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Grain Transportation After Partial Removal of the Four Lower Snake River Dams: An affordable and efficient transition plan Dr. G. Edward Dickey - September 1999

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Executive Summary

The fear of substantial shipping rate increases brought on by closure of the Snake River waterway has gripped the agricultural community in eastern Washington and Idaho. These fears need not come pass. Prudent investment in transportation infrastructure will minimize potential transportation rate increases.

This report presents a conceptual plan for how to identify, fund, and execute rail and highway infrastructure upgrades that could be in place at the time that the waterway is closed. This would ensure a timely and efficient transition to an affordable alternative commodity transportation system. Ultimately, the goal is to maintain a vibrant agricultural economy in the affected region and the restoration of healthy salmon and steelhead runs in the Snake River.

Closing the Snake River waterway would significantly alter the way in which commodities are shipped in the lower Snake River Basin. The most obvious impact would be shifting the head of navigation from Lewiston, ID (on the Snake River) to the Tri-Cities, WA (on the Columbia River). Eliminating barge traffic on the Snake would mean that the commodities currently being shipped on the Snake River would have to be shipped via other modes. There are two primary transportation alternatives: 1) rail service from grain elevators to deepwater ports; and 2) truck from farm/elevator to Columbia River barge port and then by barge to deepwater port. Farmers who rely on the waterway to ship grain are concerned that these alternatives will result in substantially higher shipping rates, potentially rendering their operations uneconomic. However, prudent, timely investment in rail and highway infrastructure could provide an affordable transportation alternative to the lower Snake River waterway.

It is proposed that the dam removal project – the purpose of which is to restore salmon – should be expanded to include actions that go beyond the physical removal of the earthen embankments of the four lower Snake River dams. The dam removal project should include provisions to minimize the negative impacts that partial dam removal will have on those that currently rely on the Snake River waterway to transport commodities. Such provisions go beyond the current scope of the US Army Corps of Engineers’ planning and should include:

· Funding for public infrastructure investments (highways).

· Funding for loans and grants to the private sector (such as grain elevators, terminals, railroads and other service providers).

Several types of infrastructure investments have been identified and considered for funding as part of the transition plan. For highways, infrastructure investments would bolster the primary transportation corridors. For rail upgrades, dedicated shuttle or unit trains, additional rail cars and elevator upgrades should be explored for Snake River grain export to Portland. There is precedent for public investment in railroads, both at the federal and state level, when such investment is in the public interest.

A prudent, focused transition plan should be based on sound economic and legal principles, which define the objectives and set appropriate parameters. The guiding principles for our transition plan are set forth below.

· There is no right or entitlement to a Snake River waterway. Congress may eliminate the waterway if to do so is in the public interest.

· It is in the public interest for federal and state governments to facilitate economic transitions, particularly if there are national economic efficiencies to be gained and the transition is necessitated by government action.

· The desire to mitigate economic hardship may mean it is appropriate to facilitate transition to an economy not reliant on the lower Snake River waterway. Such mitigation should be need-based.

· A cost-effective and equitable transition plan would require federal, state and private cooperation in plan development, execution and funding.

· The federal government can and should authorize funding for the transition plan as part of the authorization to remove the Snake River dams, as it is an appropriate cost of salmon restoration.

These public and private infrastructure upgrades are affordable. Transportation experts estimate that a “worst-case” high-end estimate for federal costs is $162.5 million. Similarly, the “worst-case” high-end estimate for States’ costs is $108.5 million. To place this into perspective, Washington State’s 20-year State Highway System Plan projects annual budget estimates of nearly $2 billion. In the event of dam removal, the infrastructure upgrades that will be required to ensure that commodities continue to flow economically and efficiently are affordable.

The infrastructure investments under the transition plan would be far superior to continued taxpayer subsidization of the Snake River waterway. In contrast to the existing $10 million annual navigation subsidy, the infrastructure investments proposed here would be of limited duration and capped. This fiscally sound transition plan would be directed at specific infrastructure upgrades, which, once completed, would require no subsidies. In the long-term, improvements to infrastructure will save money by eliminating the ongoing navigation subsidy.

In addition, the improved transportation system would facilitate formation of a competitive inter-modal transportation market that will benefit a broader group of users than the existing waterway. Improvement of the rail and highway systems would also attract new businesses to the region.

