Energy Washington
September 4, 2008

Utilities, Others Expect Major Railway Reform Push As Congress Returns

A broad coalition that includes the Edison Electric Institute, the American Public Power Assn., and the National Rural Electric Cooperative Assn. -- as well as many non-utility industry members -- is expecting that when Congress returns there will be a surge of legislative activity to strengthen and extend federal antitrust laws to railroad operations, which the coalition says are imposing monopoly overpricing for coal and other commodity shipments.

This anticipated legislative push comes as an electric utility recently filed a complaint with federal transportation regulators claiming overcharges by a rail company for its coal-fuel shipments.

The Consumers United for Rail Equity (CURE), representing electric, utility, chemical, manufacturing and forest and paper companies seeking "changes in federal law and policy that would require railroads to provide more competitive pricing and reliable service," believes the time is ripe for reform legislation after years of lobbying efforts. The issues have matured politically because the Obama administration -- and key members of the relevant House and Senate committees -- recognize the claims CURE is making and many lawmakers are hearing from companies in their states complaining about weak Surface Transportation Board (STB) antitrust protection for shippers and the need for reforming current law, says an official representing the group.

"The 111th Congress is the time to get this done," says the CURE official, noting that both the House and Senate are expected to move legislation that would address a number of concerns coal, grain, wood, chemical and other shippers have raised for several years.

A source with the Assn. of American Railroads says the organization cannot comment on CURE's allegations that shippers are being overcharged because it cannot comment on issues regarding railroad pricing. However, in an e-mail statement, the source says, "Government and private experts overwhelmingly have found that since passage of the Staggers Act in 1980, rates have decreased and most shippers are better off than they were previously. Today, the U.S. freight rail network provides the most cost-effective rail freight service in the world." The source points to a new report by Wolfe Research -- which describes itself as "Wall Street’s preeminent research boutique focused on and dedicated to macro and freight transportation" -- that found: "an overwhelming 87% of shippers oppose bringing the rails back to pre-Staggers regulation with capped rates." The 1980 Staggers Rail Act deregulated the rail industry and replaced the 1887 Interstate Commerce Act regulatory structure.

In the House, the Judiciary Committee's courts and competition subcommittee on July 30 passed H.R. 233, the Rail Road Antitrust Enforcement Act of 2009, sponsored by Rep. Tammy Baldwin (D-WI), and the full committee is expected to take up the bill after the August recess. H.R. 233 adopts CURE recommendations, including amending the Clayton Act to make federal antitrust laws applicable to all common carriers regulated by the STB and removing a prohibition against private parties seeking injunctive relief against rail carriers for violating antitrust laws, according to the group.

In the Senate, Sen. John D. Rockefeller IV (D-WV), chairman of the Commerce, Science & Transportation Committee is working with Ranking member Kay Bailey Hutchison (R-TX) as well as the chair and ranking member of the surface transportation subcommittee, Frank Lautenberg (D-NJ) and John Thune (R-SD), who has said he expects a deal on legislation to be worked out by September.

Rockefeller wants a bill through his committee and passed by the Senate in 2009, the CURE source says, noting that he is also working with Judiciary antitrust subcommittee Chair Sen. Herb Kohl (D-WI), who has been planning to move a bill that would, among other provisions, eliminate the freight railroad industry's long-standing antitrust exemptions. But Rockefeller wanted to move a single bill dealing with antitrust and SBT reform and is in negotiations to craft a single bill, the source explains.

CURE, which has worked closely with the bipartisan staff from the involved senators' offices, expects the imminent draft legislation from Rockefeller and others will include provisions for "a more proactive STB," shippers' "access to competition" that has been closed down by STB rulings, and STB protection when railroads charge too much for shipping.

In the latest company-specific action concerning prices, Seminole Electric Cooperative on Aug. 31 filed "evidence" with the STB that it says shows CSX Transportation (CSX), the Jacksonville, FL-based rail transportation leader, has been "severely overcharging" Seminole for coal transportation services since Jan. 1, 2009. In a statement, Seminole said CSX was charging more than $40 per ton of coal for a service that should cost $20.50 per ton, and called for "effective regulatory relief" from the STB against CSX's monopoly. CURE calculates that CSX overcharges are costing Florida consumers more than $100 million a year.

CSX did not respond to an e-mail request for comment and could not be reached by phone.

A source with the American Antitrust Institute, an independent Washington-based non-profit education, research, and advocacy organization that promotes an aggressive anti-trust agenda, says the group supports removing "the exemptions and immunities" railroads enjoy. "There's been a huge amount of consolidation in railroads," reviewed and approved by the STB with Justice Department weighing in but having no statutory authority, so "at the end of the day you have increased concentration" that affects pricing, quality, and choice to the detriment of shippers, the source says. "As a policy matter, the reasons for the [railroad] exemptions no longer apply," and the STB has been an ineffective regulator, creating "serious concerns" about the few choices available to shippers, the source adds.

While STB has a policy of not commenting on legislation, says a spokesperson, the source points to a letter sent to members of Congress in 2008 that expresses the views of the previous STB Chairman Charles Nottingham on comparable legislation in the works at that time. In a 14-page Jan. 28, 2008, letter to Reps. James Oberstar (D-MN) John Mica (R-FL) about H.R. 2125, a railroad policy reform bill, Nottingham writes that current rail transportation policy balances "a large number of sometimes competing policy considerations, such as reasonable rates for captive shippers and adequate revenues for railroads, so that the agency will not place one interest over another." Nottingham raises concerns about Congress upsetting "the carefully crafted balance" between various policies by imposing "implementation directives" on STP's rail transportation policy. The letter also objects to or raises concerns about a number of prescriptive provisions in the bill.

The new STB chairman, Daniel R. Elliott, was associate general counsel for the United Transportation Union, which represents train conductors. He was sworn in Aug. 13 and has said he will seek to create better relationships between shippers and railroads and will eschew favoritism in STB cases, even though on policy matters railroad unions have at times sided with shippers against railroads.