Senate Committee Approves Rail Legislation Aimed at Increasing Competition on Rates

This story appears in the Dec. 21 & 28 print edition of Transport Topics.

The Senate Commerce Committee, in a bid to foster more rail competition, unanimously approved the first comprehensive rail policy legislation changes in nearly three decades on Dec. 17.

The measure, negotiated during seven months of talks between carriers, shippers and legislators, has three provisions that could lower rates for shippers.

The first rate-reducing option would ban the future use of so-called “paper barriers” that blocked shippers located on small, regional railroads from obtaining competitive rates from multiple railroads for long-distance shipments.

A second provision would force carriers to quote rates over portions of track where they are the sole operators, in order to create competition between railroads.

A third would require railroads to give access to other railroads in urban terminal areas where today only a single carrier serves a customer’s facility.

Railroads expressed reservations about the bill, issuing a statement minutes before the committee meeting ended.

“This bill would be the most significant rewrite of the railroad industry’s regulatory system in the last three decades,” said Association of American Railroads President Edward Hamberger. “We continue to have concerns about certain provisions in the bill, particularly the nature and scope of the antitrust provision that may be added at a later date.”

Both Linda Morgan, a former Surface Transportation Board chairwoman now with Washington law firm Covington & Burling, and Michael McBride, a Washington-based transportation attorney with Van Ness Feldman, said the bill’s treatment of antitrust issues still must be resolved. They spoke during a Dec. 16 conference call.

Some customers began protesting rail rates soon after the Staggers Rail Act of 1980 freed carriers to set pricing, lower costs and eventually boost profits to record levels in 2008. A shipper-sponsored study last year found rail rates typically were as much as 50% higher when shippers had no competitive option.

Sen. Jay Rockefeller (D-W.Va.) and other Commerce Committee members have introduced bills to increase rail competition in seven of the past 12 years without success.

“This bill has been 25 years in the making,” Rockefeller said. “We have been working day and night for months. The result is fair and balanced legislation.”

“This is a bill that says to the railroads, ‘You are not going to get everything you want, but I believe in your future,’ ” he added. “I also said to shippers, ‘You have been suffering for years and years, and you are not going to get everything you want.’ ”

Sen. Herb Kohl (D-Wis.), chairman of the Judiciary Committee’s antitrust subcommittee, earlier this year won full committee approval for a bill that would end railroads’ antitrust immunity. He withdrew that bill from Senate consideration and agreed to work with Rockefeller late in May.

Both attorneys said one issue is jurisdiction between committees — and Sen. Harry Reid (D-Nev.), the majority leader, may have to get involved to sort out that issue.

Another question mark is how the STB will interpret and implement the bill’s provisions.

“There are going to be quite a few rulemakings if these concepts become law that will have to be fleshed out,” Morgan said.

The bill also expands the STB from three to five members and empowers the agency to initiate investigations.

Other key provisions include:

• Case filing fee reductions, which shippers sought to make it easier to pursue rate disputes.

• A directive to review the fairness of rates that already have been fully deregulated, such as intermodal.

• A review of how rail operational costs are calculated.

• Studying whether to value assets at replacement cost, which would make rate cases more difficult to win, or to maintain the current standard of book value.

• Requiring railroads to publish service standards.

• Mandating binding arbitration for rate cases of less than $250,000 annually.

• Setting limits on awards for two other rate case procedures.

• Setting an 18-month limit for deciding the largest rate cases, which in the past have taken as long as 12 years.

The bill’s outlook in the House “is a big unknown,” said McBride, since the new bill is more of a compromise than past measures that haven’t advanced there.