It is in the best interest of the region to develop a transition plan that both minimizes the negative price impacts that may occur as a result of dam removal and that minimizes the transition period. Opportunities exist for additional prudent government intervention in connection with this project that go beyond the minimum measures necessary to implement the actual drawdown of the reservoirs.

To this end, it is proposed that the Snake River dam removal project authorization be broadened to include transportation transition projects. Further, it is proposed that the Secretary of the Army administer a fund sufficient to facilitate federal, state and private investment in transportation infrastructure, facilities and equipment for the purpose of minimizing the transportation cost increases associated with dam removal.

I. INTRODUCTION

The region is presently analyzing potential changes to four federal dams on the lower Snake River to restore Snake River salmon and steelhead. Snake River salmon and steelhead are listed under the Endangered Species Act, and the federal government is legally obligated to ensure that the lower Snake River dams do not put the salmon in jeopardy of extinction. Snake River drawdown, or removal of the earthen section of the four dams to restore a free-flowing river, is one of the options being considered to recover the listed stocks. The federal government is due to release its recovery plan, in the form of a Biological Opinion, in early 2000.

The four federal dams on the lower Snake enable river barge transportation of commodities, principally grain, from as far inland as Lewiston, Idaho -- 465 miles from the Pacific Ocean – to deep-water ports. If the dams are removed, commercial barge navigation would be eliminated in the Snake River, making the Tri-Cities, Washington, the furthest inland port accessible by river barge. As such, commodities that are currently transported by barge on the Snake River would have to be moved by some other transportation mode or combination of modes.

Currently, the Snake River waterway transports roughly 3.8 million tons of grain and a lesser quantity of other commodities to deep-water ports on the lower Columbia River. The potential elimination of this inland waterway has proved a contentious and politically charged issue, with farmers, fearful of perceived higher shipping rates, and barging interests opposing Snake River drawdown.

Recent studies have analyzed the economic impacts on commodity transportation of eliminating the Snake River waterway, focusing on the costs of shifting to alternative means and the resultant rate impacts. While these studies are essential to understanding potential economic impacts, they do not directly address a critical issue: whether the transition could be made such that no transportation capacity is lost and shipping rates remain affordable. If such a transition could be made, the economic hardship farmers fear need not occur. Of course, this information is essential to an informed decision about partial dam removal, but it has not been developed in any official process.

This Report addresses that critical issue, and sets forth a conceptual plan to ensure adequate shipping capacity and affordable rates.[1] It is not offered as the only plan; there may be others with similar merit. The point, however, is that it is possible to replace Snake River barge transportation with alternative modes in a way that is affordable and does not limit capacity.

The Report is organized as follows. First, commodity transportation with and without the lower Snake River dams is described. Second, the projected costs of switching from river-barge transportation to rail/truck transportation and the potential rate impacts are presented. Finally, a conceptual transition plan is proposed and its feasibility evaluated.

II. TRANSPORTATION SYSTEM ALTERNATIVES AND THEIR COSTS

A. The Current System

Four federal dams (Ice Harbor, Lower Monumental, Little Goose and Lower Granite) and their associated navigation locks, allow commercial barge traffic to travel up and down the Snake River between Lewiston, Idaho and the confluence with the Columbia River. (See Appendix 2 for map) This waterway, constructed by the United States Army Corps of Engineers, was completed in 1975 with the opening of a final navigation pool created by the farthest inland (eastward) dam, Lower Granite. Prior to the completion of the waterway, grain and other commodities in the region were transported by truck and rail.

Dam	Year Completed
Ice Harbor	1962
Lower Monumental	1969
Little Goose	1970
Lower Granite	1975

The Snake River waterway is an extension of the Columbia River navigation channel, which allows for commercial navigation between the Pacific Ocean and Pasco, Washington. Deep-water ports on the lower Columbia River are major international export terminals and are the final destination of barge traffic originating on the Snake River.

Even with the waterway, the majority of grain delivered to Columbia River export terminals is transported by rail – approximately 55%. Approximately 43% is transported by river barge. Approximately 55% of the grain that arrives at export terminals via the waterway originates in the Snake River portion; the remainder enters the system on the Columbia and will not be affected by closing the Snake River waterway. Approximately 2% is shipped by truck.[2] In those areas using the Snake River waterway, grain shipment is more evenly split between rail and truck-barge.

Both mainline and shortline railroads operate in the vicinity of the lower Snake River. Burlington Northern Railroad and Union Pacific Railroad are the mainline companies. There are several shortline railroads operating in the region, including the Camas Prairie Railnet, Blue Mountain Railroad, Columbia Basin Railroad, and the Palouse River & Coulee City Railroad.

