Railway Turnpike Tons-Mile Calculator



ROSEBUD VAIL MINE TOLLED RAIL LINE FINANCIALS

DRAFT 12-9-2010

Overview

A true turnpike pays all of its expenses using revenues based upon users' network accesses and uses. The concept conforms to Adam Smith's observation in his "The Wealth of Nations" (Book V, Chapter 1, Part III, Article 1):

"When the carriages which pass over a highway ... pay toll in proportion to their way to or their tunnage, they pay for the maintenance of those public works exactly in proportion to the wear and tear which they occasion of them. ... This tax or toll, too, though it is advanced by the carrier, is finally paid by the consumer, to whom it must always be charged in the price of goods. As the expense of carriage, however, is very much reduced by means of such public works, the goods, notwithstanding the toll, come cheaper to the consumer than they could otherwise have done; their price not been so much raised by the toll, as it is lowered by the cheapness of carriage."

For railway turnpikes, the assessment should be based upon the tons per mile each vehicle (engines, cars, etc.) uses the rail network.

Assumptions

For the purposes of this pro forma, the following constants will be used.

Rosebud Freeport Vail Mine annual coal output: 1M tons

Coal car empty weight: 25 tons

Coal car load weight: 100 tons

Coal car loaded weight: 125 tons

Train engine weight: 125 tons

Freeport-Uhrich Jct. distance: 18.9 miles

(From Freeport SR 800 crossing to Uhrich Jct.

including SE and SW interchange tracks)

Delimitations

For the purposes of this pro forma, the following variables are not known yet.

• CSX’s ROW price from Aleris/Newport to Freeport plus Uhrich Jct. ROW interchange parcels (update - $500K for Freeport to Harrison-Tuscarawas county line).

• RJ Corman price for ROW and track from Aleris/Newport to Uhrich Jct. plus SW interchange ROW and track.

• Self- or contracted-carriage costs.

Variable Administration and MOW Costs

In a theoretical railway turnpike, all administration costs including maintenance of way costs would be paid for by tons-mile assessments. Those assessment calculations are as follows.

Determine Total Annual Network Ton-Miles

• For each train on a network, multiply its tonnage by its distance traveled, then
 sum all the ton-miles for one year.

The Vail mine is projected to ship 1M tons annually.

Each coal car can carry 100 tons.

The Vail mine would require 10,000 coal cars to export coal.

The Vail mine would require 10,000 coal cars to refill with coal.

10,000 train cars annually equals 27.4 cars daily.

20,000 loaded and empty train cars equals 54.8 cars daily.

Each train of 27.4 loaded coal cars would require one engine.

Each train of 27.4 empty coal cars would require one engine.

The total daily tonnage of each loaded train plus one engine =

(27.4 cars * 125 tons) + (1 engine + 125 tons) = 3550 tons.

The total daily tonnage of each empty train plus one engine =

(27.4 cars * 25 tons) + (1 engine + 125 tons) = 810 tons.

The total daily tonnage of both the loaded and empty trains =

(3550 tons loaded) + (810 tons empty) = 4360 tons.

The total annual tonnage of both the loaded and empty trains =

(365 days) * (4360 tons) = 1591400 tons.

The distance from Uhrich Jct. to the SR 800 grade crossing in Freeport is about 18.9 miles. If all the trains traveled the 18.9 miles annually, the total tons-mile =

(1591400 tons) * (18.9 miles) = 30,077,460 tons-mile.

Determine Total Network Track Miles

• "Track Miles" is the distance in miles of all individual tracks in a network or route; 
"Route Miles" is the distance in miles between two points.

The distance from Uhrich Jct. to the SR 800 grade crossing in Freeport is about 18.9 miles for a single track line.

Determine Annual Maintenance of Way per Track Mile Amount

• $25,000 MOW per track mile was recommended by the US DOT Inspector General for Class I carrier traffic on their main lines. Less should be acceptable for Class II/III carriers. Less should also be acceptable for newly reconstructed track. Newly reconstructed track should not require maintenance for perhaps five years, though assessments during those five years should be placed into a reserve maintenance fund.

The annual MOW per track mile for 1M tons/yr was set at $5,000.

Determine Annual Network MOW

• Multiply Total Network Track Miles * Annual MOW Amount.

(18.9 Total Network Track Miles) * ($5,000 Annual MOW Amount) = $94,500.

Determine Tons per Mile Assessment for MOW.

• Divide Annual Network MOW Amount by Total Annual Network Ton-Miles.

($94,500 Annual Network MOW Amount) / (30,077,460 Total Annual Network Ton-Miles) = $0.0031419.

Fixed Administration and Variable MOW Costs

While in a theoretical railway turnpike all administration including maintenance of way costs could be paid for by ton-mile assessments, in reality the other administrative costs could instead be fixed and not as set as variable like MOW costs. Thus a model to account for the differences is described as follows.

Since all other administrative costs are unknown for now, a table was established to list theoretical administration costs (excluding MOW) based upon what percentage MOW would be of all other administrative costs. The percentages ranged from 50%, 25%, 20%, 15%, 10%, 5%, 2.5%, and 1% as shown in the following chart:

|50 |$189,000 |

|33 |$286,364 |

|25 |$378,000 |

|20 |$472,500 |

|15 |$630,000 |

|10 |$945,000 |

|5 |$1,890,000 |

|2.5 |$3,780,000 |

|1 |$9,450,000 |

For comparison, the Ohio Turnpike Commission's 2005 MOW was 21.98% of their operating expenses before debt service, and the Alameda Corridor Transportation Authority's 2005 MOW was 11.82% of their operating expenses before debt service. Thus if the annual MOW cost is $94,500, which was found to be 25% of the total administration costs, the remaining 75% of the administration costs would be $283,500 ($378,000 - $283,500 = $94,500).

An administration fee assessment to cover all administrative costs except MOW costs is thus determined by dividing the theoretical administration costs by the total number of train vehicles using the network annually.

Determine the number of train vehicles using the network annually.

• Divide Rosebud Freeport Vail’s annual output by the capacity of a coal car.

(1,000,000 tons of coal) / (100 tons of coal per train car) = 10,000 coal cars

• Multiply the number of loaded coal cars by two to find the total number of coal cars needed.

(10,000 loaded coal cars) * 2 = 20,000 total coal cars.

• Divide the annual number of loaded coal cars needed by 365 days per year.

(10,000 loaded coal cars) / 365 = 27.4 loaded coal cars per day.

27.4 empty coal cars will also be required each day. One engine will be assigned to each train of 27.4 loaded and empty coal cars per day.

• Add the number of annual loaded coal cars to the number of annual empty coal cars to the number of annual engines.

(10,000 loaded coal cars annually) + (10,000 empty coal cars annually) + ((1 engine per loaded train) * (365 days)) + ((1 engine per empty train) * (365 days)) =

(10,000) + (10,000) + (365) + (365) =

20730 train vehicles using the network annually.

The following chart shows the range of MOW % costs of the total administration costs, and the corresponding administration fees that would be assessed to each train vehicle using the network:

|50 |$4.56 |

|33 |$9.26 |

|25 |$13.68 |

|20 |$18.23 |

|15 |$25.83 |

|10 |$41.03 |

|5 |$86.61 |

|2.5 |$177.79 |

|1 |$451.30 |

For example, say the MOW costs were 25% of all administration costs, the total administration costs + MOW costs would be $378,000. $378,000 total costs - $94,500 MOW costs = $283,500 remaining administration costs.

$283,500 remaining administration costs / 20730 train vehicles annually = $13.68.

Thus per the chart, if MOW costs were 25% of all administration costs, the corresponding administration fee per train vehicle using the network would be $13.68.

The above example is valid if all expenses = revenues, and there was zero debt. Approximately $25,000,000 will be required to finance the project. If a revenue bond is issued for a term of 20 years with a coupon of 5%, according to the attached Revenue Bond Payment Schedules chart the total debt service is $50,000,000. Annual debt payments would be $1,250,000 for interest, and $1,250,000 for a fund to pay the principle, for a total annual debt payment of $2,500,000. The $2,500,000 was then added into the administration cost %s as shown in the following chart:

|50 |$125.16 |

|33 |$129.85 |

|25 |$134.27 |

|20 |$138.83 |

|15 |$146.43 |

|10 |$161.63 |

|5 |$207.21 |

|2.5 |$298.38 |

|1 |$571.90 |

Thus per the chart, if MOW costs were 25% of all administration costs, and the $2,500,000 annual debt was added to the administration costs, the corresponding administration fee per train vehicle using the network would be $134.27.

Bond counsel would likely require a Debt Service Coverage Ratio of anywhere between 133%-200% to ensure revenues are always higher than expenses, for bondholders to be paid, to receive a good debt rating, and other reasons. Thus the revenues must be inflated to a certain percentage over expenses. Using the prior chart, if the administration costs + the debt costs – the MOW costs were inflated 150%, the result would be those assessments found in the following chart:

|50 |$187.74 |

|33 |$194.78 |

|25 |$201.41 |

|20 |$208.25 |

|15 |$219.65 |

|10 |$242.44 |

|5 |$310.82 |

|2.5 |$447.58 |

|1 |$857.85 |

Thus per the chart, if MOW costs were 25% of all administration costs, and the $2,500,000 annual debt was added to the administration costs, and those costs were inflated 150%, the corresponding administration fee per train vehicle using the network would be $201.41.

Once the debt is retired, the fees would be readjusted to just the administration costs – MOW costs inflated 150%. Those results are shown in the following chart:

|50 |$6.84 |

|33 |$13.88 |

|25 |$20.51 |

|20 |$27.35 |

|15 |$38.75 |

|10 |$61.54 |

|5 |$129.92 |

|2.5 |$266.68 |

|1 |$676.95 |

To find the total charge for a train vehicle, the MOW tons-mile toll would be combined with the administration fee assessment. For example, the total charge of a loaded coal car hauled from Freeport-Uhrich Jct. would be:

(125 tons) * (18.9 miles) * ($0.0031419 tons-mile assessment) =

$7.42 MOW toll

$201.41 administration fee (MOW 25% of administration costs, $2,500,000 annual debt, 150% ratio)

$7.42 + $201.41 = $208.83 total charge.

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