The renaissance in context rail customers the quest for constructive dialogue
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THE RENAISSANCE IN CONTEXT: RAIL CUSTOMERS & THE QUEST FOR CONSTRUCTIVE DIALOGUE. Midwest Association of Rail Shippers Saint Charles, IL January 16, 2008 Robert G. Szabo Executive Director and Counsel Consumers United for Rail Equity (CURE)

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The renaissance in context rail customers the quest for constructive dialogue

THE RENAISSANCE IN CONTEXT: RAIL CUSTOMERS & THE QUEST FOR CONSTRUCTIVE DIALOGUE

Midwest Association of Rail Shippers

Saint Charles, IL

January 16, 2008

Robert G. Szabo

Executive Director and Counsel

Consumers United for Rail Equity (CURE)

1050 Thomas Jefferson Street, N.W. • Seventh Floor

Washington, D.C. 20007

(202) 298-1920 • rgs@vnf.com


What is cure
What is CURE? CONSTRUCTIVE DIALOGUE

  • CURE is an incorporated, non-profit organization whose mission is to advocate improved rail policy for rail customers and the nation.

  • The CURE Campaign consists of CURE and other organizations that have united to advocate for legislation in the 110th Congress.

  • CURE members are shippers dependent on the railroads for transportation.


The renaissance in context rail customers the quest for constructive dialogue

What Do Rail Customers Want? CONSTRUCTIVE DIALOGUE

  • Reliable rail service at reasonable prices

  • Transportation choices, wherever possible

  • Normal commercial relationship with their railroad carriers


Our view of the evolution of railroads over the last 25 years
Our View of CONSTRUCTIVE DIALOGUEthe Evolution of Railroads over the Last 25 Years


What congress saw in 1980
What Congress Saw in 1980 CONSTRUCTIVE DIALOGUE

  • In 1980, Congress saw a railroad industry that was overbuilt, rigidly regulated, failing financially and unable to provide reliable service.

  • Almost every railroad activity required prior approval from the Interstate Commerce Commission (ICC).

  • No contractual arrangements were allowed between railroads and their customers.

  • The rail system was poorly positioned to meet the needs of the nation in the late 20th Century.


What congress intended in 1980
What Congress Intended in 1980 CONSTRUCTIVE DIALOGUE

  • Access to competition would replace government regulation for most railroads/customers relationship

  • Railroads and rail customers could enter into negotiated contracts for services.

  • The railroads could more easily “rationalize” their systems.

  • Those rail customers without access to competition would continue to be protected from railroad monopoly abuse.

  • Through competition, the railroads would gain financial health.


What has actually happened over the last 25 years
What Has Actually Happened CONSTRUCTIVE DIALOGUEOver The Last 25 Years?


The renaissance in context rail customers the quest for constructive dialogue

  • Thousands of miles of track abandoned; thousands of employees dismissed.

  • Thousands of miles of track transferred to 400 + short lines, but most limited to doing business with only one major railroad.

  • Traditional railroad capital costs pushed on to rail customers.

  • The ICC, concerned about railroad financial health, adopted a passive stance in the early 1980s that has become even more passive under the STB.

  • Less and less transparency regarding railroads, their finances, their rates and their practices.


Monopoly power
Monopoly Power employees dismissed.

  • Consolidation to 4 large major railroads handling over 90% of the nation’s traffic

Remainder of American Railroads

Four Major

Railroads


The renaissance in context rail customers the quest for constructive dialogue

  • Fewer competitive choices for rail customers as the nation enters the 21st century

  • ICC/STB decisions actually have allowed the railroads to deny their customers access to competition.

  • STB rail customer protections have become increasingly complex and difficult to access; little relief at the STB for rail customers.

  • Most recently – 2004 – demand exceeded capacity and the railroads achieved “pricing power” over their customers, which continues today.


Bottom line
Bottom Line enters the 21st century

Rail customers believe that they have neither the access to competitive rail transportation promised by the Staggers Rail Act of 1980 nor access to workable regulatory protections where competition does not exist.