Federal taxpayers funded the construction of the navigation portion of each dam and federal taxpayers continue to fund the annual operations and maintenance costs of the navigation locks. The remaining costs (i.e. 90%) are borne by electricity ratepayers in the region, who use the energy produced at the dams, which is sold by the Bonneville Power Administration.

The primary purposes served by the dams are hydropower and navigation. Costs, both capital and operations and maintenance, are allocated roughly 90% to hydropower and 10% to navigation. [3] The same allocation is used for fish and wildlife mitigation costs associated with the four dams. The Bonneville Power Administration, which markets the power generated at the dams, pays for its allocated share through electric rates. Federal taxpayers cover the cost allocated to navigation.[4] The annual federal subsidy of the waterway for O&M and for the navigation portion of the fish and wildlife mitigation is estimated to be approximately $10 million.[5]

The waterway is primarily used to ship commodities downstream (westward) from inland areas to export ports on the lower Columbia River. Grain shipments account for 75% of the river-borne traffic on the Snake River portion of the waterway; wood chips and logs account for an additional 18%.[6]

The Snake River Waterway is located almost entirely within eastern Washington, and most of the grain that moves on the waterway comes from eastern Washington farms. Idaho farmers also transport a significant amount of grain on the waterway. Farmers in other states also send grain down the Snake, but because of their distance from the waterway and the economics of long haul grain trucking, their contribution is quite small. The relative distribution of grain shipments is set forth below.

Origin of Grain Transported on the Snake River Waterway[7]

State of Origin	Distribution of Snake River Barged Grain
Washington	68.6%
Idaho	22.2%
Montana	5.5%
North Dakota	2.6%
Oregon	1%
Utah	.1%

Currently, eastern Washington wheat is trucked from country elevators to river elevators/ports for barge shipment to Portland (61%), shipped via rail directly to Portland (23%) or trucked to another elevator for rail transport to Portland (13%).[8] Grain from Montana and North Dakota is trucked from these respective states to the Lewiston (ID) area where it is loaded on barges and shipped down the waterway. This “long haul” trucking is unique to the waterway and made possible only by the fact that trucks headed to Lewiston to pick up loads of forest products are seeking loads of wheat to help cover costs.

It is important to note that the current Snake River waterway is a very recent creation; the final dam in the system was completed only 25 years ago. The geographic area that utilizes the waterway has historically been a major grain producer. Prior to the construction of these dams, commodities were imported and exported from the region by truck and rail. Much of this infrastructure remains, though a significant amount of track has been abandoned. If the lower Snake River dams were removed, truck-barge and rail would once again be relied upon to service the transportation needs of the area, as discussed in the next section.

B. The Post-Dam Removal System

Closing the Snake River waterway would significantly alter the way in which commodities are shipped in the lower Snake River Basin. The most obvious impact would be shifting the head of navigation from Lewiston, ID (on the Snake River) to the Tri-Cities, WA (on the Columbia River). Eliminating barge traffic on the Snake would mean that the commodities currently being shipped on the Snake River would have to be shipped via other modes. There are two primary transportation alternatives: 1) rail service from grain elevators to deepwater ports; and 2) truck from farm/elevator to Columbia River barge port and then by barge to deepwater port. These are the most likely alternatives because they minimize handling costs.

Several studies have analyzed the potential cost and rate impacts associated with closure of the Snake River waterway. Each study has a unique focus and approach, and each employs different assumptions. Consequently, the results are not easily compared. Nonetheless, the studies do identify the types of capital investments that would be necessary to replace the waterway and a range of likely cost and rate changes, which can guide the development of a transition plan. The studies are summarized below.

1. Infrastructure Costs

a. Highway

There are two primary studies that analyze the likely impact of Snake River waterway closure on highway use and infrastructure and maintenance costs. Impact of Snake River Drawdown on Transportation of Grains in Eastern Washington: Competitive and Rail Car Constraints (EWITS Study),[9] predicts a range of cost and rate increases under eight potential grain shipment scenarios. The Lower Snake River Drawdown Study (HDR Study),[10] identifies a range of highway and rail cost adjustments under two scenarios, one which relies heavily on truck-barge and another which relies more on rail to absorb the grain presently shipped via Snake River barge.

