March 23, 2009
Two years after the state signed an agreement with an Illinois company to run trains on 110 miles of taxpayer-owned rail lines west of Spokane, the deal is in jeopardy over the struggling railroad's failure to maintain the old tracks.
The state has given notice that it's canceling its lease with the Eastern Washington Gateway Railroad, effective July 3.
"We felt we didn't have a choice but to issue the notice of termination," said rail project manager Mike Rowswell. "We do continue to talk."
Company officials say they feel they're close to a deal with the state to keep running on the line.
But even if that fails, rail service would continue on the line, which stretches from Cheney to Coulee City. Federal law would require the company to keep running on that line, known as the CW Line, until the state finds someone else, Rowswell said.
At issue is the railroad's maintenance of the tracks, some of which are more than a century old. The company acknowledges that it's replaced far fewer railroad ties than the thousands it committed to.
"It's our plan and goal to get those ties in" if the two sides can reach agreement, said railroad President John Howell. "We're hopeful we can reach a successful conclusion, but we're not sure yet."
"As far as the shippers go, they tell us that they were getting good service and they had good communication with the railroad," Rowswell said.
The rail line is part of the former Palouse River and Coulee City rail network that fans out south and west of Spokane.
Shortly after taking over rail operations in June 2007, Howell said, several problems hit the small railroad.
*Derailment: In December 2007, a derailment left the company with $100,000 in track damage that was not covered by insurance, Howell said.
*Grain cars: In 2008, the company wasn't able to borrow the state's fleet of grain cars. That forced it to spend about $170,000 leasing grain cars.
*Fuel costs: Diesel prices were extremely high last year.
*Harvest: Howell said last year's poor wheat harvest and low prices meant that the fledgling railroad didn't get as much traffic as it had expected.
"It was barely a trickle," he said. Wheat comprises "99.9 percent" of what the company ships on the line, he said.
Last year, Howell said, the railroad ran just 2,900 carloads on the line. Most of that traffic was during the first part of the year, when the wheat market was better. The wheat moves from rail to barge, through the ports of Portland or Seattle, and primarily to Asia.
Starting in 2004, Washington spent millions of taxpayer dollars to buy the former Palouse River and Coulee City rail network. The owner, Kansas-based Watco, was having trouble making a profit on the system, with trains moving at slow speeds on old track.
"Our rail is 100 years old," said Drew Wilson, another Eastern Washington Gateway Railroad official. "If you go out and look at the rail, it says '1908' on it."
Partly to avoid the prospect of thousands of truckloads of wheat on local roads, the state set aside nearly $28 million to buy the lines and rehabilitate the rail beds and track. Three different railroad companies now operate the network's three lines. The state owns the lines and regulates the railroads. Several area counties - Spokane, Whitman, Lincon and Grant - oversee the business and economic development aspects of the state's operating leases.
Rowswell said the other two lines are working well.
Under the lease, the Eastern Washington Gateway Railroad agreed to replace 3,000 old ties in the first year and 4,500 the second. Rowswell estimates that in the second year, they've only replaced about 900.
Howell said it's a bit more, maybe 1,000 or 1,100.
Regardless, he said, "It certainly was not the full amount of ties we'd committed to."
Howell said he feels the two sides are "very close" to working out a new agreement.
"We're hopeful we can reach a successful conclusion," he said. "But we're not sure yet."
The state has also been putting money into maintenance on the line. Rowswell estimated that Washington spent about $1 million in work on the CW line last year, with plans for another $1 million to $2 million next year.