How come no other line has been electrified yet? It’s been almost 60 years since Milwaukee road tore down the cross-country wires. It doesn’t make sense.
Your question seems to be about both freight and passenger operations but I understand what you are asking.
It is very simple; the cost of building catenary systems is immense, much more so than when PRR/Milwaukee/New Haven ect. did it in the early 20th century. Even adjusted for inflation the actual capital outlay required is much,much higher.
BTW, Milwaukee Road pulled the plug on their electrification in the early 70’s so it’s been only 40 years…
Except for PRR, most steam road electrifications were for suburban service or tunnels with some mountain operations. The tunnel operations were generally eliminated with dieselization. GN’s and VGN’s electrifications were eliminated because they no longer fit with the overall operation of their railroads.
If you finance what it necessary to implement electrical operation on the line of your choice, the catenary, power substations, electic locmotives and changes necessary to the signal system; and I am sure a carrier would undertake electrification. Without your ‘grant’ the carriers don’t see the ROI on their investment in electrification, they see better returns on other uses of their scarce investment dollars.
Several points.
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Construction Cost of the constant tension CAT is more that variable tension. The Newark airport station rebuilding did not get constant tension over the old or new tracks probably because of the higher cost ? The CT CAT advantage ? much less maintenance costs once in place. Have often wondered that the thru service from WAS to BOS on old PRR CAT causes excess wear on the PANs causing more wire pull downs & other failures on new CAT. Europe does not have as high percentage of CT CAT failures as it is almost all CT. Electrical power resources are another cost as well signal systems may need revising…
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VGN shutting down may have come from the N&W purchase and no electrification on N&W for the directional running implemented.
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MKE shut down has been speculated as expecting a positive cash flow from salvage but that did not happen.
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Thru operation of diesel power terminated and would handicap time sensitive cargo by the necessary delays changing loco power including brake tests.
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Electrification might have very positive returns to the bottom line at certain helper districts. down hill regeneration could provide some power to uphill trains. Horse shoe, Donner, and 17 mile a couple examples
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The GN termination of cascade tunnel might be an example of tunnel re-electrification now needed to increase line capacity by not having to ventilate tunnels for another train.
Current MBA teachings are that businesses work to earn as much of their capital back as soon as possible and return the value to the investor/stockholder immediately and let the next generation investor/stockholder group worry what to do with the property. Thus since things like the installation of an electric propulsion system and the locomotives would be a long term operation rather than short term return on investment, diesels will be the American norm of railroading. Commuter lines are of course often government owned and operated and therefore can commit to long term investment and return and thus can install and expand electric operations. This quick return, no long term commitment, pertains not only to railroads but virtually to all industry today…
Henry is very correct. There would have to be a major change in tax laws to push for permanent long term investments. Maybe 100 % deduction in year invested with a certain % added back to each of future years but less normal depreciation ? The 10% investment tax credit of the 1980s sort of did this by reducing depreciation basis by that 10%
Why do you think electrification does make sense, and what lines would you electrify? What is the ROI on your project? What is the ROI on alternative projects? Where is the investment capital to come from?
Railroads are not in the social engineering business they are in the haul stuff/people business. Low costs are better than high costs. High returns on investment are better than low returns. Why should your 401K managers invest in electrification?
Mac
HIgh costs of building is saved over long term of operation both in fuel consumption and power attained. Speed and efficiency of operation and other factors make it good. But as long as the business plan is for short term rewards, it can’t happen and won’t happen here.
You probably can make a case for electrification, but, lets’s say you’re Norfolk Southern. You already have an annual capital spending plan about as high as is practical. The discretionary part is to build out the Crescent corridor so you can capture new business. Suppose you divert that spending toward electrification. The best line for it would be Harrisburg to Pittsburgh. It might take you a few years to electrify that whole route. Are you getting much return until its totally built out? Not much. For example, you certainly aren’t going to to engine changes at Lewistown for a year, then Altoona the year following, then Johnstown the year after. You have to get all the way to Conway for it to work.
Then, what of Mon Valley coal that uses the route. Do you string wire to West Brownsville? All the way to the various mines? Electrification only pays if you use it. Gotta get all the traffic on the route sucking juice.
What you wind up with a lot of money flowing out for years before any money starts flowing back into your pocket. Crecent Corridor generates cash flow right now.
Electrification may come, but there are bigger fish to fry at the moment. And, who knows? Maybe LNG/hybrid locomotives will show up first and be and even better investment. It’s what happened last time out. Diesels “pulled the plug” on electrification that was building out in the first part of the 20th Century.