The HDR Study focused on the real cost of the infrastructure changes that would be required under the two scenarios. The analysis was limited to the State of Washington, where the vast majority of infrastructure needs would be located. Under the “highway scenario,” trucks would ship 2.7 of the 3.8 million tons of grain to the Tri-Cities, where it would be loaded on river barges for shipment down the Columbia. This would require that $84.1 million to $100.7 million be spent on highway infrastructure upgrades. In contrast, under the “rail scenario,” where railroads would ship 2.2 million tons and only 1.6 million tons would be shipped via truck-barge, highway infrastructure costs would only increase from $56 to $67.2 million. Virtually all of these highway costs would be incurred in three corridors: (1) US 395 (Tri-Cities to Ritzville); (2) SR 26 (Tri-Cities to Colfax); and (3) SR 124/US 12 (Tri-Cities to Clarkston). Additional upgrades would be required around the Tri-Cities.

The EWITS Study predicts annual infrastructure cost changes for each mix of rail and truck-barge modeled. In contrast with the HDR Study, which evaluated only state highways, the EWITS Study looked at interstate, state, and county highways. EWITS Scenario 4, which assumes that rail shipments are limited to 110% of historical volume and rail companies increase rates by 10% (similar to the highway scenario in the HDR Study), would result in annual state and interstate highway cost increases of $2.8 million and $22,000 respectively, while county road costs would decrease by approximately $228,000. Scenario 4 provides a good estimate for the likely annual cost adjustments in a scenario in which highways would absorb most of the additional load, and thus could be considered a high-end estimate.

In contrast with Washington, highway costs in Idaho are expected to decrease significantly, as more grain is shipped via rail requiring a shorter truck-haul than current movement to barge ports around Lewiston. The cost savings of reduced highway use in Idaho has not been estimated.

It is instructive to compare the projected annual highway cost increases under EWITS Scenario 4 -- $2.6 million (the projected highway costs are even less if Idaho is included in the analysis) -- with the current annual Snake River waterway operations and maintenance and associated subsidies of approximately $10 million. The annual highway costs necessitated by the closure of the waterway would be approximately 1/4 of the current waterway operations and maintenance subsidy.

b. Rail

The need for additional rail infrastructure would depend on whether or not rail or truck-barge would become the preferred alternative. If truck-barge were preferred, then the need for rail investments would be reduced. This is essentially the highway scenario modeled in the HDR study, where only 1 million of the 3.8 million tons would be shifted to rail. This scenario would require no major rail line upgrades. However, it is likely that some capacity upgrades (such as rail cars) will be needed.

In contrast, if rail became the preferred alternative, as reflected in the rail scenario modeled by HDR, rail would be used to ship up to 2.2 million tons of the grain diverted from the Snake River. The rail scenario is based on the assumption that railroads would be the most cost-effective alternative, because they would alter their pricing strategy and/or introduce more efficient technologies such as shuttle trains to better compete with truck-barge and capture a substantial share of the grain now being moved on the Snake. Accordingly, it assumes that railroad costs would be reduced relative to truck/barge rates by 10%.

In its rail scenario, the HDR Study estimates that between $76.4 million and $91.8 million would need to be spent on rail infrastructure improvements, as set forth below. In addition, the HDR Study estimates that approximately $50-$55 million would be required to purchase new rail cars. The total infrastructure cost under this scenario, including highway upgrades, would be $182.4 - $217 million for the state of Washington.

Infrastructure needs: Rail Scenario (Costs in millions)[11]

Railroad Corridor	Interchange Low-high	Track Upgrade low-high	Bridges, etc low-high	Elevators and loading low-high	Total Low	Total High
Blue Mtn RR	-	-	-	0.4-0.5	0.4	0.5
Palouse River RR	2.8-3.4	4.6-5.5	1-1.2	8.8-10.6	17.2	20.7
Camas Prairie	2.0-2.4	-	-	0.8-1.0	2.8	3.4
BNSF/UP Mainline	-	-	-	8.4-10.1	8.4	10.1
Coulee City Palouse River Corridor	2-2.4	4-4.8	1-1.2	4-4.8	11.0	13.2
Columbia Basin Corridor	-	-	-	1.6-1.9	1.6	1.9
Columbia River Ports	-	-	-	35-42	35.0	42.0
SUBTOTAL	6.8-8.2	8.6-10.3	2.0-2.4	59.0-70.9	79.4	91.8
New Rail Cars	-	-	-	-	50.0	55.0
Highway Improvements	-	-	-	-	56.0	67.2
				TOTAL	182.4	217.0

It is important to note that these additional rail investments would only occur if the railroads could compete effectively with truck-barge. If the railroads determine that they can compete and do so, their private capital would be used for rail infrastructure upgrades, which comprise $126.4 - $146.8 million of the total rail scenario cost. Consequently, public costs would be limited to the highway upgrades. It is possible, however, that the railroads would not compete aggressively, in which case public funds may be needed to “seed” private investment, as discussed below. This would require some additional public funds, but that money could be recouped over time.

