNSF and NTEC had conducted business exclusively pursuant to contracts. Beginning this year, however, NTEC decided to instead ship pursuant to BNSF’s common carrier pricing authority, which imposes no minimum volume commitment on NTEC. Now, NTEC is trying to use the Board’s injunction powers to impose on BNSF the increased service obligations of a contract without any of the negotiated trade-offs. NTEC wants the flexibility of no minimum volume commitments under a common carrier pricing authority while placing an obligation on BNSF to guarantee extra service and a fixed schedule, and be placed in front of the line compared to others that negotiated contracts.”

BNSF cautioned that if the STB accepts the injunction request, “and shippers see the opportunity to get a Board-ordered transportation contract without any of the market-based trade-offs that underlie contract negotiations, including volume commitments that allow railroads to plan for and justify the allocation of certain resources, it would lead to a reduction in the amount of rail transportation provided pursuant to contract and a flood of litigation.”

BNSF also reported that NTEC has not satisfied “the well-established technical requirements for the grant of injunctive relief. First and foremost, there is no irreparable harm. If BNSF violated its common carrier obligations, NTEC can seek damages. Indeed, NTEC has already filed for damages in the common carrier complaint filed with the Board along with the Application. It is seeking similar damages in a federal court action relating to export coal rail service that NTEC received last year from BNSF.”

In sum, the railroad said it “has been transparent and forthcoming with NTEC about the constraints on BNSF’s capacity, the constraints created by the Westshore terminal’s limited capacity, the complexities of international shipping arrangements, the need to juggle service requests of others, and its efforts to increase service. BNSF intends to continue working to improve and expand its service to the Westshore terminal and meet the needs of all of the shippers seeking to use that facility. Intervention by the Board with an extraordinary emergency service order or an injunction is unnecessary, and would be extremely disruptive and harmful to other shippers.”

Wilner Weighs In

Railway Age Capitol Hill Contributing Editor and a former STB Chief of Staff had this to say about the NTEC and BNSF case: “These petitions hand [STB] Chairman [Martin] Oberman, who controls the five-member STB docket, the opportunity he has been seeking—assuming he can find two other votes—to define more specifically and with greater accountability the railroads’ common carrier responsibility.

“The STB’s governing statute provides no formal definition of the common carrier responsibility. In 2008 (Ex Parte No. 677), the Board obliquely ruled that ‘the common carrier obligation refers to the statutory duty of railroads to provide transportation or service on reasonable request,’ with a 2015 congressionally funded study by the Transportation Research Board concluding the responsibility is ‘poorly defined.’ Significantly, rail traffic moving under contract, or otherwise exempt from economic regulation, generally is not subject to the common carrier obligation as overseen by the STB.”

In a related development, STB on Feb. 14 denied “as moot” the petition for an emergency service order by Foster Poultry Farms, which in late 2022 said there had been a “substantial, measurable deterioration” of Union Pacific (UP) rail service to its Traver, Turlock and Delhi, Calif., facilities. Also, the STB in November 2021 permitted Sanimax’s common carrier obligation and unreasonable practices complaint against UP to proceed and set a procedural schedule.