But look at the corporate histories of American railroads and other businesses. There are “saviours” who come on the scene rebuilding and expanding and making money and putting money back into the business until an investor group or stockholders say, "Hey! Where’s mine? " and at the next annual meeting management is overthrown and the progress and success goes away while the profits are turned into dividends and investor payoffs and maintenance is deferred, service and quality suffers so it comes time for another saviour to come and start the cycle over again. Our steel industry suffered this fate while foreign products became so cheap because the industry was paying dividends instead of retooling to be competitive with the likes of Japan, Korea,and Venezuela. We are at a time in this country’s business cycle where investment is going into the plant instead of Caymen Island banks… Look at CSX and their sidestepping of that British group which wanted to raid the kitty rather than fix up the railroad.
Henry,
You are claiming that for a large investment there will be ongoing cost savings. OK, lets test that hypothesis. That is what capital budgeting is all about. How much investment for how much savings year by year for the life of the project, say 30 years? Future year expenditures and costs evaluated on a Present Value basis using the hurdle rate set by management. Vague claims that “it will save money in the long run” are meaningless in the real economy.
If someone has a billion dollar investment that saves $10,000,000 per year they would be laughed out of the room if they were dumb enough to suggest it. $100,000,000 savings is 10%. Last I knew most rail managements would not consider projects with less than 15% pre tax-ROI, so you need to save at least $150,000,000 per year after paying the interest costs of say $60,000,000 per year. Interest is a real cash cost.
In addition, electrification is a fixed cost project. Fixed costs are OK if the volume is there to support it, but are hell in a down volume situation since the cost goes on regardless of volume. That is what fixed cost means.
The other issue is the sheer size. Ten $100,000,000 projects are better than one big billion dollar one holding projected ROI constant since they will be diversified, hence less risky. Electrification is a big egg that has to be watched very closely. It is more risky than a portfolio of smaller projects due to the diversification issue.
Mac
You are arguing my hypothesis with your hypothesis. So all you are doing is comparing them and not a real thing. If you could show me a real situation to blow me out of the water, find. In the meantime it is nothing more than my hypothesis can beat your hypothesis any time no you can’t.
Bluestreak1: “2. VGN shutting down may have come from the N&W purchase and no electrification on N&W for the directional running implemented.”
Yes, this what was reported at the time that the N&W bought the VGN. I do not think that putting catenary up on the corresponding section of the N&W was considered–construction costs and the cost of new electric locomotives would not have provided a good ROI.
Henry,
I am not testing your hypothesis. I am telling you how capital budgeting works in very broad strokes. I have no interest in proving the original posters hypothesis, which you seem to have adopted as your own.
The proponents need to make the case and it has to be better than the other alternatives available at the time a decision is made. The fact that no one is stringing wire is evidence that the expected return on investment is less than on other projects.
Mac
My point is that financial investors want and are programmed to get as quick a return on investment as possible…often within a year or less…and all management programs from the MBA is to achieve that. So since business won’t invest in electrification because of this lack of quick returns then governments will have to. Commuter rail is government investment for the long haul (pun?) while UP, NS, CSX, BNSF are looking for the dividend payouts.
Henry,
Why does government “have to” make a stupid investment? Are you saying we need more Solindras? IIRC that was $500 million in borrowed capital destroyed.
Mac
A back issue of TRAINS covered this subject beautifully. Both pro and con electrification arguments were presented in two articles in the same issue. The fact is that all four USA majors have invested in electrification studies, so did Conrail, so did SP. All have preliminary plans that can be implemented if the economics justify it. USA and Canadian Railroads are in business to earn money for their stockholders. This was not true of the state railroads of European countries after WWII, and it is not true of China today. The only serious electrification schemes that were implemented and that are in progress today are those financed by governments, not by private enterprise.
Question is: why don’t we have electric or high speed railroads. Answer. Because our business structure of capitalism wants a return on investment as quickly as possible. Question: what is the alternative. Answer: governments build, maintain and operate. Question: is it a stupid investment? Answer: That’s your opinion. If people want it, if it is the answer to pollution, environmental issues, fuel usages and costs, highway congestion and urban gridlock, land usage, solutions to whatever other transportation and living problems that pop up, then it is not stupid. If you are in it for the financial investment and quick return, it is a stupid idea; but if you are a social engineer or urban planner, it’s not so stupid.
Henry,
Bingo. It is the social engineers, who by definition are smarter than everybody else just ask them, who truly scare me.
For the most recent example look at Obamacare. The social engineers have required the insurance companies to cancel over 5,000,000 policies that people bought in a relatively free market so that 2,000,000 people can be subsidized to buy “better” policys that cost more and have a higher deductible. That is the small first wave. Next year they will do the same social engineering to employer provided health plans.
The government has no business in the social engineering business. It exists to protect our rights, and to protect our nation. Period.
Mac