The HDR rail scenario is a “worst-case” scenario as defined by the maximum total cost of the new infrastructure that would be required. That said, the HDR Study may significantly overestimate the projected costs; neither the Corps nor the EWITS studies have identified infrastructure costs as high as the HDR study. For instance, the need for additional rail cars or export elevator capacity may be significantly less than estimated ($85-$97 million).

2. Total Annual Cost

In its draft Transportation Report for its Lower Snake River Drawdown Study, the Army Corps used its standard economic analysis to estimate the likely increase in shipping costs that would result from transporting commodities presently shipped via Snake River barge by existing “least cost” alternative modes. The analysis focused on direct economic effects defined in terms of opportunity costs, not market rates. This is standard Net Economic Development (NED) methodology.

Under the Corps’ analysis, annual total shipping cost increases of approximately $34 million for grain are predicted. The projected cost increases are not uniform throughout the affected region and range from 3 to 39 cents/bushel. Washington would shoulder 60% of the increased costs and Idaho 30%. The Corps’ cost increase estimates for grain assume that, of the 3.8 million tons of grain that would be diverted from Snake River barge, 1.1 million tons or 29% would move by rail and 2.7 million tons or 71% would move by truck-barge. (This new grain movement pattern is essentially the highway scenario modeled by HDR.) The projected cost increase includes the cost of infrastructure upgrades at existing facilities that the Corps has deemed necessary.

III. POTENTIAL RATE IMPACTS

Two recent studies examine the potential rate impacts on farmers and other shippers of eliminating the lower Snake River waterway. These studies analyze both competition between competing alternatives and real cost changes to estimate potential rate impacts.

The first study is being conducted by the Upper Great Plains Transportation Institute (UGPTI), and preliminary results have been presented. The study is evaluating the competitive advantages of rail versus truck-barge and has reached the following preliminary conclusions:

(1) For long-distance markets in the Dakotas and Montana, there would be virtually no rate impacts or shift in transportation modes; and

(2) For many of the local markets (Washington, Idaho, and Oregon), the preferred, low-cost alternative would remain truck-barge and not rail, and rate increases would be a direct function of the increase in truck costs resulting from longer trips to the barge-loading facilities in the Tri-Cities.

The UGPTI Study hypothesizes that railroads would not be competitive in the “local market” because of their higher costs and therefore competitive disadvantage. However, single-car rail rates were used to make the comparison. The analysis is being expanded to include a 26-car rate. The trend in the region is to move towards more efficient service packages, such as 26 or 52-car rates, which would make rail more competitive with truck-barge.

The second study is the EWITS Study discussed previously in the discussion of infrastructure costs, which took a different approach to analyzing rate impacts. The EWITS study did not attempt to determine the most likely scenario, but rather modeled price increases using nine different scenarios – the status quo transportation system and eight post-dam removal alternatives. The scenarios differ in regard to assumptions made about the ability of railroads to accommodate the increase in freight and about the possible increase in shipping rates charged by both rail and barge (on the Columbia).

The EWITS Study predicts a range of average rate increases from 0.98 to 8.41 cents per bushel for wheat, or about a 2-17% average increase. Rate increases were calculated based on all shipments regardless of transportation mode (i.e., truck-barge or rail). Higher rates occur under scenarios where capacity is constrained (i.e., rail and barge cannot handle the volume). Conversely, rate increases are much lower if sufficient capacity exists to move the grain. The study calculates the average rate increase under each scenario, meaning that the actual rate for an individual farmer would vary depending upon factors such as distance from ports.

IV. THE CONCEPTUAL TRANSITION PLAN

A. Need and Purpose

These aforementioned studies do not tell us what the actual cost of closing the Snake River waterway would be or the actual rate impacts of such a shift. Rather, they provide insight regarding probable outcomes given particular assumptions. Collectively they provide valuable information on potential cost and rate responses to closure of the waterway, and how those responses would affect particular geographic areas. Key pieces of information include: