Surface Transportation Board Announces Public Proceeding on Competition in the Railroad Industry
On January 11, 2011, the Surface Transportation Board issued a Notice announcing that it will receive comments and hold a public hearing "to explore the current state of competition in the railroad industry and possibly policy initiatives to facilitate more competition, where appropriate." The Notice follows testimony provided by STB Chairman Daniel Elliott III in a Senate Commerce Committee hearing on the Federal Role in National Rail Policy held on September 15, 2010, during which he stated that he wanted to "launch anew" the effort to reexamine the agency rules regarding rail-to-rail competition started by then Chairman Mulvey in EP 688, Policy Alternatives to Increase Competition in the Railroad Industry (served April 14, 2010). This effort was terminated by the STB at the request of Congress on April 17, 2010.
The proceeding in EP 705, Competition in the Railroad Industry, will entail the filing of Opening and Reply comments on February 18, 2011 and March 18, 2011 respectively, and a public hearing held on May 3, 2011. The Board is already anticipating that the public hearing may take more than one day to complete. Notices to participate in the hearing are due on April 4, 2011. (To view the Notice please click here)
In light of the lack of any progress on federal legislation to revise the laws and rules governing rail-to-rail competition, this is an important opportunity for rail shippers to assist the current STB to (1) understand the current lack of competition in the rail industry; and (2) examine the ICC's implementation of the applicable statutory provisions, most of which were enacted nearly 30 years ago, which had the effect of significantly limiting the ability to obtain competitive rail service. The result has been to require shippers to seek relief by bringing rate cases, which are complex and expensive proceedings, rather than accomplish the goal of getting truly competitive rates by letting railroads compete for business.
The STB's rail-to-rail competition rules derive from the agency's interpretation of its governing statutes in individual adjudications and rulemakings dating back over 20 years, a time when the agency was more focused on railroad profitability than shipper concerns. The law permits an agency to modify its policies and administration of its governing statutes with proper justification and explanation, something the STB and its predecessor the ICC have to date resisted in the area of rail-to-rail competition.
While Notice makes clear that this proceeding is to be a broad examination of the current state of rail competition, the Board's current policies governing rail-to-rail competition, and any changes that should be made to those policies, areas of particular emphasis identified for review by the Board include the following:
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The financial state of the railroad industry and rail competition generally. This provides an opportunity for shippers to inform the Board that railroad competition generally is insufficient.
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The Board's so-called "bottleneck rules." These rules generally preclude a shipper from obtaining separate rates for different segments of movements with multiple railroads. An important issue in this area is whether "Rule 11" rates (which are separately provided and billed by the railroads) or even proportional rates (which are also individually negotiated rates) should be subject to challenge if it is only those segments that have excessive rates.
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Establishment of alternative through routes under 49 U.S.C. §10705. Under this statutory provision, the Board can force a railroad to establish a new through route with another railroad, such as where a bottleneck railroad has exploited its market power by foreclosing more efficient service over another carrier's lines, or providing inadequate service over its own lines. However, the Board has very narrowly construed this authority to date so that is essentially useless. This provision was intended by Congress to provide important competitive alternatives for shippers, but the ICC removed this as a direct option when it promulgated the co-called Intermodal Rail Competition Rules at 49 C.F.R. Part 1144.
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Terminal Trackage Rights under 49 U.S.C. §11102(a). Under this statute, the Board may order access by one carrier over the tracks of another in "terminal" areas "including main line tracks for a reasonable distance outside of a terminal." However, this authority has also been construed very narrowly. Indeed, we are not aware of a single instance where the agency has granted this relief in 30+ years.
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Reciprocal switching under 49 U.S.C. §11102(c). Under this provision the Board may order a railroad to provide reciprocal switching of another railroad's cars over the former's tracks "where it finds such agreements are necessary and in the public interest, or where such agreements are necessary to provide competitive rail service." The provision literally contains no limitation on the distance of a reciprocal switch movement. As was the case with terminal trackage rights, however, the ICC eliminated what Congress had originally intended to be an important pro-competitive remedy for captive shippers by adopting a very restrictive interpretation of the statutory language.
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The compensation to railroads for access by others over their tracks. In particular, what are the appropriate levels of compensation, and how would they be determined.
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The positive and negative impacts of modifying the current rules. In the past, any attempt to loosen the Board's rules on rail-to-rail competition in order to increase competition between railroads has been met with vocal protests from the railroads (and in some cases rail labor) and their dire predictions of the demise of theU.S. railroad system and the economy as a whole. Shippers can surely expect more of the same in this proceeding, and therefore must be prepared to counter such positions with a convincing explanation of how increased competition in the railroad industry will benefit not only rail shippers, but the railroads themselves.
For additional information or if you have questions about the proceeding and the process for preparing and submitting comments, please contact:
Thomas Wilcox
202-342-5248
twilcox@gkglaw.com
Edward Greenberg
202-342-5277
egreenberg@gkglaw.com