[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                      KEEPING THE LIGHTS ON AND
                      MAINTAINING WYOMING'S JOBS:
                       OVERCOMING THE CHALLENGES
                         FACING WESTERN POWER
                         GENERATION FACILITIES

=======================================================================

                        OVERSIGHT FIELD HEARING

                               before the

                    SUBCOMMITTEE ON WATER AND POWER

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

            Wednesday, August 9, 2006, in Wheatland, Wyoming

                               __________

                           Serial No. 109-61

                               __________

           Printed for the use of the Committee on Resources



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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                                 ______

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                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Eni F.H. Faleomavaega, American 
Elton Gallegly, California               Samoa
John J. Duncan, Jr., Tennessee       Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming               Donna M. Christensen, Virgin 
  Vice Chair                             Islands
George P. Radanovich, California     Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Grace F. Napolitano, California
    Carolina                         Tom Udall, New Mexico
Chris Cannon, Utah                   Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania       Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada                  Jim Costa, California
Greg Walden, Oregon                  Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado         Dan Boren, Oklahoma
J.D. Hayworth, Arizona               George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Rick Renzi, Arizona                  Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico            Jay Inslee, Washington
Henry Brown, Jr., South Carolina     Mark Udall, Colorado
Thelma Drake, Virginia               Dennis Cardoza, California
Luis G. Fortuno, Puerto Rico         Stephanie Herseth, South Dakota
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Marilyn N. Musgrave, Colorado
Vacancy

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

                    SUBCOMMITTEE ON WATER AND POWER

               GEORGE P. RADANOVICH, California, Chairman
        GRACE F. NAPOLITANO, California, Ranking Democrat Member

Ken Calvert, California              Raul M. Grijalva, Arizona
Barbara Cubin, Wyoming               Jim Costa, California
Greg Walden, Oregon                  George Miller, California
Thomas G. Tancredo, Colorado         Mark Udall, Colorado
J.D. Hayworth, Arizona               Dennis A. Cardoza, California
Stevan Pearce, New Mexico            Vacancy
Cathy McMorris, Washington           Vacancy
  Vice Chair                         Nick J. Rahall II, West Virginia, 
Louie Gohmert, Texas                     ex officio
Vacancy
Richard W. Pombo, California, ex 
    officio
                                 ------                                


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Wednesday, August 9, 2006........................     1

Statement of Members:
    Cubin, Hon. Barbara, a Representative in Congress from the 
      State of Wyoming...........................................     4
        Prepared statement of....................................     6
    Radanovich, Hon. George P., a Representative in Congress from 
      the State of California....................................     2
        Prepared statement of....................................     4

Statement of Witnesses:
    Dingman, Hon. Joel, Mayor, City of Wheatland, Wyoming........     7
        Prepared statement of....................................    10
    Finnerty, Jack, Board of Directors, Wheatland Rural Electric 
      Association, Inc., Wheatland, Wyoming......................    12
        Prepared statement of....................................    15
    LaMaack, Larry, Executive Director, Wyoming Municipal Power 
      Agency, Lusk, Wyoming......................................    24
        Prepared statement of....................................    26
    Neiman, Jim D., Owner and CEO, Neiman Enterprises, Inc., 
      Hulett, Wyoming............................................    29
        Prepared statement of....................................    31
    Thompson, Janssen, General Manager, Powder River Division, 
      BNSF Railway Company, Denver, Colorado.....................    16
        Prepared statement of....................................    19
    Vasy, Richard, Assistant Vice President for Business 
      Development, Union Pacific Railroad, Omaha, Nebraska.......    21
        Prepared statement of....................................    23


  OVERSIGHT FIELD HEARING ON ``KEEPING THE LIGHTS ON AND MAINTAINING 
    WYOMING'S JOBS: OVERCOMING THE CHALLENGES FACING WESTERN POWER 
                       GENERATION   FACILITIES.''

                              ----------                              


                       Wednesday, August 9, 2006

                     U.S. House of Representatives

                    Subcommittee on Water and Power

                         Committee on Resources

                           Wheatland, Wyoming

    The Subcommittee met, pursuant to call, at 12:30 p.m., in 
Community Room, Platte Valley National Bank, 200 16th Street, 
Wheatland, Wyoming, Hon. George Radanovich [Chairman of the 
Subcommittee] presiding.
    Present: Representatives Radanovich, Cubin.
    Mr. Radanovich. Good afternoon. My name is George 
Radanovich and I come from Mariposa, California, a population 
of 1800 people, and so I am in the big city today to conduct 
this hearing, and it is a pleasure to be in Wheatland.
    I think the point of this hearing is to hear directly from 
you folks, and your concerns over energy prices, and I truly 
appreciate Barbara's invitation to be here, in Wheatland.
    So we can start this hearing on a patriotic note, I will 
now defer to your state's distinguished Congresswoman for a few 
introductions.
    Barbara, it is, again, a pleasure to be in your state and a 
pleasure to be with you.
    Ms. Cubin. Well, thank you so much, Mr. Chairman, and thank 
you for being here and coming to Wyoming, George, and the 
staff. George had to get up at 4:00 o'clock to be here with us, 
and I truly appreciate that. I do owe him one, however. I hope 
that it is easy on me.
    Mr. Radanovich. She will pay.
    Ms. Cubin. And then the staff that put all this together. 
Really, we have a wonderful staff on the Resources Committee 
and I want to thank all of them for being here as well. And I 
am also pleased to welcome the citizens of Wheatland, and to 
begin our hearing, we would like to begin with an invocation, 
the Pledge of Allegiance and the singing of the National 
Anthem.
    So first, Terry Stevenson, I just saw him--oh, there he is. 
OK. Terry, would you please give the invocation.
    Mr. Stevenson. Let's all stand together, shall we. Please 
remain standing through the invocation, the Presentation of the 
Colors, the Pledge, and the National Anthem.
    Let us pray. Father, we are privileged, greatly, to live in 
this country. We thank you for the grace that has given us this 
great country. We thank you for the privilege of being able to 
participate in our Government. It is a great opportunity and a 
great responsibility, and in light of that we know that we need 
Your wisdom and Your truth, so we pray that You would grant it 
to us. We know that Your truth is unchanging and absolute, and 
yet occasionally our understanding of it wavers and changes. 
Help us and guide us to the truth. Help us also to be patient 
with those others who, through ignorance, or their own 
unmitigated pursuit of their own self-interest miss the truth.
    And Father, we ask for these things every day, but, in 
particular, for this meeting this afternoon. For we know if we 
fail in grasping the truth and relying on your wisdom today, we 
will fail, in the long run, on many more important things. So 
grant us that grace we pray, in Jesus' name, amen.
    [Presentation of the Colors]
    Ms. Cubin. Please join me in saying the Pledge of 
Allegiance.
    [Pledge of Allegiance is recited]
    Ms. Cubin. I would now like to ask Jessica Brant to sing 
our National Anthem.
    [Singing of the National Anthem]
    Ms. Cubin. If everyone would please be seated. I would like 
to give some flags--where are they?--that were flown over the 
Capitol. Thea, Jessica, Terry, we had some flags flown over the 
Capitol and I would like to present these to you and thank you 
so much for taking part in this hearing today. And we also have 
one for the Commander of the Color Guard. You know, it is for 
the whole guard but we'll present it to the Commander. So thank 
you very much for being here and I hope you enjoy the flags.
    And by the way, it was Thea Adamo that led the Pledge of 
Allegiance, and I want to thank everyone for doing that.
    So Mr. Chairman, take over.

   STATEMENT OF THE HON. GEORGE RADANOVICH, A UNITED STATES 
    REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Radanovich. Here we go. All right. Well, thank you, 
Barbara, for your patriotic dedication and for a great opening 
ceremony.
    I, again, appreciate your invitation and for your 
leadership in asking for this much-needed hearing.
    As I had mentioned, I am from the Central Valley of 
California, the heart of irrigated agriculture in an ever-
growing state, and like your area, the communities in my 
district depend on the vital resources of water.
    Although the Central Valley is blessed with plentiful water 
this year, we, too, are very susceptible to drought.
    Your region has been hit especially hard by record-setting 
drought. In fact, I just had the opportunity to fly over the 
parched reservoirs on the North Platte River as I was coming up 
from Denver, just really the South Platte and North Platte.
    The river water levels are down but it's abundantly clear 
that our regions are fortunate enough to have multipurpose 
projects for irrigation, power, and recreation.
    Without these dams and reservoirs, our communities and the 
overall West wouldn't be what they are today. It seems hard to 
believe but California and Wyoming have another thing in 
common--energy uncertainty.
    California experiences uncertainty because it chooses to 
rely on electricity generated out of state and doesn't build 
enough in state. The State also continues to experience 
explosive population growth, making the energy equation worse.
    The notion of ``build it and they will come'' is not true 
in California. They are coming anyway. Your State has been 
called ``the Saudi Arabia of coal'' and it will continue to 
provide even more of this low-cost resource to California and 
the entire nation, both now and in the future.
    But despite this, I have learned that your nearby coal 
plant has experienced serious uncertainty and high costs in 
getting reliable Wyoming coal supplies. Other utilities are 
experiencing this as well. I understand that a Georgia utility 
was forced to buy imported coal from Indonesia because of 
domestic rail and transportation issues.
    Barbara Cubin and I have fought hard, as members of the 
Energy and Commerce Committee, and also as members of the 
Resources Committee, to bring about energy certainty and 
independence for our nation's consumers.
    When I hear examples of utilities importing coal or almost 
shutting down, it tells me that we still have a long way to go 
in our quest.
    Today's hearing is an attempt to bring about energy 
security and reliability, especially for Eastern Wyoming.
    The rail companies are trying to make real progress in an 
attempt to help resolve this situation. Some profits are being 
reinvested to build more rail infrastructure, so I applaud the 
rail companies for recognizing this need. But the days of coal 
imports, uncertainty, and volatile transportation costs must 
stop, and they must stop soon.
    Everybody agrees with the overall goals of more water, 
financially strong railroads and low-cost and dependable energy 
for our consumers, but well-intended people disagree on how to 
get to these goals.
    And this hearing is about working together to find balance 
and to achieve these goals. We are fortunate enough to have the 
right people at the table today to help us in this dialogue.
    In conclusion, Barbara, I want to thank you so much for 
your leadership on this hearing and for trying to find 
resolution on these important matters. The American energy 
consumer deserves the very best from all of us, and today is 
our chance to bring them some real results.
    I now recognize the gentlelady from Wyoming for her opening 
statement.
    Barbara.
    [The prepared statement of Mr. Radanovich follows:]

        Statement of The Honorable George Radanovich, Chairman, 
                    Subcommittee on Water and Power

    Welcome to today's hearing. It's good to be outside the over-heated 
Washington beltway to hear directly from the real-world folks in 
eastern Wyoming. I thank Congresswoman Barbara Cubin for the invitation 
and appreciate her leadership in asking for this much-needed hearing.
    I'm from the Central Valley of California, the heart of irrigated 
agriculture in an ever-growing state. Like your area, the communities 
in my district depend on the vital resource of water. Although the 
Central Valley is blessed with plentiful water this year, we too are 
very susceptible to drought.
    Your region has been hit especially hard by record-setting drought. 
In fact, I just had the opportunity to fly over the parched reservoirs 
on the North Platte. The river's water levels are down, but it's 
abundantly clear that our regions are fortunate to have multi-purpose 
projects for irrigation, power and recreation. Without these dams and 
reservoirs, our communities and the overall West wouldn't be what they 
are today.
    It seems hard to believe but California and Wyoming have another 
thing in common: energy uncertainty. California experiences uncertainty 
because it chooses to rely on electricity generated out of state and 
doesn't build enough in-State. The State also continues to experience 
explosive population growth, making the energy equation worse. The 
notion of ``build it and they will come'' is not true in California: 
they will come anyway.
    Your State has been called the ``Saudi Arabia of Coal'' and it will 
continue to provide even more of this low-cost resource to California 
and the entire Nation. Despite this, I've learned that your nearby coal 
plant has experienced serious uncertainty and high costs in getting 
reliable Wyoming coal supplies. Other utilities are experiencing this 
as well. I understand that a Georgia utility was forced to buy imported 
coal from Indonesia because of domestic rail transportation issues.
    Congresswoman Cubin and I have fought hard--as members of the 
Energy and Commerce and Resources Committees--to bring about energy 
certainty and independence for our Nation's consumers. When I hear 
examples of utilities importing coal or almost shutting down, it tells 
me that we still have a long way to go in our quest. Today's hearing is 
an attempt to bring about energy security and reliability, especially 
for eastern Wyoming.
    The rail companies are trying to make real progress to help resolve 
this situation. Some profits are being reinvested to build more rail 
infrastructure, so I applaud the rail companies for recognizing this 
need. But the days of coal imports, uncertainty and volatile 
transportation costs must stop and they must stop soon.
    Everyone agrees on the overall goals of more water, financially 
strong railroads and low-cost and dependable energy for our consumers, 
but well-intended people disagree on how to meet these goals. This 
hearing is about working together to find balance and achieve these 
goals. We're fortunate to have the right people at the table today to 
help us in this dialogue.
    In conclusion, I thank Congresswoman Cubin once again for her 
leadership on this hearing and for trying to find resolution on these 
important matters. American energy consumers deserve the very best from 
all of us and today is our chance to bring them some real results.
                                 ______
                                 

   STATEMENT OF THE HON. BARBARA CUBIN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF WYOMING

    Ms. Cubin. Thank you, Mr. Chairman.
    There is an old Western adage that says whiskey is for 
drinking but water is for fighting, and while some might assert 
that this saying is outdated, folks here in the Wheatland area, 
in our great State of Wyoming, and the greater West, would 
likely agree that it still has relevance.
    Wyoming, and much of the West, has been wading through the 
dust of a severe drought for most of the last seven years. The 
resulting effect is that our agricultural and energy industries 
have been forced to find creative ways to operate, despite the 
lack of a reliable water supply.
    They have only succeeded in doing so due to the cooperative 
efforts and an understanding that an increased cost burden has 
to be shared by everyone in the network of water users, from 
irrigators to electricity customers.
    I am hopeful that we will learn more in this field hearing 
as to how the limited water resources we have can be best 
managed, until we can break free of this drought for a 
sustained period of time.
    Another factor threatening reliable electricity service to 
Wyoming's rural families and businesses is the challenge that 
our power generation facilities face with regards to 
transportation and transmission infrastructures struggling to 
keep up with growing demand.
    The coal supply shortage that arose last year at the 
Laramie River station, just outside of town, makes Wheatland an 
extremely appropriate venue to discuss this important issue. 
America's consumers deserve reliable, affordable, and long-term 
energy supplies and the citizens of Wyoming are doing their 
part to help our nation meet this growing energy demand.
    Coal production in the Powder River Basin has more than 
doubled in the past 15 years. The private and public sectors 
are continually working to develop new ways to mine and utilize 
this resource with a significantly smaller impact on our 
environment and new or updated technologies are being developed 
to use coal in different ways than we ever have before in our 
nation--coal-to-liquids or coal gasification being two of the 
most often discussed.
    However, before these advancements and increased production 
can translate into sustained benefits for our nation's end-
users, facilities like the Laramie River Station and its 1.8 
million electricity customers must be able to count on an 
adequate supply of coal being delivered, and in a timely 
fashion.
    I was shocked and dismayed by the rail service disruptions 
we all read about in the papers, and I heard so much about that 
from our Wyoming rural electric cooperatives last year, that I 
was moved to ask the Chairman to have this hearing.
    I understand and share the frustration felt by our 
electricity generators, that it shouldn't be so difficult to 
obtain this Wyoming resource when it is mined only 175 miles 
away. I've also been assured by the rail companies, that they 
are already investing in significant infrastructure upgrades to 
ensure a coal shortage situation like last fall does not happen 
again.
    At that time, I think we were down to a week's reserve, 
instead of a three-month reserve which we usually have, and 
it's my understanding that now we do have a three-month reserve 
and I am glad that BNSF, that the chairman of BNSF came to my 
office to discuss the situation and explained to me some of the 
reasons that that happened.
    I am also gratified that the railroad and consumers of the 
rail service have been able to come together and start talking 
about this situation, so that problems can be solved.
    To fulfill the promise that energy has for our country, and 
in Wyoming, it will take cooperation from all parties, from 
delivery to production, to ensure the needs of power consumers 
in Wyoming and in neighboring Western states.
    The time for finger pointing is passed. I am hopeful that 
this hearing today will help us fully uncover the challenges 
that Western power generation facilities have faced as well as 
the problems that the railroads face, so that an effective 
solution to ensure an affordable and reliable electricity 
supply can be found for the future.
    Mr. Chairman, thank you so much, again, for making the long 
trip out here and I think that this will be a very informative 
hearing. Thank you so much.
    [The prepared statement of Ms. Cubin follows:]

               Statement of The Honorable Barbara Cubin, 
                     Representative for All Wyoming

    Mr. Chairman:
    There's an old western adage that says ``Whiskey is for drinkin', 
but water is for fightin'.'' While some might assert this saying is 
outdated, folks in the Wheatland area, our great State of Wyoming, and 
the greater west would likely agree it still has relevance. Wyoming and 
much of the west has been wading through the dust of a severe drought 
for most of the last seven years. The resulting affect is that our 
agricultural and energy industries have been forced to find creative 
ways to operate despite the lack of a reliable water supply.
    They have only succeeded in doing so due to cooperative efforts and 
an understanding that an increased cost burden has to be shared by 
everyone in the network of water users--from irrigators to electricity 
customers. I am hopeful that we will learn more in this field hearing 
as to how the limited water resources we have can be best managed until 
we can break free of this drought for a sustained period of time.
    Another factor threatening reliable electricity service to 
Wyoming's rural families and businesses is the challenge our power 
generation facilities face with regards to transportation and 
transmission infrastructures struggling to keep up with growing demand. 
The coal supply shortage that arose last year at the Laramie River 
Station just outside of town makes Wheatland an extremely appropriate 
venue to discuss this important issue.
    America's consumers deserve reliable, affordable, and long-term 
energy supplies and the citizens of Wyoming are doing their part to 
help our nation meet this growing energy demand. Coal production in the 
Powder River Basin has more than doubled in the past 15 years. The 
private and public sectors are continually working to develop new ways 
to mine and utilize this resource with a significantly smaller impact 
on our environment. And new or updated technologies are being developed 
to use coal in different ways than we ever have before in our nation--
coal-to-liquids or coal gasification being two of the most often 
discussed. However, before these advancements and increased production 
can translate into sustained benefits for our nation's end-users, 
facilities like the Laramie River Station and its 1.8 million 
electricity customers must be able to count on an adequate supply of 
coal being delivered, and in a timely fashion.
    I was shocked and dismayed by the rail service disruptions we all 
read about in the papers and I heard so much about from our Wyoming's 
rural electric cooperatives last year. I understand and share the 
frustration felt by our electricity generators that it shouldn't be so 
difficult to obtain this Wyoming resource when it is mined only 175 
miles away. I have also been assured by the rail companies that they 
are already investing in significant infrastructure upgrades to ensure 
a coal shortage situation like last fall does not happen again.
    To fulfill this promise will take cooperation from all parties--
from delivery to production--to ensure the needs of power consumers in 
Wyoming and neighboring Western states are well served. The time for 
finger pointing is past. I am hopeful this hearing today will help us 
fully uncover the challenges western power generation facilities have 
faced in the past, so that an effective solution to ensure an 
affordable and reliable electricity supply can be found for the future.
    Thank you, Mr. Chairman, for making the long trip out to Wheatland. 
I know you will be as impressed as I repeatedly am with this hard-
working and friendly community. I yield back the balance of my time.
                                 ______
                                 
    Mr. Radanovich. Thank you, Barbara, and it is good to be 
here today. What I am going to do, and maybe I will just do a 
brief overview of how a Congressional hearing works. But this 
is an official hearing. It is not what we would normally think 
of as a town hall or anything, in that everything that is 
testified to today--and I think we have been very careful to 
make sure that we get people representing all sides of the 
issue--give a five-minute presentation of their issues, and 
this goes into the public record, and what we hope to achieve 
out of this public hearing is a body of information that 
completely details the issues, so that it helps move it 
forward, it helps to create legislation, if necessary, but 
gives us the body of knowledge that we need in order to solve 
problems.
    So I will note that everybody who is testifying here today 
has submitted a written testimony for the record already.
    What you are being asked to do today is to give verbal 
testimony and I would encourage you to be extemporaneous 
because your written comments are already in the record. So if 
you want to do that, that is just fine.
    We normally go for five minutes but we don't really have 
time clocks here today. So if it looks like we are going on too 
long, I may ask you to stop.
    But Mr. Dingman, we will start with you and then work down, 
for your verbal testimony, and then we will open up the panel 
for questions from Barbara and I. We will try to make sure that 
we get every issue covered, and that will be it. So it is that 
easy, and with that, I want to introduce our panel of 
witnesses.
    The Honorable Joel Dingman, Mayor of the City of Wheatland.
    Mr. Jack Finnerty, Board Member of the Wheatland Rural 
Electric Association.
    Mr. Janssen Thompson, General Manager of the Powder River 
Division of BNSF Railway Company, Denver, Colorado.
    Mr. Rich Vasy, the Assistant Vice President for Business 
Development, Union Pacific, Omaha, Nebraska.
    Mr. Larry LaMaack, Executive Director of the Wyoming 
Municipal Power Agency, from Lusk, Wyoming.
    Mr. Jim Neiman, Vice President of Neiman Enterprises in 
Hulett, Wyoming.
    And I think that is it. Gentlemen, welcome to the 
Subcommittee and Mr. Dingman, you may begin with your 
testimony.

              STATEMENT OF THE HON. JOEL DINGMAN, 
          MAYOR, CITY OF WHEATLAND, WHEATLAND, WYOMING

    Mr. Dingman. Thank you, Mr. Chairman.
    My name is Joel Dingman and I am appearing before you today 
in two separate capacities. I am currently the Mayor of 
Wheatland and I am also a shift supervisor at the Missouri 
Basin Power Projects, Laramie River Station.
    I have served as the Mayor of Wheatland for the past 10 
years, and was on the City Council for four years before being 
elected to that position.
    My experience at the Laramie River Station is far longer 
than in town politics. This November will mark my 25th year 
working at the Laramie River Station.
    I would like to welcome both you and Mrs. Cubin to 
Wheatland. I guess we have bragging rights. We are twice the 
size of your hometown. We are twice the size of someone. I want 
to thank you for holding this important hearing, and for 
allowing us the opportunity to discuss these important energy-
related issues and their effects on our state.
    I would like to put on my mayor's hat first, and cannot 
overstate the important of low cost, reliable electricity to 
the growth and well-being of this community.
    Recently, when the heat wave had caused significant 
disruption in the supply of electricity, we in this area 
enjoyed a steady supply of dependable power at prices that we 
can afford.
    Electricity has long since passed the status of a luxury 
and is now in the category of an essential, if not critical, 
service equivalent to food, clothing and shelter.
    Seeing those news reports of electricity disruptions in 
other states makes many of us realize how much we take for 
granted the ability to flip the switch and have the lights come 
on, and turn on an air conditioner and have it work.
    With this in mind, there is one message I would like the 
members of the committee to leave with today, and that is first 
do no harm. We have seen, in certain areas of the country, 
where efforts to deregulate the electricity industry, or to 
make significant changes to the ownership or control of 
electric facilities, have caused blackouts or significant rate 
increases for consumers and businesses.
    This is not a situation that we would like to see in 
Wyoming or anywhere else.
    The United States is facing a time of needing to reinvest 
in energy. The electric generation and transmission system in 
the United States is among the best in the world. But today's 
system was built 20 to 30 years ago in response to the 
technology and energy needs of the 1970's and 1980's.
    Today, demand for energy is growing, and new power plants 
and transmission facilities must be built to accommodate that 
demand. There is a generation of people in the electric 
industry that weren't a part of the large construction projects 
of 30 years ago. Legislators and citizens need to look at the 
alliances that it took to build those projects, and the 
alliances required to keep those projects going.
    Laramie River Station and its water supply from the 
Greyrocks Reservoir is a perfect example. The reservoir is at 
dangerously low levels due to the extended drought, as you 
mentioned earlier, and it now cannot meet the water demands of 
the station.
    In response to that, the needs of the plant, the farmers 
and the ranchers in the area have come together to move water 
from wells in the surrounding area to a reservoir at the 
Laramie River Station to keep the plant operating.
    It takes alliances like these, and the one between the six 
members of the Missouri Basin Project, that created the Laramie 
River Station, to make projects like that happen.
    These types of alliances will continue to be needed as we 
move forward to meet the electric requirements of the future.
    Everyone also must understand that there needs to be a 
balance in life. We must balance the needs for electric power 
in this country with the needs of businesses and the need for a 
clean and healthy environment.
    Laramie River Station and all of the energy industries in 
Wyoming provide stable jobs that keep the economy of Wyoming 
and the United States moving along.
    But these jobs and industries can be threatened when 
balance is lost and any one group gains too much influence. 
What I am talking about is the railroad industry. At the end of 
2004, a contract between Laramie River Station and the 
Burlington Northern and Santa Fe Railroad expired, causing the 
rates Laramie River Station pays for coal to be delivered from 
Wyoming mines to double, and they are projected to double 
again.
    If these rates are allowed to go unchecked, that will mean 
an increased cost of $1 billion to the consumer-owners of 
Laramie River Station over the next 20 years.
    The plant operator, Basic Electric Power Cooperative, filed 
a rate case with the Surface Transportation Board at the end of 
2004, and that case has still not been decided.
    The Surface Transportation Board was supposed to issue a 
decision in the fall of this year, but the agency unilaterally 
decided to halt the proceedings in March of 2006, to rewrite 
the rules related to rate cases like this one.
    After assembling thousands of pages of documents, and 
spending more than $5 million, and more than two years time, 
the Laramie River Station owners will have to spend another 
half million to a million dollars, and wait even longer for a 
decision to be made.
    All the while, our consumers will continue to pay the price 
of the higher rates. The problems here are twofold.
    The Laramie River Station is a ``captive shipper.'' This 
means Laramie River Station is unable to get coal in any other 
way except by train, and Burlington Northern and Santa Fe 
controls the only track to the plant. Burlington Northern and 
Santa Fe is taking advantage of the situation and using its 
market power to extract unreasonable rates.
    The Surface Transportation Board was given the direct 
responsibility, by Congress, to make sure those captive 
shippers who get charged excessive rates have a backstop agency 
to go to for relief.
    The problem is the Surface Transportation Board is not 
adequately doing its job. The Surface Transportation Board has 
allowed the railroads to consolidate to the point where four 
major railroads control over 90 percent of the freight and 
revenue in the country.
    The agency has also allowed railroads to charge whatever 
freight rates they want, with little or not accountability or 
regulation.
    The process required for a shipper to seek relief is so 
long, and so complex, that very few companies file a rate case 
because they simply cannot afford it.
    Along with excessive rates, captive shippers are 
increasingly forced to accept poor service. This spring, the 
Laramie River Station was down to a six-day supply of coal, far 
short of our normal 30-day stockpile. The railroads have a 
common carrier ``obligation to serve'' requirement.
    But the railroads have failed to live up to their 
obligations and the Surface Transportation Board has not 
stepped in to address railroad service problems.
    And I appreciate your help, Mrs. Cubin, in alleviating that 
condition, along with the chairman of Burlington Northern and 
Santa Fe. And now since we have no other resource, the owners 
of Laramie River Station were forced to pay millions of dollars 
to find coal at other mines, and the train cars to deliver it, 
to keep the plant running this spring.
    Now due to a six-week outage in April, and the leasing of 
additional train cars, our stockpile is now at acceptable 
levels. But with little or no oversight over rail service, we 
remain highly susceptible to recurring service lapses.
    Laramie River Station is not along in this situation. Many 
other utilities in the United States are captive shippers and 
continue to face delays in coal delivery, along with large 
increases in rates and poor delivery service.
    Mr. Chairman, and Mrs. Cubin, I want to make it clear to 
you and the members of your committee, that the members of the 
Missouri Basin Power Project are not anti-railroad.
    We strongly believe in the need for a healthy, reliable 
railroad system in this country. The electric power industry, 
particularly the coal sector, has been a key partner with the 
railroads for decades. However, that partnership has become far 
too one-sided, and we strongly believe that there needs to be 
more effective Federal oversight to stop abuses of monopoly 
power when they happen. At this time, those protections are 
sorely lacking.
    This Nation survives and thrives on reliable, affordable 
energy. The electric system we have in place provides well-
paying jobs that help sustain strong communities. Our energy 
demands are growing and we need to build more electric 
infrastructure to meet those needs.
    Building that infrastructure is going to take the work and 
support of business, communities, States and the Federal 
Government.
    It is also going to require new alliances which work 
together to balance everyone's needs to keep this country going 
and growing.
    Again, I want to thank you for being here and for allowing 
me this opportunity to provide input on what is a critical 
issue for our community, state and our country.
    [The prepared statement of Mr. Dingman follows:]

               Statement of The Honorable Joel Dingman, 
                   Mayor, City of Wheatland, Wyoming

    Mr. Chairman and Members of the Committee:
    My name is Joel Dingman, and I am appearing before the committee 
today in two separate capacities. I am currently the Mayor of Wheatland 
Wyoming and a Shift Supervisor at the Missouri Basin Power Projects 
Laramie River Power Station (LRS). I have served as Mayor of Wheatland 
for the past 10 years and was on the Wheatland City Council for four 
years before being elected Mayor. My experience at LRS, however, is far 
longer than in city politics. This November will mark my 25th year at 
LRS.
    I would like to welcome the committee members to Wheatland, and to 
thank you for holding this important hearing and for allowing me the 
opportunity to discuss energy related issues and their effect on our 
state. Putting on my mayor's hat first, I cannot overstate the 
importance of low cost, reliable electricity to the growth and well-
being of my community. Recently when heat waves have caused significant 
disruption in the supply of electricity, we have enjoyed a steady 
supply of dependable power at prices we can afford. Electricity has 
long passed the status of a luxury and is now in the category of an 
essential, if not critical, service equivalent to food, clothing, and 
shelter. Seeing news reports of electric service disruptions in other 
states makes many people realize how much we take for granted the 
ability to flip a switch and have lights or air conditioning.
    With this in mind, there is one message I would like the members of 
the committee to leave with today: first, do no harm. We have seen in 
certain areas of the country where efforts to deregulate the 
electricity industry or to make significant changes to the ownership or 
control of electric facilities have caused blackouts or significant 
rate increases for consumers and business. This is not a situation we 
want to see in Wyoming or anywhere else.
    The United States is facing a time of needing to reinvest in 
energy. The electric generation and transmission system in the United 
States is among the best in the world, but today's system was built 20 
to 30 years ago in response to the technology and energy needs of the 
1970s and 1980s. Today, demand for energy is growing, and new power 
plants and transmission facilities must be built to accommodate that 
demand. There is a generation of people in the electric industry that 
weren't a part of the large construction projects of 30 years ago. 
Legislators and citizens need to look at the alliances that it took to 
build those projects, and the alliances required to keep those projects 
going.
    Laramie River Station and its water supply from the Greyrocks 
Reservoir is a perfect example. The reservoir is at dangerously low 
levels due to the extended drought and now it cannot meet the water 
demands of the LRS. In response, the plant, farmers, and ranchers in 
the area have come together to move water from wells in the surrounding 
areas to a reservoir to at the LRS to keep the plant operating. It 
takes alliances like these and the one between the six members of the 
Missouri Basin Power Project that created LRS to make things happen. 
These types of alliances will continue to be needed as we move forward 
to meet the electric requirements of the future.
    Everyone also must understand that there needs be a balance in 
life. We must balance the needs for electric power in this country with 
the needs of businesses and the need for a clean and healthy 
environment.
    LRS and all of the energy industries in Wyoming provide stable jobs 
that keep the economy of Wyoming and the United States moving along. 
But these jobs and industries can be threatened when balance is lost 
and any one group gains too much influence. I am talking about the 
railroad industry. At the end of 2004, a contract between LRS and the 
Burlington Northern and Santa Fe (BNSF) railroad expired, causing the 
rates LRS pays for coal to be delivered from Wyoming mines to double, 
and they are projected to double again. If these rates are allowed to 
go unchecked that will mean an increased cost of $1 billion dollars to 
the consumer-owners of LRS over the next 20 years.
    The plant operator, Basin Electric Power Cooperative, filed a rate 
case with the Surface Transportation Board (STB) at the end of 2004 and 
that case has still not been decided. The STB was supposed to issue a 
decision in the fall of this year, but the agency unilaterally decided 
to halt the proceedings in March 2006 to rewrite the rules related to 
rate cases like this one. After assembling thousands of pages of 
documents and spending more than $5 million dollars and more than two 
years time, the LRS owners will have to spend anther $500,000 to $1 
million dollars and wait even longer for a decision to be made. All the 
while, our consumers will continue to pay the price of the higher 
rates. The problems here are two fold. 1) LRS is a ``captive shipper.'' 
This means LRS is unable to get coal any other way except by train, and 
BNSF controls the only track to the plant. BNSF is taking advantage of 
this situation and using its market power to extract unreasonable 
rates. 2) The STB was given the direct responsibility by Congress to 
make sure those captive shippers who get charged excessive rates have a 
backstop agency to go to for relief. The problem is the STB is not 
adequately doing its job. The STB has allowed the railroads to 
consolidate to the point where four major railroads control over 90% of 
the freight and revenue in the country. The agency has also allowed 
railroads to charge whatever freight rates they want with little or no 
accountability or regulation. The process required for a shipper to 
seek relief is so long and so complex that very few companies file a 
rate case because they simply cannot afford it.
    Along with excessive rates, captive shippers are increasingly 
forced to accept poor service. This spring the Laramie River Station 
was down to a six-day supply of coal, far short of our normal 30-day 
stockpile. The railroads have a common carrier ``obligation to serve'' 
requirement, but the railroads have failed to live up to their 
obligations, and the STB has not stepped-in to address railroad service 
problems. Since we had no other recourse, the owners of LRS were forced 
to pay millions of dollars to find enough coal, and the train cars to 
deliver it, to keep the plant running. Due to a six-week outage in 
April and the leasing of additional train cars our stockpile is now at 
acceptable levels. But with little or no oversight over rail service, 
we remain highly susceptible to recurring service lapses. LRS is not 
alone in this situation; many other utilities in the United States are 
captive shippers and continue to face delays in coal delivery along 
with large increases in rates and poor delivery service.
    Mr. Chairman, I want to make it clear to you and the members of 
this committee that the members of the Missouri Basin Power Project are 
not anti-railroad. We strongly believe in the need for a healthy, 
reliable railroad system in this country. The electric power industry, 
particularly the coal sector, has been a key partner with the railroads 
for decades. However, that partnership has become far too one-sided, 
and we strongly believe that there needs to more effective federal 
oversight to stop abuses of monopoly power when they happen. At this 
time, those protections are sorely lacking.
    This nation survives and thrives on reliable, affordable energy. 
The electric system we have in place provides well paying jobs that 
help sustain strong communities. Our energy demands are growing and we 
need to build more electric infrastructure to meet those needs. 
Building that infrastructure is going to take the work and support of 
business, communities, states and the federal government. It is also 
going to require new alliances which work together to balance 
everyone's needs to keep this country going and growing.
    Again, I want to thank the committee for coming and for allowing me 
this opportunity to provide input on what is a critical issue for our 
community, state and country.
                                 ______
                                 
    Mr. Radanovich. Thank you, Mr. Dingman. I appreciate your 
testimony.
    Next is Mr. Jack Finnerty. Mr. Finnerty, welcome to the 
Subcommittee.

   STATEMENT OF JACK FINNERTY, BOARD MEMBER, WHEATLAND RURAL 
          ELECTRICITY ASSOCIATION, WHEATLAND, WYOMING

    Mr. Finnerty. Mr. Chairman and Representative Cubin, my 
name is Jack Finnerty and I am a local rancher, a board member 
of Wheatland Rural Electric Association, the local electric 
cooperative, and a board member of Tri-State Generation and 
Transmission Association, a not-for-profit wholesale power 
supply cooperative that generates and transmits electricity to 
44 member distribution cooperatives and public power systems in 
Colorado, Nebraska, New Mexico and Wyoming.
    I also sit on the Board of Directors of Western Fuels 
Colorado, a subsidiary of Western Fuels Association, a not-for-
profit cooperative that supplies coal and transportation 
services to consumer-owned electric utilities throughout the 
Great Plains, Rocky Mountain and Southwest regions.
    Serving a wide variety of public power entities ranging 
from rural electric generation and transmission cooperatives to 
municipal utilities, Western Fuels offers its members diverse 
and extensive expertise in coal mining, coal procurement, and 
transportation management.
    I appreciate this opportunity to appear here today to 
discuss the railroad issues that have risen to the top of the 
policy agenda of the organizations that I represent here today. 
I believe that hauling rate issues and delivery problems with 
coal will have a significant negative impact on local 
cooperative members like myself, and electricity consumers 
nationwide, if they are not resolved.
    As a board member of a member-owned not-for-profit electric 
cooperative, it is the cooperative's mission, and obligation, 
to provide a reliable source of electricity to our consumers at 
the lowest possible price. We take this obligation very 
seriously. We are keenly aware that we provide an essential 
service to our customers.
    The people that live in the communities that we serve 
depend on this electricity to run their businesses, to light, 
heat and power their homes, and to run the hospitals and other 
emergency services needed to keep the people in rural America 
safe and healthy.
    In addition to our obligation to meet our members' electric 
needs in a cost-effective fashion, we have to ensure that we 
maintain the reliability of the electric system as well.
    The railroad industry, like electric utilities, should also 
be subject to an obligation to serve its customers and the 
national interest.
    Theirs is an obligation to provide reliable transportation 
service at reasonable rates to consumers across the nation. 
Without requiring the nation's railroads to meet an obligation 
to serve, our nation's national economy is stymied and our 
nation will not sustain necessary levels of economic growth and 
global competitiveness. Adequate, dependable, and reasonably 
priced rail service is, like electricity, critical to our 
national and economic security interests.
    The Surface Transportation Board has shown little interest 
in rail service issues, and has no history of directing 
railroads to provide service to shippers where service is 
inadequate.
    As a co-op that receives power from Laramie River Station, 
a coal-based generating plant here in Wheatland, Wyoming, our 
member-consumers have been hit directly at LRS by both 
increased rail rates and reduced coal shipment. Indeed, the 
member-consumers of LRS are paying more and receiving less rail 
service.
    LRS is served by a single railroad, Burlington Northern and 
Santa Fe Railway Company. Burlington Northern and Santa Fe 
delivers 8.3 million tons of coal annually to the power plant 
from the Laramie River Station, a distance of approximately 175 
miles.
    In order to maintain efficiency, coal-based generating 
plants like Laramie River Station are run nearly continuously.
    Maintaining full generation levels at the 1,650 megawatt 
level, the three-unit LRS plant requires 24,000 tons of coal 
per day, or one and a half trains every day. A train consists 
of about 136 carts with 120 ton of coal per car.
    In addition, a coal stockpile is maintained at the plant 
site, which is used as a backup in case of an interruption in 
rail deliveries. To maintain reliability of service, the plant 
typically tries to maintain more than a 30-day supply of coal 
in that stockpile. Earlier this year, as was earlier mentioned 
by Joel, delivery problems in that stockpile resulted in only a 
six-day supply of coal.
    If the stockpile at LRS had been depleted any further, they 
would have been forced to curtail generation at a significant 
cost to its members. If LRS had been forced to curtail 
electricity generation, they would have had to either use 
natural gas generators--a fuel that costs five to seven times 
as much as coal--or buy electricity on the open market.
    I think last week the power that was produced for 30 mills 
out there was on the open market at about three hundred. So 
that can give you an idea of the impact that would be felt.
    Fortunately, stockpiles at LRS are now back up due to 
improved delivery times by Burlington Northern and Santa Fe, 
and, more importantly, to a scheduled seven-week maintenance 
outage of one of the units, and also the purchase of a new set 
of cars at a cost of about $10 million.
    Other generating stations have experienced similar problems 
and have cut production at plants that are normally the least 
costly to operate. electricity generators have resorted to 
burning more expensive natural gas, purchasing higher cost 
electricity from the open market, or purchasing and importing 
more expensive foreign coal.
    Our Nation is blessed with enormous reserves of coal that 
can provide for electricity and other uses for many decades in 
the future. Some of the largest reserves are located here, in 
Wyoming, and I am discouraged by the fact that we cannot 
deliver this commodity with more reliability.
    I believe under the current supervision of the Surface 
Transportation Board, railroads are allowed to charge above-
market rates where there is no viable transportation 
competition, and we must be satisfied with whatever level of 
service the railroad provides.
    In addition, with demand for railroad services far 
exceeding the supply of railroad capacity, the railroads have 
what Wall Street analysts identify as the ``perfect pricing 
power.'' Thus, in the absence of Government supervision, the 
railroad industry may have no incentive to jeopardize their 
pricing power by adding sufficient capacity, particularly for 
rail customers that have no access to transportation options.
    Unless the railroads provide sufficient and reliable 
transportation capacity for our coal movements, we will 
continue to face problems for the foreseeable future.
    Mr. Chairman, about 50 percent of the Nation's electricity 
is generated from coal, and in the cooperative community, about 
80 percent of our electricity is generated by coal. None of 
these power plants, or very few of them sit at the mine 
themself, so we rely on the railroads to move that coal to the 
plants.
    Coal delivery costs flow straight through to our customers, 
many of whom are farmers and ranchers like myself, who are 
already paying significantly high operating costs because of 
increased energy costs. When we must rely on a single railroad 
to move coal to the plants, we are in no position to negotiate 
a mutually acceptable price. Rather, both price and service are 
provided to us by our railroad carrier.
    Captive rail shoppers are forced into an arbitrary ``take 
it or leave it'' situation and face higher transportation costs 
than those shippers that have access to competition.
    From my perspective, we are faced with a national rail 
system that may not be able to deliver coal to the nation's 
generators reliably and at a reasonable cost unless changes are 
made.
    I recognize that all rail traffic is growing, and there is 
a need for investment in railroad infrastructure, and I do 
support these needed investments, but it must come with some 
oversight that ensures the reliable delivery of coal resources.
    Mr. Chairman, thank you for conducting this hearing today. 
I do support a strong and viable rail industry that will 
provide reliable service to its customers at a fair and 
reasonable price. Thank you.
    [The prepared statement of Mr. Finnerty follows:]

Statement of Jack Finnerty, Board of Directors, on behalf of Wheatland 
    Rural Electric Association, Inc., and Tri-State Generation and 
                     Transmission Association, Inc.

    Mr. Chairman and Members of the Committee:
    My name is Jack Finnerty, and I am a local rancher, a board member 
of Wheatland Rural Electric Association the local electric cooperative, 
a board member of Tri-State Generation and Transmission Association, a 
not-for-profit wholesale power supply cooperative that generates and 
transmits electricity to forty-four member distribution cooperatives 
and public power systems in Colorado, Nebraska, New Mexico and Wyoming. 
I also sit on the Board of Directors of Western Fuels Colorado, a 
subsidiary of Western Fuels Association, a not-for-profit cooperative 
that supplies coal and transportation services to consumer-owned 
electric utilities throughout the Great Plains, Rocky Mountain and 
Southwest regions. Serving a wide variety of public power entities 
ranging from rural electric generation and transmission cooperatives to 
municipal utilities, Western Fuels offers its members diverse and 
extensive expertise in coal mining, coal procurement and transportation 
management.
    I appreciate this opportunity to appear today to discuss railroad 
issues that have risen to the top of the policy agenda for the 
organizations that I represent here today. I believe that hauling rate 
issues and delivery problems with coal will have a significant negative 
impact on local cooperative members like myself and electricity 
customers nation-wide if they are not resolved.
Coal, Electricity Reliability and Obligation to Serve
    As a board member of a member-owned, not-for-profit electric 
cooperative, it is the cooperative's mission and obligation to provide 
a reliable source of electricity to our member-consumers at the lowest 
possible price. We take this obligation to serve very seriously. We are 
keenly aware that we provide an essential service to our customers. The 
people that live in the communities that we serve depend on this 
electricity to run their businesses, to light, heat and power their 
homes, and to run the hospitals and other emergency services needed to 
keep the people in rural America safe and healthy. In addition to our 
obligation to meet our members' electric needs in a cost effective 
fashion, we have to ensure that we maintain the reliability of the 
electric utility system as well.
    The railroad industry, like electric utilities, should also be 
subject to an obligation to serve its customers and the national 
interest. Theirs is an obligation to provide reliable transportation 
service at reasonable rates to its customers across the nation. Without 
requiring that the nation's railroads meet an obligation to serve, our 
nation's national economy is stymied and our nation will not sustain 
necessary levels of economic growth and global competitiveness. 
Adequate, dependable and reasonably priced rail service is, like 
electricity, critical to our national and economic security interests.
    The Surface Transportation Board has shown little interest in rail 
service issues and has no history of directing railroads to provide 
service to shippers where service is inadequate. As a co-op that 
receives power from the Laramie River Station (LRS), a coal-based 
generating plant here in Wheatland Wyoming, our member-consumers have 
been hit directly at LRS by both increased rail rates and reduced coal 
shipments. Indeed, the member-consumers of LRS are paying more and 
receiving less rail service.
    LRS is served by a single railroad, Burlington Northern and Santa 
Fe Railway Company (BNSF). BNSF delivers 8.3 million tons of coal 
annually from the Powder River Basin to LRS, a distance of 
approximately 175 miles.
    In order to maintain efficiency, coal-based generating plants like 
Laramie River Station are run nearly continuously. Maintaining full 
generation levels at the 1,650 megawatt level, the three-unit LRS plant 
requires 24,000 tons of coal per day, the equivalent of one and a half 
trains of coal daily. (A train consists of about 136 rail cars, each 
carrying about 120 tons of coal.) In addition, a coal stockpile is 
maintained at the plant site, which is used as backup in case of an 
interruption in rail deliveries. To maintain reliability of service, 
the plant typically tries to maintain more than a 30-day supply of coal 
in the stockpile. Earlier this year, coal delivery problems resulted in 
a stockpile that would serve the plant for only 6 days. If the 
stockpile at LRS had been depleted any further, they would have been 
forced to curtail generation at a significant cost to the member-
consumers. If LRS had been forced to curtail electricity generation, 
they would have had to either use natural gas generators--a fuel that 
costs as much as 5 to 7 times more than coal--or buy electricity on the 
open market, if available, at much higher costs than the electricity 
produced at LRS. Fortunately, stockpiles at LRS are now back up due to 
improved delivery times from BNSF and, more importantly, to a scheduled 
seven-week maintenance outage of one of the three units this spring and 
the addition of a fourth train set, at a cost of about $10 million.
    Other generating stations have experienced similar problems and 
have cut production at plants that are normally the least costly to 
operate. Electricity generators have resorted to burning more expensive 
natural gas, purchasing higher cost electricity from the open market, 
or purchasing and importing more expensive foreign coal.
    Our nation is blessed with enormous reserves of coal that can 
provide for electricity and other uses for many decades in the future. 
Some of the largest reserves are located here in Wyoming and I am 
discouraged by the fact that we cannot deliver this commodity more 
reliably.
    I believe under the current supervision of the Surface 
Transportation Board, railroads are allowed to charge above market 
rates where there is no viable transportation competition and we must 
be satisfied with whatever level of service the railroads provide. In 
addition, with demand for railroad services far exceeding the supply of 
railroad capacity, the railroads have what Wall Street analysts 
identify as ``perfect pricing power.'' Thus, in the absence of 
governmental supervision, the railroad industry may have no incentive 
to jeopardize their pricing power by adding sufficient capacity, 
particularly for rail customers, that have no access to transportation 
options. Unless the railroads provide sufficient and reliable 
transportation capacity for our coal movements, we will continue to 
face reliability problems for the foreseeable future.
Rail Rate Concerns
    Mr. Chairman, about 50% of the nation's electricity is generated 
from coal. In the electric cooperative community, about 80% of the 
electricity generated by our plants is from coal. Very few of the 
generating facilities are located at coal mine sites, so most of the 
coal consumed is delivered by rail.
    Coal delivery costs flow straight through to our customers, many of 
whom are farmers and ranchers like myself, who are already paying 
significantly higher operating costs because of increased energy costs. 
When we must rely on a single railroad to move coal to the plants, we 
are in no position to negotiate a mutually acceptable price. Rather, 
both price and service are provided to us by our railroad carrier. 
``Captive'' rail shippers are forced into an arbitrary ``take-it-or-
leave-it'' situation and face higher rail transportation costs than 
those shippers that have access to competition.
Conclusion
    From my perspective, we are faced with a national rail system that 
may not be able to deliver coal to the nation's generators reliably and 
at reasonable costs unless changes are made. I recognize that all rail 
traffic is growing and there is a need for investment in railroad 
infrastructure and I support these needed investments, but it must come 
with oversight that ensures the reliable delivery of coal resources.
    Mr. Chairman, thank you for conducting this hearing today. I 
support a strong and viable rail industry that will provide reliable 
service to its customers at fair and reasonable prices.
                                 ______
                                 
    Mr. Radanovich. Thank you, Mr. Finnerty, for your 
testimony.
    Welcome, Mr. Thompson, to the Subcommittee. You may begin 
your testimony.

 STATEMENT OF JANSSEN THOMPSON, GENERAL MANAGER, POWDER RIVER 
        DIVISION, BNSF RAILWAY COMPANY, DENVER, COLORADO

    Mr. Thompson. Good afternoon, Chairman Radanovich, and 
Congresswoman Cubin. My name is Janssen Thompson. I am the 
general manager for the Powder River Division for BNSF Railway. 
Today, I am going to talk about the operations of BNSF's coal 
business, the growth that we have experienced, and the capacity 
expansion that we have undertaken in the past few years to 
respond to the growth, both here, in Wyoming, and across our 
network.
    I will briefly describe my railroad and our role in the 
coal delivery system, particularly from the PRB or the Powder 
River Basin, the scope of our coal network, the capital 
investment program to support it, our expansion plans in order 
to meet the increasing demand for PRB coal in the future.
    BNSF operates the largest volume railroad network in North 
America, spanning across 32,000 miles in 28 States and two 
Canadian provinces.
    In Wyoming, BNSF has 1,236 active employees and we will 
hire some 365 employees this year. BNSF's coal transportation 
network provides the track, terminals, locomotives, freight 
cars, and people to haul the PRB coal that now is burned in 38 
States across the United States. Each year, BNSF hauls enough 
low-sulphur coal to generate about 10 percent of the 
electricity used in the United States.
    Today, you will hear me talk about the Joint Line. This is 
the appropriately 103 mile southern section of the rail lines 
serving the Powder River Basin in Wyoming. This track is 
actually jointly owned by BNSF and the Union Pacific Railway. A 
BNSF predecessor built this line in the 1970's, and UP, through 
a predecessor, gained access to it in the 1980's.
    This is the most intensively utilized railroad in the 
world. Operationally, it is the railroad equivalent of Chicago 
O'Hare Airport. This requires intense cooperation between the 
mines, the railroads, and utilities to run an average of more 
than 60 loaded coal trains per day to maintain a pipeline of 
coal to the nation's utilities. There is no other rail 
infrastructure of which I am aware of that has benefited from 
the same level of maintenance and expansion investment as the 
Joint Line.
    Over the last 15 years, PRB coal production in the basin 
has grown dramatically, and at a much greater rate than all 
other coal sources in the United States. Powder River Basin 
coal production was 7.56 million tons in 1970, 99.6 million 
tons in 1980, 200 million tons in 1990, and 415 million tons in 
2005. We expect PRB production this year will exceed 450 
million tons for 2006.
    BNSF has experienced significant growth in coal business 
over the last decade. Low-sulphur and low-NOx emissions, 
coupled with the lowest delivered cost per ton have made PRB 
coal the dominant supply source for utilities in the United 
States.
    But it hasn't been a ``hockey stick'' growth pattern. Since 
the formation of BNSF, in 1995, for example, our business 
incurred growth through 1999, it declined in 2000, it grew 
slightly in 2001, then declined again in 2002 and 2003, before 
escalating rapidly in 2004, in light of the unprecedented 
increases in natural gas prices.
    As with electricity generation and transmission capacity, 
it is difficult to immediately ramp up railroad capacity 
against a spike in demand.
    However, BNSF is appropriately responding with significant 
investment to increase coal deliveries to meet the demand that 
hopefully will continue for years to come.
    BNSF is proud of its performance in hauling PRB coal for 
more than 30 years. You may be aware of the unusual episodic 
events that occurred last May of 2005, when we faced the 
perfect storm. We had a spring thaw coupled with a freak snow 
storm and torrential rains along the Joint Line. This was 
combined with coal dust in the right of way that damaged the 
rail bed.
    The resulting maintenance efforts did negatively impact our 
customers and our service for several months.
    We were not very happy with the consequences of these 
events and we worked closely with our customers throughout the 
Joint Line maintenance process.
    We still completed 2005, though, by hauling a record amount 
of coal and rebuilt stockpiles. The intense maintenance program 
we undertook put us ahead of existing maintenance schedules 
which will accrue operational efficiencies.
    As a result of this incident, BNSF has worked closely with 
the mines to achieve better grooming of the loading profile for 
each loaded coal car to minimize coal dust blowing into the 
right of way. We are also discussing with the mines and 
utilities about other preventative measures to improve and 
reduce the amount of coal coming off the cars by using crusting 
agents on the coal loads.
    Our 2006 coal performance has been even more outstanding so 
far. In July, BNSF loaded a record 24.9 million tons of coal 
systemwide, breaking the previous record of 24.43 million tons 
loaded in May of this year. May, June and July are the three 
highest coal tonnage months in BNSF history, and BNSF has 
loaded a total of 165.987 million tons of coal through July 31, 
2006 of this year. This is up 10.3 percent from the year-to-
date of last year of 150 million tons that we had in 2005.
    In the Powder River Basin, in which we include the Wyoming 
and Montana mines, BNSF loaded a record monthly average of 50.8 
trains per day. This was the fifth consecutive record average 
daily train loadings for the BNSF in the PRB.
    Delivering this kind of performance to meet the growth in 
demand for PRB coal does not occur in a vacuum. It requires 
capital investment to expand rail infrastructure and add 
locomotives. Between 1994 and the end of 2006, BNSF will have 
invested $3.2 billion in increasing its coal transportation 
capacity, $600 million in 2006 alone.
    We have added more than 150 coal train sets, about 125 cars 
per train, which requires three locomotives, to the coal 
network in the past decade.
    We are leveraging existing capacity, increasing the number 
of tons carried by each coal train by 2500 tons since 1995, 
because car design has enabled us to haul more coal in each 
car.
    Over the next two years, BNSF and UP have agreed to spend 
an additional $100 million to finish triple-tracking the entire 
Joint Line and begin approximately 18 miles of quadruple-
tracking. Of the 362 high-horsepower locomotives, cleaner-
burning locomotives that we are purchasing this year, about 
half of those will be added to the coal service.
    The BNSF yard at Donkey Creek now has six staging tracks in 
operation, which is enabling us to more efficiently stage 
trains to keep the Joint Line at maximum velocity, with trains 
at the ready for deployment to the mines.
    But keeping the coal network fluid goes beyond the Joint 
Line. By the end of this year, we will have finished upgrades 
in Memphis, Tennessee, a lot of double-tracking across the 
Nebraska area, and doing capacity improvements at Lincoln 
Terminal which is a key part of our network.
    All these improvements will result in more efficient 
movements, improved velocity, and better train st cycle times, 
providing our utility customers with more consistent 
transportation services.
    We will continue to make substantial investments as long as 
demand forecasts supports it, and that we can continue to 
improve our returns, which must exceed our cost of capital.
    As you can see, BNSF takes seriously this commitment to 
Powder River Basin coal and to its customers. There is no 
better evidence than what has been cited here previously at the 
Laramie River Station.
    Earlier this year, they had concerns regarding their coal 
stockpile. BNSF has worked closely with the Laramie River, and 
at the end of last week they had 36 days of stockpile on hand, 
and then July 20, 2006, Energy Information Administration 
report on coal stockpiles substantiates the efforts that the 
railroads are making in regards to PRB coal flowing. It states 
that the coal stockpiles have reached their highest levels 
since mid 2003.
    Overall, we believe rail service in the Powder River Basin 
continues to be a world class operation, and we have invested 
to expand our ability to improve throughput and provide 
reliable service. We have plans in place to do more. BNSF sees 
a bright future for the Powder River Basin coal and we want to 
an active partner with the mines and utilities in the future.
    We will continue to invest and grow our operations and 
abilities consistent with the rate of return on capital 
requirement.
    Thank you for allowing me to be here today as a part of 
these proceedings.
    [The prepared statement of Mr. Thompson follows:]

            Statement of Janssen Thompson, General Manger, 
              Powder River Division, BNSF Railway Company

    Good afternoon Chairman Radanovich and Congresswoman Cubin. My name 
is Janssen Thompson, and I am the General Manager of the Powder River 
Division of BNSF Railway Company. I am pleased to be here today in 
response to the Subcommittee's request for testimony about the 
operations of BNSF's coal business, the growth we have experienced, and 
the capacity expansion that we've undertaken in the past few years to 
respond to that growth, both here in Wyoming and across our network
    I will briefly describe my railroad and our role in the coal 
delivery system, particularly from the Powder River Basin (PRB), the 
scope of our coal network, the capital investment program to support 
it, and the step-wise expansion we see in our capability to meet the 
increasing demand for PRB coal.
    BNSF operates the largest volume railroad network in the North 
America, spanning about 32,000 route miles in 28 states and two 
Canadian provinces. In Wyoming, BNSF has 1,236 active employees and 
will hire some 365 employees this year. BNSF's coal transportation 
network provides the track, terminals, locomotives, freight cars and 
people to haul the PRB coal that now is burned in 38 states. Each year, 
BNSF hauls enough low-sulphur coal to generate about ten percent of the 
electricity used in the United States.
    Today you will hear me talk about the Joint Line. This is the 
approximately 103-mile southern section of the rail lines serving the 
Powder River Basin in Wyoming. This track is jointly owned and used by 
BNSF and Union Pacific Railroad (UP). A BNSF predecessor built this 
line in the early 1970's and UP, through a predecessor, gained access 
to it in the 1980's. BNSF has access to the Joint Line at Donkey Creek 
on the northern end and through Shawnee Junction on the southern end. 
This is the most intensively utilized railroad in the world. 
Operationally, it is the railroad-equivalent of Chicago O'Hare airport, 
requiring intense cooperation between the mines, railroads and 
utilities to run an average of more than 60 loaded coal trains per day 
to maintain a pipeline of coal to the nation's utilities. There is no 
other rail infrastructure of which I am aware that has benefited from 
the same level of maintenance and expansion investment as the Joint 
Line.
    Over the past 15 years, PRB coal production in the Basin has grown 
dramatically and at a much greater rate than all other coal sources in 
the United States. Powder River Basin coal production was 7.5 million 
tons in 1970; 99.6 million tons in 1980; 200 million tons in 1990; and 
415 million tons in 2005. We expect PRB production will exceed 450 
million tons in 2006.
    BNSF has experienced significant growth in its coal business over 
the last decade. Low-sulfur and low-NOx emissions, coupled with the 
lowest delivered coal cost per ton have made PRB coal the dominant 
supply source for utilities in the United States. But it hasn't been 
``a hockey stick'' growth pattern. Since the formation of BNSF in 1995, 
for example, growth in our coal business occurred through 1999; 
declined in 2000; grew in 2001, and then declined again in 2002 and 
2003, before escalating rapidly in 2004 in light of unprecedented 
increases in natural gas prices. As with electricity generation and 
transmission capacity, it is difficult to immediately ramp up railroad 
capacity against a spike in demand; however, BNSF is appropriately 
responding with significant investment to increase coal deliveries to 
meet the demand that, hopefully, will continue for years to come.
    BNSF is proud of its performance in hauling PRB coal for more than 
30 years. You may be aware of the unusual episodic events of May 2005 
when we faced the perfect storm--a spring thaw coupled with a freak 
snow blizzard and torrential rains along the Joint Line which combined 
with coal dust in the right of way to damage the rail bed. The 
resulting maintenance efforts negatively impacted our service 
capability for several months. We were not happy with the consequences 
of these events, and worked closely with our customers throughout the 
Joint Line maintenance process. We still completed 2005 hauling a 
record amount of coal and rebuilt stockpiles. The intense maintenance 
program we undertook put us ahead of existing maintenance schedules, 
which will accrue operational efficiencies. As a result of this 
incident, BNSF also worked closely with the mines to achieve better 
grooming of the loading profile of each coal car to minimize coal dust 
blowing into the right of way. We are in discussion with mines and 
utilities about other additional preventative improvements, such as the 
use of a crusting agent on coal loads.
    Our 2006 coal performance has been even more outstanding so far. In 
July, BNSF loaded a record 24.98 million tons of coal system-wide, 
breaking the previous record of 24.43 million tons loaded in May of 
this year. May, June and July are the three highest coal tonnage months 
in BNSF history. BNSF has loaded a total of 165.987 million tons of 
coal through July 31, 2006, up 10.3 percent from the year-to-date total 
of 150.524 million tons loaded through July 31, 2005. In the Powder 
River Basin (PRB), including Wyoming and Montana mines, BNSF loaded a 
record monthly average of 50.8 coal trains per day in July, the fifth 
consecutive month of record average daily train loadings for BNSF in 
the PRB.
    Delivering this kind of performance to meet growth in demand for 
PRB coal does not occur in a vacuum. It requires capital investment to 
expand rail infrastructure and add locomotives. Between 1994 and the 
end of 2006, BNSF will have invested $3.2 billion dollars in increasing 
its coal transportation capacity--$600 million in 2006 alone. We've 
added more than 150 coal train sets--about 125 cars per train set 
requiring three locomotives--to the coal network in the past decade. We 
are also leveraging existing capacity, increasing the number of tons 
carried by each coal train by about 2,500 since 1995 because car design 
has enabled more coal to be loaded in each car.
    Over the next two years, BNSF and UP have agreed to spend an 
additional $100 million to finish triple-tracking the entire Joint Line 
and begin approximately 18 miles of quadruple-tracking. Of the 362 
high-horsepower, cleaner burning locomotives being added to BNSF's 
fleet in 2006, about half have been allocated to coal train service.
    The BNSF yard at Donkey Creek now has six new staging tracks in 
operation, which is enabling us to more efficiently stage trains to 
keep the Joint Line at maximum velocity with trains at the ready for 
deployment to the mines. By the end of 2006, 77 miles of the Joint Line 
will be triple-tracked; the balance will be completed in 2007. By 2008, 
a fourth main line must be added between Donkey Creek and Shawnee 
Junction.
    But keeping the coal network fluid goes beyond the Joint Line. By 
the end of 2006, we will have finished upgrading our Memphis yard to 
ensure that increased intermodal traffic does not slow down coal 
heading to the eastern seaboard. We will also have double-tracked 
additional miles on our major coal route through Nebraska and added 
capacity to our Lincoln Terminal, a key part of our coal network. All 
of these improvements result in more efficient movements, improved 
velocity, and better train set cycle times, providing our utility 
customers with more consistent transportation services. We will 
continue to make substantial investments so long as demand forecasts 
support them and we can continue to improve our returns, which must 
exceed our cost of capital.
    Since I am appearing before the Resources Committee, it is 
appropriate to raise the issue of federal permitting for these critical 
railroad projects. We work closely with the agencies under your 
Committee's jurisdiction that approve permits, grant easements and work 
with each other and state agencies in the permitting process. We 
believe that generally they do everything they can to be responsive to 
the tight timelines that we have established for completing these 
projects which are critical to the delivery of the nation's coal. 
However, we have been concerned about the amount of agency work 
required for executing several critical project permits on time and 
urge you to support and encourage the efforts of Fish and Wildlife 
Department, the U.S. Forest Service, the Bureau of Land Management in 
processing critical rail project permits.
    As you can see, BNSF takes seriously its commitment to Powder River 
Basin coal and to its customers. There is no better evidence of this 
than to cite a nearby power plant--Laramie River Station. Earlier this 
year, Laramie River Station had concerns regarding the level of their 
coal stockpile. BNSF has worked closely with Laramie River and at the 
end of last week they had 36 days of stockpile on hand. A July 20, 
2006, Energy Information Administration report on coal stockpiles 
substantiates the efforts that the railroads have made to keep PRB coal 
flowing. It states that coal stockpiles have reached their highest 
levels since mid-2003.
    Overall, we believe rail service in the Powder River Basin 
continues to be a world-class operation and we have invested to expand 
our ability improve throughput and provide reliable service. We have 
plans in place to do more. BNSF sees a bright future for Powder River 
Basin coal and we want to be an active partner with the mines and 
utilities in that future. We will continue to invest and grow our 
operations and abilities, consistent with rate of return on capital 
requirement.
    Thank you again for allowing me to be a part of today's proceeding.
                                 ______
                                 
    Mr. Radanovich. Thank you, Mr. Thompson, for your 
testimony.
    Mr. Vasy, welcome to the Subcommittee. You may begin.

 STATEMENT OF RICH VASY, ASSISTANT VICE PRESIDENT FOR BUSINESS 
    DEVELOPMENT, UNION PACIFIC CORPORATION, OMAHA, NEBRASKA

    Mr. Vasy. Thank you. Good afternoon, Mr. Chairman, 
Congresswoman Cubin. My name is Richard Vasy. I am assistant 
vice president for Business Development with Union Pacific 
Railroad. I am pleased to be here today to discuss Union 
Pacific's investment in moving Powder River Basin coal.
    Wyoming and Union Pacific have a long and great history 
together as our route across Southern Wyoming is part of the 
first transcontinental railroad. Today, in Wyoming, we employ 
over 1500 people and have an annual payroll of $96 million.
    One of the biggest success stories for Wyoming and Union 
Pacific is the movement of coal from the Powder River Basin to 
utilities all across the nation. In 1985, it requires about 
five trains per day to move 19 million tons on the Joint Line, 
and we did this with a single line. Ten years later, we were 
moving 25 trains per day.
    A large part of the Joint Line was doubletracked but much 
of the UP route was still single main line. As the market 
demanded more Western coal, we responded by building 109 miles 
of triple-main line. We also double-tracked large portions of 
the route across Nebraska. Today, Union Pacific averages 36 
trains per day out of the basis; but that isn't the real story.
    The real story is the tonnage. In 2006, the Joint Line 
handled an all-time record of 325 million tons, 179 million of 
this on the Union Pacific, and we are on track to haul even 
more in 2006. Building the infrastructure to handle the coal 
was not and is not inexpensive.
    Since 1982, our total investment in the coal business has 
been at least $10 billion. At the same time we have been making 
these massive investments, revenue per ton-mile for coal was 
declining. Coal has the lowest revenue per ton-mile of all rail 
commodities.
    This has made Western coal competitive in many markets, 
even when transported thousands of miles. In fact, from 1981 to 
2004, transportation rates for coal declined 32 percent in 
nominal dollars while electricity rates have increased 38 
percent.
    Coal will continue to be important for the Union Pacific. 
Our capital budget for 2006 is approximately $2.8 billion. Of 
this, 1.5 billion is to replace track and increase fluidity and 
capacity for our customers. Much of this will be spent on our 
coal corridors.
    We wear out more than three miles of track a day, mainly 
due to heavy haulage on our coal routes. At a cost of $700,000 
per mile for replacement rail, this adds up very quickly. The 
cost goes up to $2.5 million per mile for new rail, such as new 
rail on the Joint Line and on our main coal corridors.
    In addition, in May of this year, we, along with the BNSF, 
announced another significant capacity expansion on the Joint 
Line.
    We agreed to construct more than 40 miles of third and 
fourth main lines over the next two years. This will cost about 
$100 million. This project compliments the construction of 14 
miles of third main line track that was completed in the spring 
of 2005, and an additional 19 miles of third main line 
currently under construction and scheduled to be fully 
operational in September.
    The total cost of this 75 mile capacity expansion will be 
about $200 million, which is split equally among the two 
carriers.
    These investments are not cheap, and in order for us to 
continue to make them, we must be able to earn an adequate rate 
of return on our investment.
    The rail industry is extremely capital-intensive. Railroads 
spent an average of 17.8 percent of their revenue on capital 
expenditures. The comparable figure for U.S. manufacturing, as 
a whole, is just 3.5 percent.
    At the Union Pacific, roughly 19 cents of every revenue 
dollar goes back into our infrastructure. Unfortunately, we 
still do not earn the cost of capital, so we must be prudent 
with our capital resources.
    The only wise business decision we can make is to invest in 
those businesses where the returns justify the high costs. For 
us to continue to make these huge investments in our coal 
routes, we must earn an adequate rate of return.
    Finally, I want to mention the coal supply chain. Each leg, 
in this case the mines, the railroads and the utilities, have 
an important part to play. We have our issues but so do the 
mines and utilities. In today's high-demand environment, missed 
train loadings at a mine are gone forever.
    Through the first seven months of 2006, mine production and 
loading bottlenecks have resulted in 327 missed loadings on the 
UP.
    The mines have to reduce unplanned equipment breakdowns and 
make sure that their production forecasts reflect a figure they 
can produce day in and day out.
    On the destination end, coal deliveries can be improved by 
working together to speed the unloading of coal.
    In summary, Union Pacific is proud of the role that we have 
played in developing the coal fields in the souther Powder 
River Basin. As long as we can earn adequate rates of return, 
we plan to continue our investments. I appreciate being here 
today. Thank you very much.
    [The prepared statement of Mr. Vasy follows:]

     Statement of Richard Vasy, Assistant Vice President--Business 
                  Development, Union Pacific Railroad

    Good afternoon Mr. Chairman and Members of the Committee. My name 
is Rich Vasy, and I am Assistant Vice President for Business 
Development within the Coal Marketing Department for Union Pacific 
Railroad. I am pleased to be here today to discuss Union Pacific's 
investment in moving Southern Powder River Basin coal from Wyoming to 
various locations across the country.
    Wyoming and Union Pacific Railroad have a long and great history 
together as our route across the Southern part of the state is part of 
the first transcontinental railroad that linked the east and west 
together. Today this route carries as many as 65 trains a day across 
the state. In addition to the coal fields in the Powder River Basin, we 
also serve the soda ash mines in the Green River area. We employee over 
1,500 people, and we have an annual payroll of $96 million. However, 
one of the biggest success stories for Wyoming and Union Pacific 
Railroad is the movement of coal from the Powder River Basin to 
utilities all across the nation, and the massive investment it has 
taken to make this happen.
    In the early 1970s, the Burlington Northern Railroad and the 
Chicago & Northwestern Railroad were interested in developing Wyoming's 
coal fields. The Chicago & Northwestern didn't have the financial 
resources to proceed so Union Pacific stepped in with $325 million to 
underwrite their investment. The Joint Line was built, and we moved our 
first train on it on August 16, 1984.
    In 1985, an 11,000-ton coal train was considered very large, and it 
required about 5 trains per day to move 19 million tons a year on the 
Joint Line, and we did this with only a single main line. By the time 
we acquired the Chicago & Northwestern ten years later, we were moving 
25 trains per day and the average train size had grown to 12,400 tons. 
A large part of the Joint Line was double-tracked, but much of the UP 
route was still single main lines. As the market demanded more Western 
coal, we responded by building 109 miles of triple-main line with 
concrete ties and premium rail to handle the heavier loads. We also 
double-tracked large parts of our route across Nebraska. Today, Union 
Pacific averages 36 trains per day out of the basin, but that isn't the 
real story. The real story is the tonnage. In 2005, the Joint Line 
handled an all-time record 325 million tons, 179 million of this on the 
UP, and we are on track to haul even more in 2006. In fact, so far this 
year, the Joint Line has set a number of records for trains originating 
in one day, in one month, and as a daily average of trains in one 
month.
    Building the infrastructure to handle this type of growth was not, 
and is not, cheap. Since 1982, our total investment in the coal 
business has been at least $10 billion. At the same time we have been 
making these massive investments, revenue per ton-mile for coal was 
declining. Coal has the lowest revenue per ton-mile of all rail 
commodities. This has made Western coal competitive in many markets, 
even when transported thousands of miles. In fact, from 1981 to 2004, 
rail rates for coal declined 32 percent in nominal dollars while 
electricity rates increased 38 percent during that same period.
    Coal will continue to be an important partner for Union Pacific. 
Our capital budget for 2006 is approximately $2.8 billion. Of this, 
$1.5 billion is to replace track and increase fluidity and capacity for 
our customers. Much of this will be spent on our coal routes through 
Nebraska, Iowa, and Kansas. We wear out more than three miles of track 
a day, mainly due to the heavy haulage on our coal routes. At a cost of 
$700,000 per mile for replacement rail, this adds up very quickly. The 
cost goes up to $2.5 million per mile for new rail, such as new track 
on the Joint Line and on our main coal corridors.
    In addition, in May of this year, we, along with the BNSF Railway, 
announced another significant capacity expansion on the Joint Line. We 
agreed to construct more than 40 miles of third and fourth main lines 
over the next two years. This will cost about $100 million. This 
project compliments the construction of 14 miles of third main line 
track that was completed in the spring of 2005 and an additional 19 
miles of third main line currently under construction and scheduled to 
be fully operational in September. The total cost of this nearly 75 
mile capacity expansion will be about $200 million, which is split 
equally between the two railroads. We are making these investments to 
enhance our ability to serve our customers and meet the nation's energy 
demands. These improvements will enable the Joint Line to handle in 
excess of 400 million tons of coal.
    These investments are not cheap, and in order for us to continue to 
make them, we must be able to earn an adequate rate of return on our 
investments. The rail industry is extremely capital intensive. From 
1995 to 2004, U.S. Class I railroads spent on average 17.8 percent of 
their revenue on capital expenditures. The comparable figure for U.S. 
manufacturing as a whole was just 3.5 percent. At Union Pacific roughly 
19 cents of every revenue dollar goes back into our infrastructure. 
Unfortunately, we still do not earn our cost of capital, so we must be 
very prudent with our capital resources. The only wise business 
decision we can make is to invest in those businesses where the returns 
justify the high costs. Every business in America must operate this 
way, and for us to continue to make these huge investments in our coal 
routes, we must earn an adequate rate of return.
    Finally, I want to mention the coal supply chain. The network that 
is necessary to use coal as a source of energy to generate electricity 
is like a three legged stool. Each leg, in this case, the mines, the 
railroads, and the utilities, has an important part to play. We have 
our issues, but so do the mines and utilities. In today's high-demand 
environment, missed train slots at a mine are gone forever. Through the 
first seven months of 2006, mine production and loading bottlenecks 
have resulted in 327 missed loadings on the UP. The mines have to 
reduce unplanned equipment breakdowns and make sure that their 
production forecasts reflect a figure they can produce day in and day 
out. On the destination end, coal deliveries can be improved by working 
together to speed the unloading of the coal.
    In summary, Union Pacific is proud of the role we played in 
developing the coal fields in the Southern Powder River Basin. As long 
as we can earn adequate rates of return, we plan to continue our 
investment in the infrastructure necessary to deliver this coal to 
locations both near and far. Mr. Chairman and Members of the Committee, 
that concludes my testimony, and I would be happy to answer any 
questions.
                                 ______
                                 
    Mr. Radanovich. Thank you, Mr. Vasy. I appreciate your 
testimony.
    Next, Mr. Larry LaMaack, welcome to the Subcommittee. You 
may begin.

    STATEMENT OF LARRY LaMAACK, EXECUTIVE DIRECTOR, WYOMING 
             MUNICIPAL POWER AGENCY, LUSK, WYOMING

    Mr. LaMaack. Thank you, Chairman Radanovich, Representative 
Cubin. My name is Larry LaMaack and I am the executive director 
of the Wyoming Municipal Power Agency headquartered in Lusk, 
Wyoming.
    Thank you for the opportunity to testify here today. We 
appreciate the Water and Power Subcommittee holding this 
hearing and are grateful for the role that Representative Cubin 
plays on the Subcommittee.
    WMPA is the wholesale electricity supplier for eight 
municipally owned electric utilities located in Wyoming. 
Collectively, WMPA member utilities and affiliates service some 
10 percent of the state's population.
    WMPA's power supply comes primarily from its ownership 
share in the Missouri Basin Power Project, a 1650 megawatt 
coal-fired electric generation facility located here in 
Wheatland.
    In addition, WMPA also purchases Federal hydropower 
generated by the Pick-Sloan Western Division of the Missouri 
River Basin Program and the Colorado River Storage Project, 
through contracts with the Western Area Power Administration. 
Pick-Sloan Western Division includes hydropower produced by the 
North Platte Project.
    I would like to focus my testimony today on challenges to 
the Federal power program as a result of extended drought 
conditions in the Missouri River Basis, potential impacts to 
hydropower production that may result from the Platte River 
EIS, and concerns relating to the MRTU proposal of the 
California ISO.
    The ongoing seven-year drought has reduced power production 
from the North Platte Project by approximately half, and has 
resulted in significant power production losses from all of the 
Missouri River power plants.
    As a result, Western has been forced to go to the open 
market to purchase power to meet its contract requirements. The 
increased demand for non-hydro places additional stress on the 
purchase power market and results in higher rates from Western.
    Since 2001, Western has increased its wholesale rates four 
times to the Western division of Pick-Sloan, resulting in a 
total increase of 26 percent.
    It is expected that additional rate increases are imminent 
through a ``drought rate adder''--in fact we understand that to 
probably be in the neighborhood of 14 percent or so--to cover 
the exceptional purchase power costs associated with the 
extended drought.
    These increased costs, along with other higher energy costs 
for gasoline, diesel and natural gas, have had a significant 
impact on the communities that WMPA serves.
    Another challenge facing the Federal power program on the 
North Platte Project is the uncertain resulting from the Platte 
Project Recovery Implementation Program.
    After more than 10 years in preparation, a Final 
Environment Impact Statement was released this spring. It calls 
for a $317 million plan to manage water use and wildlife 
habitats along the Platte River in order to avoid jeopardy to 
four threatened and endangered species.
    Although the EIS attempts to minimize impacts to power 
production, we remain concerned that the analysis was not 
sufficiently thorough in its assessment of economic harm to 
hydropower customers.
    Before concluding, I would like to mention another power 
supply issue of concern to WMPA, and many other electric 
utilities in the West.
    The California Independent System Operator has filed a 
proposal with the Federal Energy Regulatory Commission to make 
major changes in the way the California electricity market 
operates.
    This proposal is known as the Market Redesign and 
Technology Upgrade, and it includes many of the market 
mechanisms that are currently in place in the Eastern and 
Midwestern electricity markets.
    As we all learned during the energy crisis of 2000-2001, 
whatever happens in the California electricity market affects 
the entire Western Interconnection.
    For that reason, I want to alert this Subcommittee to the 
fact that many Western utilities, including the Western Area 
Power Administration, have raised concerns about MRTU because 
of its proposed pricing and its scheduling rules are different 
than those used by the majority of other utilities in the West.
    In addition, MRTU does not provide long-term transmission 
rights to load-serving entities. Further, MRTU plans to 
substitute financial transmission rights for the physical 
transmission rights that currently exist in the rest of the 
West.
    I urge Congress and FERC to take a long, careful look at 
MRTU and at the concerns expressed by utilities in other 
Western States. On July 12, a bipartisan group of 12 U.S. 
Senators, including Senator Craig Thomas, expressed the same 
sentiment in a letter to FERC that I am attaching to my 
testimony.
    I appreciate the opportunity to present this testimony and 
would be happy to answer questions that you may have.
    [The prepared statement of Mr. LaMaack follows:]

            Statement of Larry LaMaack, Executive Director, 
                     Wyoming Municipal Power Agency

    Chairman Radanovich, Members of the Subcommittee, my name is Larry 
LaMaack and I am the Executive Director of the Wyoming Municipal Power 
Agency (WMPA), headquartered in Lusk, WY. Thank you for the opportunity 
to testify here today. We appreciate the Water and Power Subcommittee 
holding this hearing today and are grateful for the role that 
Representative Cubin plays on the subcommittee.
    WMPA is the wholesale electricity supplier for eight municipally-
owned, electric utilities located in Wyoming. Collectively, WMPA member 
utilities and affiliates serve some 10 percent of the state's 
population.
    WMPA's power supply comes primarily from its ownership share in the 
Missouri Basin Power Project (MBPP), a 1650 MW coal-fired electric 
generation facility located here in Wheatland. The MBPP was planned and 
built entirely by a group of six regional, consumer-owned energy 
organizations, including WMPA.
    In addition, WMPA also purchases federal hydropower generated by 
the Pick-Sloan Western Division of the Missouri River Basin Program 
(Loveland Area Projects) and the Colorado River Storage Project, 
through contracts with the Western Area Power Administration (Western). 
Pick-Sloan Western Division includes hydropower produced by the North 
Platte Project.
    I would like to focus my testimony today on challenges to the 
federal power program as a result of extended drought conditions in the 
Missouri River Basin, potential impacts to hydropower production that 
may result from the Platte River Environmental Impact Statement, and 
concerns relating to the MRTU proposal of the California ISO.
    The ongoing, seven-year drought has reduced power production from 
the North Platte Project by approximately half, and resulted in 
significant power production losses from all of the Missouri River 
power plants. As a result, Western has been forced to go on the open 
market to purchase power to meet its contract requirements. This 
increased demand for non-hydro power places additional stress on the 
purchase power market and results in higher rates from Western, which 
must recover all the purchase power costs through its rates.
    Since 2001, Western has increased wholesale rates four times to the 
Western Division of Pick-Sloan resulting in a total increase of 26%. It 
is expected that additional rate increases are imminent through a 
``drought rate adder'' to cover the exceptional purchase power costs 
associated with the extended drought. These increased costs, along with 
other higher energy costs for gasoline, diesel and natural gas, have 
had a significant impact on the communities WMPA serves.
    Another challenge facing the federal power program on the North 
Platte Project is the uncertainty resulting from the Platte River 
Recovery Implementation Program. After more than ten years in 
preparation, a Final Environmental Impact Statement (EIS) was released 
this spring by the Bureau of Reclamation and the Fish and Wildlife 
Service. It calls for a $317 million plan to manage water use and 
wildlife habitats along the Platte River in order to avoid jeopardy to 
four threatened and endangered species. The plan must now be signed by 
the Governors of Wyoming, Colorado and Nebraska as well as the 
Secretary of the Interior. Although the EIS attempts to minimize the 
impact to power production, we remain concerned that the analysis was 
not sufficiently thorough in its assessment of economic impacts to 
hydropower customers.
    Before concluding, I would like to mention another power supply 
issue of concern to WMPA and many other electric utilities in the West. 
The California Independent System Operator--which currently operates 
most of the transmission grid in California--has filed a proposal with 
the Federal Energy Regulatory Commission (FERC) to make major changes 
in the way the California electricity market operates. This proposal is 
known as the Market Redesign and Technology Upgrade (MRTU) and it 
includes many of the ``market mechanisms'' that are currently in place 
in the Eastern and Midwestern electricity markets.
    As we all learned during the energy crisis of 2000-2001, whatever 
happens in the California electricity market affects the entire Western 
Interconnection. Last time around, FERC failed to give enough 
consideration to how California's ``experiment'' would affect consumers 
throughout the West. We cannot afford to repeat history. For that 
reason, I want to alert this subcommittee to the fact that many Western 
utilities, including the Western Area Power Administration, have raised 
concerns about MRTU because its proposed pricing and scheduling rules 
are different than those used by the majority of other utilities in the 
West.
    In addition, and of concern to WMPA, MRTU does not provide long-
term transmission rights to load-serving entities, which was directed 
by Congress in the electricity title of the Energy Policy Act of 2005. 
Further, MRTU plans to substitute ``financial'' transmission rights for 
the physical transmission rights that currently exist in the rest of 
the West. These are just a few of the MRTU changes that concern me and 
others throughout the West.
    I urge Congress and FERC to take a long, careful look at MRTU and 
at the concerns expressed by utilities in other Western states. On July 
12, a bi-partisan group of 12 U.S. Senators, including Sen. Craig 
Thomas, expressed the same sentiment in a letter to FERC that I am 
attaching to my testimony.
    I appreciate the opportunity to present this testimony and would be 
happy to answer any questions you may have.

Attachment
                                 ______
                                 

    [The letter attached to Mr. LaMaack's statement follows:]
    [GRAPHIC] [TIFF OMITTED] T9807.001
    
    Mr. Radanovich. Thank you, Mr. LaMaack, and I know we want 
to be real careful about patterning yourself after California 
on your electricity plans.
    Mr. LaMaack. We see it like a caution; yes.
    Mr. Radanovich. Yes; exactly.
    Mr. Jim Neiman, welcome to the Subcommittee. You may begin.

          STATEMENT OF JIM D. NEIMAN, VICE PRESIDENT, 
           NEIMAN ENTERPRISES, INC., HULETT, WYOMING

    Mr. Neiman. Mr. Chairman, Representative Barbara Cubin, I 
thank both of you and the members of the committee for the 
opportunity to appear today and discuss transportation, energy 
and water issues.
    My name is Jim Neiman. I am the owner and CEO of Neiman 
Enterprises, a third generation family-owned business, which 
owns lumber manufacturing facilities in Hulett, Wyoming, and 
Hill City, South Dakota, as well as a remanufacturing facility 
in Sturgis, and by the way, from a town of 400 and some people, 
yesterday, today, we are larger than Cheyenne. It is the big 
rally. We should have about 75,000 riders in Hulett today.
    Our family business directly employs over 160 employees in 
Wyoming and over 150 in South Dakota. We indirectly employ 
through independent contractors another 150 to 200 workers.
    We set out on an island in the middle of the prairie with 
limited population. We have a source of timber, in and around 
the Black Hills. Our capacity is around 100 million board feet 
of lumber production per year.
    We produce approximately 150,000 bone dry tons of 
byproducts comprised of bark, sawdust, shavings and wood chips. 
Some of that byproducts are used to produce steam to dry the 
lumber and also to heat the facilities, while others are 
shipped via freight trucks to Merillat in South Dakota, for 
particle board. Our only other alternative is to ship the 
remaining chips west by rail to a paper mill near Seattle.
    Our rail freight, with fuel surcharges, has gone up over 30 
percent in the last 15 months. At the same time, the railroads 
have determined that no longer do they want to own the gondolas 
or rail cars that transport the chips.
    So an additional lease charge has been absorbed by the 
paper mills and/or the supplier which is our company. We 
produce a chip volume equivalent to appropriately 120 carloads, 
rail cars per month, and have only been able to receive on time 
65 to 75 cars per month.
    The balance of the remaining chips are then stockpiled, and 
then we are unable to ship to the paper mills due to quality 
issues, because they're put on the ground.
    The total cost of this rail freight increase, in 
combination with the shortage of cars, is far in excess of 
$100,000 per month to our small company and over $1.25 million 
dollars per year to our family-owned business. Due to the 
limits of our ability to stockpile the chips, we have been 
faced with production curtailments, at times, due to 
environmental requirements on pile size, which further compound 
our loss.
    Our company cannot pass the cost on to the consumer. We 
have to absorb that. It's a free enterprise system in the 
lumber. The railroads have an Internet tracking system on the 
rail cars. We have tracked cars, transported empty from 
Seattle, Washington, to Laurel, Montana, en route to Newcastle, 
Wyoming, where we load the chips at our reload facility.
    In anticipation of normal delivery for those cars, the next 
day to Newcastle, we would send truckloads of chips to the 
reload and find out the next day that the cars had passed 
Newcastle, ended up in South Dakota and Nebraska, and one rare 
time, ended up in Colorado, still empty.
    This results in our stockpiling chips until the cars are 
turned around and stopped in Newcastle. It is a complicated 
system but then you have to cancel the orders cause you have 
already stockpiled them, so there is no way to account for the 
loss of those.
    Powder River Energy Corporation supplies Hulett with all of 
our electrical needs. Basin Electric is a sole supplier of 
energy to Powder River Energy, which gets part of its power 
from right here in Wyoming at the Laramie River Station in 
Wheatland. Black Hills Power supplies all of our facilities 
with electricity in South Dakota and has now purchased Cheyenne 
Light Fuel and Power.
    Part of their energy supply comes from Wyoming Coal and 
power plants, and will also be affected by major freight 
increases. Any shortage of supply to the power plants and/or 
freight increases will be passed on to the customers.
    Neiman Enterprises pays more than 50,000 per month in 
electric utility bills in Wyoming and over 60,000 per month in 
South Dakota. This is a very small scale to a lot of companies 
but is a major cost to our company.
    Any increase directly affects the bottom line of our 
companies.
    By the way, in talking about the rail, it is ironic, the 
increases and the shortages also happen to appear, as heard 
earlier, during a negotiation of a rate. To provide an 
alternative to the rail shipments, we have pursued various 
means of creating alternative byproduct uses. However, one of 
the simplest solutions would be to allow other rail companies 
such as the DM&E from South Dakota to enter Wyoming and 
compete, so we would not have such a captive shipper situation.
    Another alternative is to install green power, cogeneration 
facilities, and convert chips and other wood byproducts to 
electricity, and ship our energy out on wire, which then 
creates a steady market for our company.
    Our facilities in Wyoming could generate approximately 5 
megawatts from wood byproducts and we could easily remove 
forest wood biomass for approximately another 5 or 6 megawatts.
    Our South Dakota operation could produce 6 to 7 megawatts 
of electricity and also remove in excess of 6 megawatts of 
generation from forest biomass.
    This power is all renewable, clean, reliable energy, and 
solves our mill byproduct situation. These facilities add high 
quality jobs to our local small community, help reduce fire 
danger, and enhance healthier forest.
    There is legislation in place to help create incentives and 
make these projects move forward but they have not been funded.
    We need your help to make this project a reality, with 
other incentives, like wind power has an incentive of 1.9 
cents, biomass is only .9 cents.
    Earlier discussion on water, Mr. Chairman, there is a 
direct link between forest management, healthy forest and 
stream flow.
    Just to make it very sweet and simple, a 24-inch pine tree 
can use up to 300 gallons of water per day. So when you look at 
forest management, tie that back to healthy forest by proper 
management, stream flow goes up which provides additional water 
supply to communities. I can give a number of examples of where 
forest timber sales provided water to Rapid City in streamflow 
and provided year-around fishing due to forest management.
    Mr. Chairman, thank you for the opportunity to speak to 
this committee. The issues are very important to solve, not 
only for our company but for our community, our state and our 
nation. Thank you very much.
    [The prepared statement of Mr. Neiman follows:]

              Statement of Jim D. Neiman, Owner and CEO, 
                        Neiman Enterprises, Inc.

    Mr. Chairman, and Members of the Committee, thank you for allowing 
me the opportunity to appear today to discuss transportation and energy 
issues.
    My name is Jim D. Neiman, and I am the owner and CEO of Neiman 
Enterprises, Inc., a 3rd generation family-owned business, which owns 
lumber manufacturing facilities in both Hulett, Wyoming and Hill City, 
South Dakota, as well as a remanufacturing facility in Sturgis, South 
Dakota. Our family business directly employs 160 employees in Wyoming 
and 150 employees in South Dakota. We indirectly employ through 
independent contractors another 150 to 200 employees.
Power Bills
    We set out on an island in the middle of a prairie with a limited 
population. We have a source of timber in and around the Black Hills. 
Our capacity is a little less than 100 million board feet of lumber 
production per year. We produce approximately 150,000 bone dry tons of 
by-products comprised of bark, sawdust, shavings, and woodchips. Some 
of the by-products are used to produce steam to dry the lumber and also 
to heat the facilities while others are shipped via freight trucks to 
Merillat in South Dakota to produce particleboard. Our only other 
alternative is to ship the remaining chips west by rail to a paper mill 
near Seattle, Washington.
    In North America, paper prices have been depressed the last few 
years, which has forced some of the paper mills to close down. Our rail 
freight, with fuel surcharges, has gone up over 30% in the last 15 
months. At the same time, the railroads have determined they no longer 
want to own the gondolas or railcars that transport the chips. So an 
additional lease charge has to be absorbed by the paper mill and/or the 
supplier, which is our company.
    We produce a chip volume equivalent to approximately 120 railcars 
per month and have only been able to receive, on time, 65-75 cars per 
month. The balance of the remaining chips are then stockpiled, as we 
are unable to ship to paper mills due to quality requirements. The 
total cost of this rail freight increase in combination with the 
shortage of cars is far in excess of $100,000 per month and over 
$1,250,000.00 per year to our family-owned business. Due to the limits 
of our ability to stockpile the chips, we have been faced with 
production curtailments at times, which further compound our loss.
    The railroads have an internet tracking system on their railcars. 
We have tracked cars transported empty from Seattle, Washington to 
Laurel, Montana en route to Newcastle, Wyoming where we load the chips 
at our reload facility. In anticipation of normal delivery of those 
cars the next day to Newcastle, we would send truckloads to the reload 
and then find out the next day that the cars by-passed Newcastle and 
ended up in South Dakota or Nebraska, still empty. This results in our 
stockpiling chips until the cars are turned around and stopped in 
Newcastle.
Concerns on Rail Freight Increases to Utilities
    Powder River Energy Corporation supplies Hulett with all of our 
electrical needs. Basin Electric is the sole supplier of energy to 
Powder River Energy, which gets part of its power from right here in 
Wyoming at the Laramie River Station in Wheatland.
    Black Hills Power supplies all of our facilities with electricity 
in South Dakota and has now purchased Cheyenne Light, Fuel, and Power. 
Part of their energy supply comes from Wyoming coal and power plants 
and will also be affected by major freight increases. Any shortage of 
supply to the power plants and/or freight increases will be passed on 
to their customers.
    Neiman Enterprises pays more than $50,000.00 per month in electric 
utility bills in Wyoming and over $60,000.00 per month in South Dakota. 
That is small scale to some companies, but it is a major cost to our 
company. Any increase directly affects the bottom line of our 
companies.
    To provide an alternative to the rail shipment, we have pursued 
various means of creating alternative by-product uses. However, one of 
the simplest solutions would be to allow other rail companies such as 
the DM&E from South Dakota to enter Wyoming and compete so we would not 
have such a captive shipper situation.
Green Power Co-Generation
    Another alternative is to install Green Power Co-Generation 
facilities and convert chips and other wood by-products to electricity 
and ship our energy out by wire, which then creates a steady market for 
our company.
    Our facilities in Wyoming could generate approximately 5-7 
megawatts from wood by-products and we could easily remove forest wood 
biomass of approximately another 5 megawatts. Our South Dakota 
operations could produce 6 megawatts of electricity from wood by-
products and over 6 megawatts from forest biomass. This power is all 
renewable, clean, reliable energy and solves our mill by-product 
situation. These facilities add high quality jobs to our local 
community, help reduce fire danger, and enhance healthier forests.
    There is legislation in place to help create incentives to make 
these projects move forward, but they have not been funded. We need 
your help to make these projects a reality.
Conclusion
    Mr. Chairman, thank you for the opportunity to speak to this 
committee. The issues are very important to solve, not only for our 
Company, but also our community, our State, and our Nation.
                                 ______
                                 
    Mr. Radanovich. Thank you, Mr. Neiman. I appreciate your 
testimony.
    The Chair recognizes Mrs. Cubin for some questions.
    Ms. Cubin. Thank you, Mr. Chairman, and I want to thank all 
of you for your testimony. It was obviously all very well 
thought out, and I appreciate that very much.
    Mayor Dingman, the situation you outlined in regard to the 
water supply situation for the Laramie River Station is really 
concerning, at the very best, and while I commend you and the 
Wheatland community and the station itself in working together 
to meet the water demand in a cooperative fashion, how long can 
this arrangement of supplementation with local well water go 
on?
    Mr. Dingman. We have an agreement with--we are working 
closely with the state engineer's office, and we you sign 
agreements with farmers and ranchers for two years, to use the 
irrigation wells, and we can only use the water that would 
normally be used for crops on a certain portion of ground, and 
when that water, that allocated water has been pumped to the 
plant, that well is shut down, and that's on a yearly basis.
    And so it started out as a smaller project to supplement 
some needs, where now it looks like, if the job continues for 
probably another year, year and a half, it might be the only 
source of water for the plant. It depends on the surface water 
from snowpack runoff. And so what has happened is the extension 
of--we have put in two separate pipelines and extended those 
out into areas and purchased water from those irrigation wells.
    So it is a dire condition.
    Ms. Cubin. It really is. It is, all over.
    Mr. Dingman. Yes.
    Ms. Cubin. And switching hats from Mayor to Shift 
Supervisor, can you walk us through, in some detail, the 
importance of a significant coal stockpile at the plant.
    We have heard from the co-ops served by the Laramie River 
Station about the importance of keeping a coal stockpile of 30 
days or more, and what would be the ripple effect at the plant 
itself, if that stockpile was exhausted, like it nearly was 
last fall?
    But before you answer that question, Mr. Chairman, I would 
like to ask unanimous consent to correct the record. In my 
opening statement I said we have a stockpile of three months. 
Rick told me. I didn't know I said that, but we have a 
stockpile of 30 days out there.
    Mr. Dingman. Yes.
    Mr. Radanovich. No objection.
    Ms. Cubin. OK. At any rate, so if you would go ahead and 
answer that question.
    Mr. Dingman. What we develop are contingency plans for a 
certain amount of stockpiled coal, and because we are--we are 
dispatched and regulated by the Department of Energy, and what 
happens is we would have to notify them that there would be a 
curtailment of generation and we would have to have cause for 
that.
    Now the cause that we would have is that our field supply 
was getting extremely low and to keep us from completely 
running out of coal, or fuel, we would curtail generation and 
continue to curtail until we had reserves built up or we can 
out of fuel.
    Ms. Cubin. So you would just keep cutting the generation 
until the coal was all gone.
    Mr. Dingman. Yes.
    Ms. Cubin. Well, we don't want that to happen.
    Mr. Dingman. Exactly.
    Ms. Cubin. Jack, you mentioned that improved coal delivery 
times, plant maintenance, and a fourth train set have all 
contributed to the coal stockpile at the Laramie River Station 
being brought back to a comfortable level.
    Have the subsequent rates passed through to the electric 
co-ops also balanced out since the stockpile was replenished?
    Mr. Finnerty. The subsequent what?
    Ms. Cubin. Rates. Have they balanced out?
    Mr. Finnerty. As far as the costs?
    Ms. Cubin. yes.
    Mr. Finnerty. Just an increased cost, across the board. The 
people I represent here today own 24 percent of that power 
plant, so as Larry, the people he represented, also an owner, 
but those costs come directly back, then, to the people here in 
Wheatland along through Tri-State----
    Ms. Cubin. Right.
    Mr. Finnerty.--and through Wheatland REA. So it has been an 
increase, and I don't want to tell you on a per kilowatt basis, 
how much it has been, but there has been an increase in the 
costs on account of the coal delivery, so----
    Ms. Cubin. Has that stabilized at all?
    Mr. Finnerty. Right now, yes; yes.
    Ms. Cubin. OK. I am going to ask the rail companies a 
similar question a little bit later but I am curious as to what 
your association feels would be a reasonable rate to pay for 
rail service to the Laramie River Station.
    Mr. Finnerty. You know, these two gentlemen here have been 
in the railroad business 25 and 30 years and I just started 
here today, so----
    Ms. Cubin. OK, then. You haven't been in on that.
    Mr. Finnerty. I really don't want to tell you what I think 
is a reasonable rate of return for them. I would honestly think 
that at the point in time there was a new contract that we 
developed at LRS, there was probably an increase, somewhere, 
that needed to be allowed. I don't think--just like the 
electric generation business, our costs have gone up. Theirs 
have too.
    What I am hearing, and what I understand, is that everybody 
in the industry I represent say that to double it might have 
been reaching the extremes, and I don't even want to leave the 
impression that I know enough about their business to tell you 
what would be a fair rate of return, cause I don't. But it has 
been a very big burden to the electric consumers, that buy 
their power from LRS. It has shown up in their bills, 
dramatically.
    Ms. Cubin. Thank you. And I am not going to ask you to be 
any more specific than that, but I mean, obviously, somewhere 
between the current rate and double, it seems like that is 
where we ought to end up. But I guess we will find that out 
from the----
    Mr. Finnerty. Hopefully.
    Ms. Cubin.--guys that know more than we do, huh?
    Mr. Thompson, would you please discuss, in more detail, the 
rail project permitting delays that your railroad has 
experienced with Federal land and wildlife management 
organizations, and Government agencies, because Chairman 
Radanovich and I have been working, ever since we have been in 
Congress, to try to expedite permitting of not just 
transmission lines but access to public lands for multiple 
reasons, and can you talk to us about that a little bit.
    Mr. Thompson. Well, with the recent demand in coal and the 
need to expand our capacity, we are working on very short 
timelines, and for the most part, I think the state and the 
Federal agencies have been working really closely with us on 
the permitting process, but sometimes we are seeing some delays 
with some of the various departments, whether it's U.S. Forest 
Service, the Bureau of Land Management, to try to get that 
permitting.
    I know that we are experiencing some delays in Nebraska, in 
a couple places there. We have also been around the Moorcroft, 
Wyoming area. They were also experiencing some delays with some 
expansion we are trying to complete this year. We are going to 
be right up against it to complete it by fourth quarter.
    I think we are working very closely and we are going to be 
able to get some resolution on it. But as we go through and do 
more expansion, we talked about the triple track that we are 
going to be adding up, and the quadruple track next year that 
we are going to begin construction on. Part of that is going to 
touch the Bureau of Land Management and we are going to have to 
work closely with them to try to get the permits to be able to 
construct that fourth main over Logan Hill.
    Ms. Cubin. Do you know what law or regulation is in the 
way? Is it the Endangered Species Act? Is it mitigation? Or do 
you know what those issues are?
    Mr. Thompson. Actually, I apologize. In my role, I do not 
know what the barriers are at this time. However, I can try to 
follow up with these people and get you that information.
    Ms. Cubin. That would be a good idea, and if we can be of 
any help. Sometimes we can; sometimes we can't. If we can be of 
any help in dealing with the agencies, we would be happy to do 
that because it is to everyone's benefit to expedite those 
permits, I think.
    You state in your testimony, that it was a perfect storm of 
extreme weather conditions. The coal dust erosion on the rail 
bed. What else did you say was in there?
    Did I say maintenance? Yes. Weather conditions, coal dust, 
and maintenance that caused the supply of coal to get down to 
six days at the Laramie River Station.
    Now I think you have to add to that contract negotiations. 
When Mr. Rose was in my office, he assured me that contract 
negotiations had nothing to do with that situation occurring, 
and I am not saying that he didn't tell the truth, but I am 
saying that at the very least, the appearance of that during 
contract negotiations is outrageous.
    Can you just talk about that a little bit?
    Mr. Thompson. I can talk about the service piece of it as 
far as the stockpile getting down and what we did to get the 
stockpile back up. There are actually several----
    Ms. Cubin. I didn't make that clear. OK. The maintenance. 
This is planned maintenance. OK. BNSF had to know that the 
maintenance was planned. BNSF knew the contracts were expiring 
and had to be renegotiated.
    And for those two things, or that knowledge that BNSF had, 
how in the world would you plan to do it at the same time, 
without thinking that customers would expect there was coercion 
involved?
    Mr. Thompson. Let me talk a little bit about the 
maintenance, and if it is OK, I will back up about the factors 
that led up to 2005, when we had the, as I alluded to, as a 
perfect storm.
    What we have had happen all along the Joint Line, at some 
of our critical locations, where we meet and pass trains, we 
have had coal dust come off the trains, and coal is a part of 
the clay family. So this filters into the road bed and it 
actually traps the water into the roadbed.
    And basically you end up having a pumping action as these 
heavy trains go across it and this brings all the mud up from 
the bottom underneath the rock, and actually what it does is it 
impacts the integrity of the rail and the ties, and basically 
it has got too many forces on it. We actually see ties breaking 
in the center, and these are concrete ties, because that water 
and moisture was being trapped in there.
    And normally, over the last several years, we have been 
very successful in our normal maintenance, keeping up with 
that. But unfortunately, the spring thaw came out a little 
sooner and we had a late snow storm, and then, on top of that, 
we had the rains at that time that were a lot higher than they 
had been in years past for that time period.
    It had been like, I want to say, in excess of close to 6 
inches of rain, which is unique for Wyoming, and all that 
moisture got trapped in the railway bed, and that is what led 
up to the various derailments that we had in May of 2005.
    But as far as leading forward to the maintenance side of 
it, we do ongoing maintenance year round. We maintain the Joint 
Line almost 365 days a year. We do limit maintenance somewhat 
when the weather conditions in the wintertime get to sub zero, 
but overall, we maintain it.
    Ms. Cubin. Isn't this a lot bigger maintenance project than 
just regular maintenance?
    Mr. Thompson. Yes. We had to, once all this coal dust and 
the moisture we had, we had to do additional maintenance. We 
actually had to go out and physically pull out switches that 
were in the track and pull out a section of the railroad, dig 
out the mud, and put a whole new railroad back in there. And 
this was more than we had ever had to do in the past because of 
this enormous amount of rain that we got.
    So as far as the maintenance, it was more than we had 
planned. We did work very closely with our customers on it, 
tried to minimize it, but even despite that, we still hauled 
more coal last year than we did even the previous year.
    So it did impact us, and I think that we are seeing and we 
took some more steps to prevent the maintenance in the future, 
and you can see the results of that from this year. I mean, we 
are up 10 percent, hauling 10 percent more coal, double digit 
growth in handling coal this year in terms of volume, compared 
to previous years.
    And again, it is going to be a record month after month up 
in the basin as far as the amount of coal we are hauling out of 
there to all of our customers.
    Ms. Cubin. And that is good and I appreciate it. But you 
are making money when you do it, making a lot of money when you 
do it, and PRB ought to be treated like Cinderella with your 
company and Union Pacific. That is what is keeping you guys 
floating. I mean, it is keeping you alive. That is good. And I 
accept your answer. I accept your answer.
    I would like a more concise answer about--well, I guess I 
don't need it because I know what you are going to say. But I 
guess I just should have you say it for the record.
    Your position, then, is that there was absolutely no 
connection between contract negotiations and the maintenance?
    Mr. Thompson. No; there was not. There is no connection 
between it at all.
    Ms. Cubin. So the same thing could happen again?
    Mr. Thompson. The same thing could happen again? As far 
as----
    Ms. Cubin. Contracts and this sort of a disaster happening.
    Mr. Thompson. We have contracts going on all the time that 
expire, and while that is not my area, I just strictly do the 
operations piece of it, we have them expiring and renewing 
constantly across the--year after year. I can't tell you the 
percentages. I can tell you that 90 percent of our business in 
the coal side is under contract.
    Again, I don't know the details of those contracts but we 
have over 90 percent of it under contract, and those expire at 
periodic times.
    Ms. Cubin. I am going to let this go now. But somebody in 
your company needs to--and yours--needs to communicate 
between--to avoid the appearance of this happening again, 
somebody in the company needs to make sure that there is a 
little bit of oversight on stuff like this, because you can 
explain it and I can believe it, but it still doesn't take the 
appearance of coercion away, and I know that a lot of people in 
Wyoming don't believe that it is a coincidence.
    I think a lot of people in Wyoming believe that there is 
intended coercion. But I guess that will all be played out when 
the contracts are negotiated, and I really am not one of those 
people that believes that. After I heard everything, I did come 
to believe that it was a perfect storm but it was a stupid 
perfect storm. Those contracts didn't need to be negotiated at 
the same time, or maybe an extension--I don't know.
    Anyway, I am going to get off of that. But this is a 
question I am going to ask both of the rail witnesses.
    Today you both stated, correctly, that a tightly integrated 
and cooperative effort between the coal mines, the railroads, 
and the generators is necessary to ensure reliable coal 
production and delivery.
    This assertion is well evidenced by the near disaster that 
we have been talking about, and Mr. Vasy offered further, in 
his testimony, that missed loadings at the mines also 
contributed.
    What other factors, beyond these, contribute to coal 
delivery delays and how can they be addressed in a cooperative 
basis?
    Mr. Vasy. Is that for me?
    Ms. Cubin. Yes.
    Mr. Vasy. Well, certainly, when you take into consideration 
there are three distinct parties involved in the transportation 
of coal from A to B, you can't--so we have to have the 
production, and I mentioned about the missed loadings. And any 
number of events can occur as to why we miss loadings at the 
mines ranging from weather to just normal episodic events that 
any industry can have. Certainly we do have the same issues as 
relates to weather and occasional power requirements and/or 
crews, on the destination end, breakdowns again. So this whole 
supply change is very complex and all interdependent.
    And so any failure, on anyone's part, any party's part, 
ends up in missed loadings, because we only have a fixed number 
of train sets moving and any delay in a train set, ultimately, 
it is going to end up with a potential loss, loading.
    So to the extent that all of the parties can work together 
in a very cooperative effort has been stated.
    We have increased loadings. We are going to set records 
this year off the Joint Line, and we have a very comprehensive 
plan to expand our rail network so that projections over the 
next five or six years, we are going to be adding something 
like 160 million tons off the Joint Line, and of course there 
is more production coming off, to be on the safe side, because 
of additional mines that they serve, but the Joint Line itself 
is projected to grow significantly in the next 12 years.
    And so that is only going to happen through a cooperative 
effort on all parties' part, and in recent years we have 
developed various processes for better coordination between the 
two carriers, between the mines, and certainly everyone's 
worked on the destination end of it to ensure that the train 
sets move in a orderly fashion.
    The process that has been developed is an annual look, 
well, a five-year look, in many cases an annual look, a monthly 
look, and each month, between the two carriers and the mines 
and the utilities, we have a plan as to how many trains 
everyone expects to move.
    And so perhaps additional coordination amongst the groups 
would be better. We certainly are working on that every day, to 
improve those coordinations, and we may have some joint efforts 
coming up shortly, between the two carriers and the producers, 
to have a more efficient rail system.
    Ms. Cubin. I am really glad that there are more trains 
moving PRB coal. But I don't want that to happen at the expense 
of all other businesses, for example, Mr. Neiman's business, 
and his testimony was pretty alarming, plus I have had the 
opportunity to speak with him in the past about service 
failure, and when you have captive shippers dealing with a 
small business like the Nieman's, although I will tell you, the 
Nieman's business supports that whole area of Wyoming, around 
Hulett, Newcastle. So to Wyoming, it is incredibly important 
that he have some sort of, not only a dependable rail service, 
but at a level that his company can continue to operate like it 
is.
    I am going to ask him to go into this a little bit more. 
But I just hope that your companies--you know--trying to 
balance with the coal and the necessity for energy and 
electricity. But this is also really important, and I am going 
to want to talk to you in a second.
    This is for both of you again. Are you both confident that 
the expansions for the Joint Line are going to be adequate?
    Mr. Thompson. I guess I'll start out. I think the answer of 
that is yes, and if you go back into the 1990's, and both the 
BNSF and UP, jointly, together, along with the mines, used 
CANAC to go in and do an assessment of the track expansion 
necessary to meet the demands, and we completed that just about 
a year ago, and CANAC has already gone back and studied again. 
Actually, they look at what the demand side is going to look 
like coming out of the mines for the next 10 years, and based 
on that they put an expansion plan together, and even though 
the final results haven't come out of that, we are already 
starting, making plans that we talked about earlier.
    With additional capital, we are going to be putting into 
the railroad next year with the more triple track and the 
quadruple track, because they have given us indications that is 
where we have to be at in the future.
    And it has actually been very successful. I think it goes 
back to the railroads and the mine and the utilities working 
together to make sure that we do have adequate capacity in 
there.
    So I am very confident that it is going to happen and that 
we are going to have adequate capacity in the coming years.
    Ms. Cubin. Mr. Vasy, in your testimony you said that the 
Joint Line will be able to handle 400 million tons of coal. 
Then Mr. Thompson stated that the coal production in the PRB is 
expected to exceed 450 million tons.
    So are we going to always be playing catch-up? Is that the 
goal of the railroad, you know, to hedge their bets? I mean, 
I'm not saying that is not a smart thing to do or a good thing 
to do. I just wonder if that is what we are setting up.
    Mr. Vasy. I think the CANAC study, that we just got the 
results from the CANAC study last week, and basically we have 
had preliminary results all along, and the CANAC study clearly 
outlines that the Joint Line is going to be somewhere in the 
490 million tons per year range. So that is what is coming off 
the Joint Line.
    And in addition to the study which is that it has 
everything that they deem necessary to handle this traffic--
train speeds, sidings, triple track, four main lines, whatever. 
All the necessary infrastructure required to handle the tons 
safely, they have outlined for us. So it is really a matter of 
us believing in the study, understanding the study and doing 
it, and we have invested a lot of money for the study, and I am 
sure we are believers in the study, and you will see--our plan 
is to be there because the demand, as they have identified, in 
interviewing the customers, the producers, that if the 
producers are aiming for this volume of production, then we 
need to be there.
    So we are working closely with the mines, and CANAC did 
begin with the mines. So we should all be in harmony.
    Ms. Cubin. Good. Mr. Thompson, you said you added extra 
train sets to bridge the stockpile, or to bring the stockpiles 
back up to normal in this Laramie River situation. Who paid for 
those train sets?
    Mr. Thompson. I am sure that the utility had to pay for the 
train sets. You know, it is all based on a tonnage rate and I 
don't know what the rate is, how much tonnage is hauled in 
there. I know that there were several reasons we had to add the 
set.
    Part of it was the cycle time. That was getting the trains 
unloaded. We have done a few things to improve that. At the 
plant itself, we reduced about three hours of cycle time out of 
the system, so that trains are getting in and out of the plant 
a lot quicker.
    However, there was also at the time for this fourth set 
coming on, as we had a lot of mechanical problems with several 
of the sets that were in that service, that a lot of work had 
to be done to those.
    The trains were experiencing a lot of separations where the 
trains were actually, what we call a break in two, where the 
train was actually separated, and this was not occurring with 
other sets but it was in these particular sets.
    So we had to take them out of service for several days to 
make all the necessary repairs to the equipment also.
    But I don't know the details of how that works. I know they 
own the equipment and it is not unlike any other utility, that 
most of the utilities do own their sets. BNSF does have a 
certain number of sets, but also the utilities have a certain 
number of sets as well.
    Ms. Cubin. And so that is just kind of common practice?
    Mr. Thompson. I wouldn't say it is necessarily common 
practice. It depends on the contract, depends on the agreement 
between the shipper and the railroad on how they are going to 
do it, and how they structure it.
    Some places, we provide the equipment. Some places, they 
supply the equipment. So I can't tell you the details of their 
contract cause I have not seen it. I don't know.
    Ms. Cubin. I was thinking of Mr. Neiman's situation there, 
again, where a small business doesn't have, or might not have 
the assets to invest in that fashion, and so it would be very 
difficult, and once again, hope that the railroad would work 
with small companies in that regard.
    Mr. LaMaack.
    Mr. Vasy. Excuse me, Congresswoman.
    Ms. Cubin. Sure.
    Mr. Vasy. If I could just make one comment, and going back 
to the situation that existed last year as it relate to the 
coal dust situation or the coal issue.
    We certainly were affected by the coal dust or the track 
fouling, and we were not in contract negotiations with the 
Laramie River Station at the time. All of our customers were 
affected by it. And when you take a look at normal railroad 
operations, during the construction season, we have normal 
maintenance programs that we have out there.
    What happened last year in the Powder River Basin was a 
program that was not, in our estimation, a normal maintenance 
period. This was an emergency situation. The track was not 
being--it was not a maintenance program; it was a repair 
program.
    So if you make the distinction between maintenance, which 
would normally occur, and is occurring this year, and yet we 
are delivering normal volumes or higher volumes than we have in 
the past, this year, as we have in previous years, last year 
was a very unusual year, ``the perfect storm'' that was 
referred to is the fact that the water, the moisture and the 
coal on the track all came to a head, and it is years of 
collecting there. So that was the perfect storm. So we had to 
do two things last year.
    Ms. Cubin. So you don't think it was a ``stupid perfect 
storm?''
    Mr. Vasy. Well, it was an unfortunate perfect storm, for 
sure. And so it affected all of our customers very 
significantly, and we may or may not have been in contract 
negotiations but none of our customers got what they wanted to.
    So, again, not knowing exactly what was going on in terms 
of contract negotiations, because it is not our customer, our 
customers were affected by the same situation. And just for the 
record.
    Ms. Cubin. Thank you. Thank you.
    Mr. Vasy. Thanks.
    Ms. Cubin. See, I said I accepted that answer. So now it 
makes it easier. OK.
    Larry, I really am as troubled as you are that WMPA is 
forced to continue to increase rates to its Pick-Sloan 
customers, but I don't know what we are going to do about the 
drought.
    Can you describe what interaction you and other power 
customers have with WMPA and the Bureau of Rec, to ensure that 
these agencies are doing all that they can to mitigate the rate 
increases? Do you think that they are doing all they can and 
the rate increases are just unavoidable?
    Mr. LaMaack. That is an intricate question, I guess, but 
the customers, from the various river basins, for instance, the 
Colorado River Storage Project, have an organization called 
CREDA or the Colorado River Energy Distributors Association, 
where we represent about 90 percent of all the power that is 
bought from the Federal Government off of the Colorado River 
system, and we meet periodically. We have an ongoing discourse 
with Western and the Bureau over the facilities.
    We look at their budgets, and we share operational insights 
on things, and you are right--no one can do anything about the 
drought and it ha shad a very significant impact.
    But along, and on top of that are some fairly serious 
environmental constraints that have, frankly, hit us probably 
as hard as the drought situation.
    Glen Canyon is an absolutely perfect example of that. When 
I first started in the power business here in Wyoming, 28 years 
ago, we had what we called an X over Y product from the Federal 
Government. It followed our load. and due to environmental 
constraints, they sawed 400 megawatts right off the top of Glen 
Canyon, that we can no longer schedule because the ramp rates 
have been reduced to the point where we simply cannot go from a 
level of minimum generation, off peak, and with the restricted 
ramp rates get up to full power plant capacity.
    We have a little over 1200 megawatts capacity at Glen 
Canyon. We can only use about 800 of it. So drought, that kind 
of impact, and I also sit on a management committee for the 
power plant here Wheatland, and I have had to bite my tongue a 
couple of times on the coal discussion.
    Ms. Cubin. Well, speak up.
    Mr. LaMaack. But that is not a theory, that is not a 
theoretical issue to us. I mean, I have sat at my desk, I don't 
know how many days, and watched messages flash across it, that 
that unit has been restricted because of coal quality.
    I mean, at one point in time we were down to 118 tons in 
the stockpile. There was a lot of trash that was coming out--
that is not a lot of coal to work with, and Jim I think can 
testify to that. So we were de facto restricted, for quite some 
time this spring because of coal quality, because we had so 
little in the yard.
    The kind of curtailment that Jim is talking about is one 
that is a little more formal, but simply because of the 
extraordinarily low volumes that we had in the stockpile, there 
were times when those units were restricted for hours and days 
at a time because we couldn't get sufficient--there weren't 
enough pulverizers in the plant to deal with the quality of 
coal that we had to bring through.
    So from a utility standpoint, there has been something of a 
perfect storm. We have drought, our railroad costs doubled 
overnight, our coal costs have doubled in the last four or five 
years. I mean, there are any number of issues that are really 
beginning to focus and put serious upward pressure on our 
rates.
    Ms. Cubin. Could you expand for me--you mentioned in your 
testimony the Platte River Recovery Implementation Program, and 
as you probably know, that Senator Thomas and I have worked 
closely on that over the last year and a half to ensure that 
current water contracts in the Glendo Reservoir were extended 
for two years while the implementation program was finalized.
    Would you expand for me on the brief concerns that you 
expressed with the final EIS that was released this spring?
    Mr. LaMaack. Yes; thank you. when you look back at, in the 
EIS, it identifies about 14 megawatts of capacity that will be 
lost primarily off the North Platte system. There is an 
analysis that is a cost, that is part of the EIS, where it 
attempts to affix how many dollars of impact that represents to 
the power community.
    But, frankly, in today's dollars, the loss of 14--the study 
says about $305,000 on an annual basis, impact to the power 
customers, and I guess we simply don't believe that.
    Ms. Cubin. To how many customers?
    Mr. LaMaack. Well, it would be essentially all the 
customers of the Loveland area projects, the LAP projects. The 
Western division of Pick-Sloan is also integrated with the 
Mount Elbert storage project. That is all marketed under the 
Loveland Area Project group out of Loveland.
    Fourteen megawatts is not a huge amount, but nevertheless, 
what happens is that 14 megawatts comes off of peak times when 
the power is most valuable. We actually get more energy because 
there is more water flowing through the system but because it 
is confined to the times of days or seasons where the loads are 
far less, in general, the power is of far less value to us. So 
it has a significant impact in that regard.
    Ms. Cubin. Do you feel--and if you don't know that's OK--
but do you feel that that issue was weighed appropriately in 
the final EIS?
    Mr. LaMaack. I think a little more attention probably could 
have and should have been given to it. I believe the Western 
Area Power Administration was the entity that was trying to 
essentially work with the Bureau and others in coming up with 
sort of the final plan, and they were also the ones who were 
trying to reflect back what the potential impact of our 
customers were, but I am led to believe that wasn't always a 
happy relationship, between the Bureau and the Western Area 
Power Administration in terms of the data flow or assigning of 
impact and the findings.
    So I think there may have been some--I just don't think, in 
the end, that the number that we see, the $305,000 is, frankly, 
realistic, in terms of what the actual impact was going to be.
    Ms. Cubin. Thank you.
    Mr. Neiman, I am glad you could join us today and for of 
you who don't know Jim, he lives in that beautiful area around 
Devil's Tower, and that is--you know, a lot of people think 
Jackson Hole is the most beautiful place in the world, and I am 
going to tell you that Northeast Wyoming challenges Northwest 
Wyoming. It is really beautiful. I love it up there.
    As an end user of the electricity produced at the Laramie 
River Station, as well as a shipping customer for the 
railroads, you are really in a unique position to comment for 
us today.
    So I would like you to just make comments that you think 
are appropriate, and knowing you, you might make some that 
aren't. But that's OK.
    Mr. Neiman. I will try to control myself.
    Ms. Cubin. Well, that is OK, because you are in a unique 
situation but it is a situation that I think requires attention 
and that I am prepared to go the last mile to help you with.
    So would you just talk a little bit about the situation 
that you have found yourself in, trying to ship your products 
out?
    Mr. Neiman. Well, first, referring to the utility rates, 
fortunately, we haven't been faced with any significant 
increases in electrical rate but we are getting big warning 
signs, that if there continues to be shortages down here, we 
can anticipate huge, significant increases, some in excess of 
10 percent, and maybe more.
    On the rail side, I hope this is a permanent fix. I had an 
opportunity to travel back to D.C. when we met with the 
National Rural Electric Association, and testify and meet with 
the people back there, and I hope this is a coincidence. But 
the two weeks prior to that, we didn't have any shortage of 
cars and we haven't had a shortage the last two weeks.
    I am hoping this is a resolution and it is an ongoing 
resolution to the problem.
    My understanding is that we are getting close to the 
Longview Fiber, which is a company that is buying the chips 
from us and transporting those is apparently getting close to 
negotiations, and to talk about the stockpiling and what I was 
referring to in my documents, in my speech, you have to have 
one humongous concrete slab, pile, concrete pile or place or 
bins to store in the neighborhood of 15, 20 truckloads, every 
day, of chips, and keep them pure.
    Paper has to be kept in a very pure environment. Even dust 
off the ground can contaminate it, plastic, whatever. So it is 
really important that we have a consistency and a communication 
between the railroad and our company.
    We produce very consistently, five days a week, but if 
those cars show up late at night instead of that morning when 
the trucks are there, or the following day, or they disappear 
and head into another state, it is really critical.
    We have tried to communicate with a person that is taking 
care of that. Their records show that we have nothing of the 
shortage we do. We have tried to communicate that with them, to 
get an understanding, get on the same page. We have not got 
there.
    It is frustrating. It is extremely frustrating, how their 
accountability of being right and wrong doesn't match ours. But 
I would like to invite them to Hill City and show them the 
stockpile. I wouldn't dump them on the ground, to prove a point 
to them.
    So I hope we can find a solution because I don't have any 
short-term answers or solutions to it; just frustration. I 
would hope it's irony, and just a point of coincidence between 
the negotiations, but you hate to accuse any company of using 
those kind of unethical business practices.
    But it is obvious that it popped in my mind or I wouldn't 
have put it in my testimony. I hope that is not true. All of us 
need good rail freight. We clearly can't depend on trucks to 
transport clear across the country, so the rail system is a 
very important part of our transportation system.
    But I can tell you, they have efficiencies. I would hope 
they wouldn't ship empty cars right on past Newcastle to other 
spots and consistently do it week after week after week, and 
then ask for a raise when they obviously have avoidable 
efficiencies that they can gain within their own management.
    I, as a company, I deal with an international market. It's 
a free enterprise system. We have imports from Canada, Russia, 
Germany, all over the country. I cannot determine what the 
price of lumber is. I am only impacted by the--you buy the wood 
from the Forest Service, is on a variable rate of prices based 
on the market, the free enterprise determines what the lumber 
price is.
    My efficiencies that I can gain can only be gained by me 
operating a more efficient operation. So when issues like 
increases in utility rates or increases in rail freight goes 
up, I have to find other ways to be more efficient.
    When you are fortunately sitting by the best energy, by the 
energy capital in the world, by Campbell County, you have some 
advantages for fairly reasonable power when I look around the 
country. But it also has other issues, like some of the highest 
labor rates in the world.
    So it is important that we work, as small as we are, and I 
know 170, 180 cars a month isn't a huge amount. We'd like 120. 
That's what? Less than one train load of coal. that isn't very 
much but it is a huge impact on our little town of Hulett, and 
as I pointed out, on the health and viability of the whole 
Black Hills area. Thank you.
    Ms. Cubin. You mentioned in your testimony something, that 
I didn't catch it all, but something about you were asked to 
buy some equipment or something?
    Mr. Neiman. The railroad cars--my understanding is, and I 
can't speak for the Union Pacific--Big Horn lumber and a few 
other mills could probably, that use the Union Pacific.
    But my understanding, both companies have made an executive 
decision to no longer own the gondolas, or the rail cars--that 
is the term, the type of car that they use to transport our 
chips to any of the consumers.
    So that is an additional cost that has to be taken care of 
by us or by the paper mill. That is something new in the last 
year.
    Ms. Cubin. How much does one of those cost?
    Mr. Neiman. We are about eight months into negotiation. 
With all the troubles last spring, it has been going on and on 
for about eight months worth of negotiations. I can show you 
reports last fall, when they said, well, the cost possibly 
could be from 450 to $850 per car, per month. I can't tell you. 
it hasn't been concluded on what the final number is but it is 
an additional cost, and I can't speak for UP, but all of our 
communication on that lease is through the paper company.
    Ms. Cubin. Thank you. Mr. Chairman, I have no further 
questions.
    Mr. Radanovich. All right. Thank you, Barbara.
    Mr. Thompson, you mentioned that you were going to have to 
work with BLM on future rail lines because you would be 
crossing BLM land, I think you mentioned, maybe on the fourth 
track or----
    Mr. Thompson. On the fourth track over Logan Hill.
    Mr. Radanovich. Yes. Recently, we had a hearing back in 
Washington and the Department of Energy was informing us that 
they are working on a designation of energy corridors, to 
expedite permitting for these corridors, and since coal would 
be shipped via your new rail lines, which is an energy ore, 
that I am wondering if your request for rights of way should be 
part of the Department of Energy's energy corridors.
    Are you familiar with that, that is going on with the 
Department of Energy right now, or----
    Mr. Thompson. No. I am not familiar with what is going on 
with the DOE but I can definitely take that information back 
and get it to the right people that is looking at the 
permitting, and tell them that is an avenue we need to take a 
look at.
    Mr. Radanovich. I think it is, and we would be happy to 
give you, at the committee hearing, information that you might 
want to have, to be pit in touch with those folks, because it 
sounds like your need is exactly what they are trying to 
accommodate in this energy corridor situation.
    So just a question for all witnesses. I wanted to talk to 
you briefly about the need for energy security and 
independence, and as it was said in, I guess it was my opening 
testimony, that a Georgia coal plant was forced to buy coal 
from Indonesia because of difficultly in getting coal supplies 
nationally.
    Can you tell me, do you believe that reliable coal delivery 
should be a key part of energy security?
    Do you have any comments on that or is it--if we are 
adopting an energy security plan for the United States, should 
coal be a part of it?
    Mr. Finnerty. Mr. Chairman, I think you are exactly right. 
I think it is very key. I recently sat in on a presentation by 
Black and Veatch, their estimates--and these are based on 
pretty good estimates--they are saying that in the next 12 
years, from Texas to the Canadian border, there are possibly--
on the drawing boards right now, not possibly. On the drawing 
boards right now are 85 power plants.
    And we asked how many of them do you think there will 
actually be, come to fruition. They are figuring on about half 
of them.
    So if that is true, that in the next 10 years there are 45 
new power plants, and we will just say they are 400 megawatts, 
a third of the size of the one out here, and most of those 
reported entities are figuring on Powder River Basin coal.
    So it is a huge--I mean, that information not only needs to 
be improved right now, but it is going to take a lot more 
improving over the next few years or we are all going to be in 
trouble.
    Mr. Radanovich. Any other comments on that?
    Mr. Dingman. Electricity needs to be provided 24 hours a 
day. Now if we get to a condition where we have ``just in 
time'' fuel deliveries to make electricity, we are going to 
have conditions where we might not be able to meet the demand 
for that electricity. And so it is just so important, and I 
think it can cross over into a national security issue because 
of the need for electricity for us to even function as a 
society.
    And so we absolutely cannot get into a condition where we 
have ``just in time''fuel deliveries to produce electricity, 
and it is an important aspect of our energy policy.
    Mr. Radanovich. OK. A couple more follow-up questions that 
I have to Mr. Thompson and Mr. Vasy.
    What assurances can you give the utilities here today about 
future coal deliveries to the plant? Will there be any more 
disruptions or price increases? Can you----
    Mr. Thompson. I can talk a little about the service, and I 
apologize, I don't do anything on the rate side of it, so I 
can't talk a lot about the price. I can't talk about the price 
piece of it.
    But as far as the service, I think there are several things 
we are doing. One is I think that we talked about what we are 
doing with the coal dust to improve the reliability of the 
railroad out there. We are putting crusting agents on it, we 
are grooming the loads. I think that is going to help us in the 
long term as far as preventing any future problems like we had 
before.
    But I also think this capacity that we talked about, that 
is being added, that is also going to minimize any interruption 
that we may experience also.
    So I believe we are doing everything possible. We will 
continue to invest as we get the appropriate rates of return, 
and as long as we are getting those and the demand is going to 
be out there, then we will continue to invest and we will try 
to invest as quickly as we can.
    Mr. Radanovich. Mr. Vasy.
    Mr. Vasy. I agree with the statement. In terms of rate 
increases, certainly the cost of diesel fuel has gone up 
significantly for us, and so a number of increases that the 
utilities are seeing, customers are seeing, are clearly fuel-
related.
    And if you take a look at the rates for the coal, 
transportation rates for the last 20 years, as I indicated, 
they have been decreasing and that has been the result of a 
number of things.
    Certainly the size of the trains that are loaded in the 
Powder River Basin today versus 20 years ago when we had 110 
cars, 112 cars coming out of the basin. Now the trains now are 
135 cars and I think both carriers are looking at going to 150 
cars.
    So there were some efficiencies that were gained through 
the last 20 years, and we continue to look at any opportunity 
to improve our efficiencies which ultimately results in lower 
cost. To the extent that we can do that, we will continue to do 
that. The rate should either stay or go down.
    Ms. Cubin. Would the Chairman yield?
    Mr. Radanovich. Certainly.
    Ms. Cubin. Thank you. You--now it just slipped my mind. But 
I have another thought. You were talking about the cost of 
fuel, diesel fuel going up. I am reading an article that 
Fischer-Tropsch process uses coal to make diesel fuel and the 
equivalency to a barrel of oil is about $35 a barrel.
    Have you looked at that at all?
    Mr. Radanovich. Go to get on that technology.
    Ms. Cubin. And this is World War II technology. The Germans 
used it in World War II. Maybe World War I also.
    Mr. Vasy. I know that both companies are looking at it, and 
I happen to be on an internal committee looking at that, and as 
you know, one of the projects is down here at the Arch mineral 
properties at Medicine Bow. And so we have worked very closely 
with Arch on that, and all interested parties, in developing 
that coal into liquids.
    And certainly our consumption of diesel fuel in this are, 
and also with the BNSF, a plant located near these coal fields, 
and I know that BNSF also has a project up in the Montana area. 
So we are looking at that process very seriously.
    We have been asked to partner in developing a plant that 
would produce, say, 400 barrels--I have it written here, the 
size of the plant. It is a pretty significant plant. I think it 
would produce about 25 percent of our diesel fuel needs if it 
were constructed. So that is a pretty significant thing, and I 
think from an energy standpoint, and being independent from the 
rest of the world, this would play a significant role in the 
future of the United States and our whole dependency on fuel of 
some sort--diesel fuel here in this case--and with the reserves 
that we have, I just hope that this will come to be.
    If you take a look at South Africa with Sasol, and all the 
things that they have done there. They have been doing this for 
years. They are running locomotives on diesel fuel. There are 
some issues as to whether the diesel fuel that is produced from 
the coal to liquids process is the same and can be utilized in 
our locomotives, but I am sure whatever needs to be done, in 
the end, GE and all the other folks that look at locomotives, 
can come up with some sort of arrangement, so that we could 
burn it, that if somebody else is doing it we should be able to 
do it.
    So, yes, we have looked at it very closely, and are 
continuing to look at it.
    Ms. Cubin. And if you had a plant by one of the coal areas 
here in Wyoming, you wouldn't have to be your own customer.
    Mr. Vasy. Right, and that's a part of it.
    Ms. Cubin. I am sorry, I just couldn't help it.
    Mr. Vasy. The Medicine Bow mine is the target, so----
    Mr. Radanovich. To Mr. Vasy and Mr. Thompson, your 
testimony has talked about how you are reinvesting profits into 
capital expenditures. Can you give us an idea of the rough 
percentage of the profits that you reinvest into capital 
projects like the Joint Line and what are your long-term 
projects for capital investment?
    Mr. Thompson. As far as the percentage of the profits we 
reinvest, and our rate on invested capital is slightly over 10 
percent for last year, and so we are slightly above 10 percent.
    As we talked about earlier, we just started, I think last 
year was the first year as a company, where we actually earned 
our cost of capital, and as mentioned earlier, the railroad is 
available very capital-intensive organization, it takes a lot 
to maintain a railroad, you have to invest a lot of money back 
into it, and actually when you look at it compared to other 
industries, we are almost 18 percent of the revenue we 
generate, goes back into the infrastructure of the railroad.
    So, it is very capital-intensive to maintain it and to 
purchase these new locomotives and getting lead time to do all 
that stuff is very costly.
    So as far as the exact percentage, I just can tell you our 
internal invested capital, I don't have the exact numbers.
    Mr. Radanovich. OK.
    Mr. Vasy. For the Union Pacific, we did not make our cost 
of capital last year, nor have we made it for a number of 
years. Last year, our rate of return was 6.3 percent and our 
capital plan for next year is--I think we have announced, or at 
least we are targeting 15 percent in terms of additional 
capital. So that our goal is like, I think, 3 point some 
billion dollars next year for capital expenditure. So that is 
an increase of----
    Mr. Radanovich. Thank you. Mr. Finnerty and Mr. LaMaack, 
what are the resource options for meeting future electricity 
demands? Will the need for coal grow or will there be other 
resources there for you to use? Either one or you. Or both of 
you.
    Mr. Vasy. As far as the agency's plans go, we are pretty 
firmly focused on coal to meet our needs in the future. You 
know, there may be some need for some intermediate to peaking 
range plants, that they don't function well on coal, so they 
would probably be natural gas derived. But the balance of our 
expectations for future resources would be coal-driven.
    Mr. Radanovich. Very good.
    Ms. Cubin. Are you looking at nuclear at all?
    Mr. Vasy. If we could find somebody to partner with, the 
answer would be a qualified probably.
    Ms. Cubin. That is qualified.
    Mr. Vasy. Well, given the track record of, and the 
institutional problems that there are, an agency of our size is 
so small, that we can't take on a great deal of risk in that 
regard, so it kind a fences us out from early participation in 
that.
    Mr. Finnerty. In the past year, Tri-State has made a 
commitment to build $ billion worth of power plants located 
from Holcomb, Kansas, over to the Denver area. One in Kansas, 
two in Kansas, possibly one in Colorado. These will all be 
served by Powder, or generated with Powder River Basin coal.
    So our commitment is long-term based load with coal looks 
to be a way better option for our consumers than gas, the 
fluctuating gas price and stuff. So along the lines of 
generating the diesel fuel out of the coal, I don't know 
exactly which process the UP's involved with, but we have a 
distribution co-op on the western slope of Colorado, and they 
are currently telling us that they need 400 megawatts of power 
in the next year and a half because that process, they shoot 
the electricity down into that coal shale, turn that coal shale 
into a liquid form and bring it back up out of there.
    So along with solving one problem you generate another 
problem, because I don't know where we are going to come up 
with 400 megawatt of power for those guys in the next year. So 
one problem is solved and creates another one.
    Mr. Radanovich. Creates another one. Yes. Interesting. 
Well, that is all the questions I have.
    Barbara, did you have any more questions, or----
    Ms. Cubin. I don't have any further questions but I really 
would like to thank the panel. I think you all did really an 
excellent job and I know it was troublesome for you to come, 
and for other people from the companies to come.
    My staff and Senator Thomas and Senator Enzi's staff. I 
really appreciate you all being here, appreciate your 
testimony, and would ask permission from the Chairman, if I 
think of some questions that I didn't ask, if we could submit 
those to you in writing, I would appreciate that. But thanks 
for being here, and if you are still around this afternoon, I 
am having a barbecue.
    Mr. Radanovich. Thank you, Barbara, and I want to conclude 
by thanking the witnesses for being here today. It sounds like 
more rain would solve a lot of problems, but another railroad 
line or two would add to it and solve it altogether.
    I hope the hearing here today has been helpful in bringing 
the issues together, and into a plan, and some kind of 
implementation.
    Ms. Cubin. Thank you, George.
    Mr. Radanovich. But Barbara, I want to thank you for your 
leadership on this issue, and we are going to hold the hearing 
record open for 10 days, so if anybody wants to submit written 
responses, we are very happy to do that.
    Or you can also submit your comments for the record into 
the box that is right on the table there by the door, that the 
Cubin staff has been able to make available for us.
    And again, Barbara, thank you for----
    Ms. Cubin. Thank you, George, very much.
    Mr. Radanovich.--allowing me to come into Wyoming, and it 
is good to see you.
    Ms. Cubin. Stay a while.
    Mr. Radanovich. And that concludes this hearing. Again, 
thank you very much.
    [Whereupon at 2:42 p.m., the hearing was adjourned.

                                 
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