Texas Rail Advocates

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Texas Rail Advocates
Scott D. Moore AVP General Manager Public
Partnerships Dallas-Ft. Worth January 27, 2006

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Union Pacific System
Seattle
Eastport
Portland
Fast Facts
Duluth

• Commodity Revenue 11.7 B
• Miles of Track 33,000 in 23 States
• Employees 48,000
• Annual Payroll 3.3 B
• Customers 25,000
• Locomotives 7,700
• Freight Cars 104,000

Twin Cities
Chicago
Omaha
SLC
Oakland
Denver
KC
St. Louis
LA
Memphis
Dallas
Calexico
Nogales
El Paso
New Orleans
Houston
Eagle Pass
Laredo
Brownsville
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Texas
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2005 Business MixFirst Quarter
1Q 05 vs. 1Q 04 Revenue Growth
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Energy
15Agricultural Products
Industrial
12
10Auto
9
Agricultural
17Intermodal
15Chemicals
8
Chemicals
3
Intermodal
21Industrial Products
22Energy
Automotive
-1
Total
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Major Freight Growth Projected

• With 3 annual growth in the economy
• domestic freight tonnage (all modes) will
  increase by 57 percent by 2020 from 2000 levels,
  and
• import-export tonnage will increase by nearly 100
  percent.

American Association of State Highway and
Transportation Officials (AASHTO)Freight-Rail
Bottom Line Report (January 2003)
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Major Freight Growth Projected(All Modes)
DOT
AASHTO
American Trucking Assn.
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Congested Highways, 2000Congestion Disrupts
Truck-Freight Service by Making Trips Slower,
Less Reliable, and More Expensive
Source FHWA HPMS data
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Potential Congested Highways, 2020As Congestion
Grows, Trucks Will be Exposed to More Delay
Without More Capacity, Logistics Costs Will Rise
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Is The Growth Here To Stay?Outlook

• Drivers
• Trans-Pacific Trade
• U.S. Industrial Production Strength
• Growth in Southwest Population Centers
• Mexico

Source Global Insight
Index 1997100
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Rail Infrastructure Investment needed to meet
future demand

• Maintenance of existing infrastructure
• Expansion of Mainline capacities
• Expansion of Terminal capacities
• Additional clearance on bridges and tunnels

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Projected Rail Growth and Investment Needs Over
the Next 20 Years

• Ton Miles in 2020

• Investment
• Needs

• Ton MileGrowth

• AASHTOScenario

• 1,239 Billion

• 105-125 Billion

• 0

• No Growth

• 1,531 Billion
• 1,821 Billion

• 122-142 Billion
• 175-195 Billion

• 24
• 47

• Constrained Investment
• Base Case

• 2,265 Billion

• 205-225 Billion

• 83

• Aggressive Investment

Source AASHTO
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Projected Rail Traffic Growth Will Outpace
Railroads Available Capital
AASHTO estimates that railroads can invest at
most 142 billion from revenues plus borrowing
enough to handle only a 24 increase in rail
traffic.
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Freight Railroads Are the Most Capital Intensive
Industry in America
Average capital expenditures as a of revenue,
1997-2001
Source U.S. Census Bureau AAR
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Freight Railroads Are Not Earning Their Cost of
Capital
20
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Cost of Capital
12
8
Return on
4
Investment
0
1981
1984
1987
1990
1993
1996
1999
2002
Source Surface Transportation Board
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The 20-Year Cost of Failure to Invest in Freight
Rail Infrastructure
(1)

• Category Incremental Cost
• Social 209 Billion
• Shipper 401 Billion
• Highway Construction 27 Billion
• Total 637 Billion

(1) Constrained vs. Aggressive Growth Investment
Scenarios
Source AASHTO, DB Estimates
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Public/Private Partnerships
Union Pacific Believes There Are Many
Opportunities to Work With Public Agencies on
Mutually Beneficial Projects . . .

• Which Have a Clearly Defined, Direct Public
  Benefit
• Whose Outcomes Are a Clear Win-Win for Public
  Railroad

Win Means Gaining Something of REAL VALUE
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Union Pacifics Perspective on Investment and
Partnership Projects

• Must increase Capacity to move Freight
• Improve Freight Movement by Enhanced Fluidity
• Improve Efficiency
• Improve Safety
• Fair Return to Shareholders

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Public Interest

• Rail Investment may be Best Bang for Taxpayers
  Buck When Solving Transportation Problems
• Efficient Movement of Goods
• Freight Traffic off Highways
• Environmentally Friendly
• Pollution
• Efficient Use of Fuel
• Economic Development Vehicle

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Public Interest (continued)

• Vehicle Traffic Benefit
• Reduced Auto, Truck and Emergency Vehicle Delays
• Reduced Train-Vehicle Accidents
• Rail Relocation
• Remove some rail operations from population
  center
• Passenger Rail
• Light Rail
• Commuter Rail

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UP Concerns with Public Investment

• Passenger Operations
• Consume Scarce Capacity Without a Fair Return to
  Shareholders
• Strings Attached
• Blurred Ownership
• Open Access / Reregulation
• Leads to Rail Trust Funds
• Skew the Economic Playing Field
• Public Priority may not match Private Priority
• Grade Separation Projects
• Primary Benefit is for motoring public

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Union Pacifics Public Partnership Principles

• Partnerships must be voluntary for all parties.
• Public entities pay for the public benefits that
  are enjoyed by the public at large, and such
  public funds must come from public or general
  revenue sources.
• Union Pacific will pay for the private benefits
  that UP agrees will accrue to our company.
• Union Pacific will coordinate the planning of
  projects with public entities and provide
  reasonable input into this process.
• Public entities must not spend public funds to
  alter the existing competitive relationships
  among railroads.

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Process Steps for Potential Public / Private
Investments

• Discuss Goals for Public and Private Interests
• Define and Agree on Project
• Develop Cost Estimate
• Perform Public / Private Benefit Analysis
• Determine How Project will be Funded
• Obtain Funding
• Commence and Complete Construction

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Private/Public PartnershipInvestment Process
Improvement

• Alameda Corridor
• CREATE Program
• Colorado FrontRange Project

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PublicAgency WIN
PrivateRailroad WIN