Wall street darlings
Wall Street Darlings enters the 21st century

  • Railroads are darlings of Wall Street; hedge funds have discovered railroad stock; railroads are buying back their stock, usually with cash; and investors are demanding that railroads double their prices in the next decade – never once even considering that the STB might constrain those price increases!


October 2006 gao report
October, 2006 GAO Report enters the 21st century

  • Lack of competition in the rail industry and STB not using its powers to ensure competition

  • Rail customer protections at the STB are inaccessible

  • The STB continues to under- estimate railroad revenues

    * Supplemented on August 15, 2007


Rail customer reforms
Rail Customer Reforms enters the 21st century

  • Rail customers want access to rail competition where physically available

    • Remove short line “tie in” agreements

    • Require RR to quote rate to point of access to another railroad

    • Simplify reciprocal switching and terminal access proceedings


The renaissance in context rail customers the quest for constructive dialogue

  • Rail customers want a rate challenge process that works enters the 21st century

    • Reasonable filing fees

    • Traditional cost of service plus reasonable rate of return standard

    • Anyone paying more than 180% R/VC can challenge rate

    • Railroad with market power must justify the reasonableness of the rate


The renaissance in context rail customers the quest for constructive dialogue


The renaissance in context rail customers the quest for constructive dialogue

  • Rail customers want a pro-active STB that is empowered to suspend and investigate unreasonable railroad practices

    • Fuel surcharge outcome unacceptable; should have been prevented earlier

    • The passive posture of the early 1980s is no longer appropriate for a consolidated industry that is exhibiting pricing power and robust financial health


Antitrust
Antitrust suspend and investigate unreasonable railroad practices

  • The railroad industry is largely exempt from the nation’s antitrust laws

  • Rail customers want the railroads to be subject to the nation’s antitrust laws – just as are rail customers

  • Mergers should be subject to the antitrust laws of the nation

  • Anticompetitive conduct should be subject to the antitrust laws of the nation


Rail customer legislation
Rail Customer Legislation suspend and investigate unreasonable railroad practices

  • Railroad Competition and Service Improvement Act of 2007 (H.R.2125/S.953)

    • Growing bipartisan support in House and Senate Contains rail customer reforms discussed above

    • Lead House sponsor: Chairman Jim Oberstar (D-MN), chair of the House committee of jurisdiction


The renaissance in context rail customers the quest for constructive dialogue

  • Railroad Antitrust Enforcement Act of 2007 (S.772/H.R.1650) suspend and investigate unreasonable railroad practices

    • Growing bipartisan support in House and Senate

    • Removes railroad exemptions from antitrust law

    • Lead sponsor in Senate: Senator Herb Kohl (D-WI), chair of the Antitrust Subcommittee of theSenate Judiciary Committee


What these bills do not do
What These Bills Do Not Do suspend and investigate unreasonable railroad practices

  • Subject transactions to rate regulation that are not today subject to rate regulation

  • Reduce the 180% R/VC minimum rate level for “captive” traffic

  • Allow one railroad to operate on the tracks of another

  • Apply retroactively


Legislative update
Legislative Update suspend and investigate unreasonable railroad practices

  • Antitrust Bill (S.722/H.R.1650)

    • Ordered reported by Senate Judiciary Committee on September 25, 2007

    • Bipartisan voice vote

    • Report filed by Committee

    • S. 772 placed on Senate calendar on December 19, 2007

  • STB Reform Bill (S. 953/H.R.2125)

    • House hearing on issue on September 25, 2007

    • Senate hearing on issue on October 23, 2007

    • Congressman Oberstar, Chairman of House Transportation and Infrastructure Committee, and lead sponsors of H.R. 2125 promises committee action in 2008

    • Pressure increasing in Senate Commerce Committee for action in 2008


Proposed investment tax credit for railroad infrastructure
Proposed Investment Tax Credit for Railroad Infrastructure suspend and investigate unreasonable railroad practices

  • Rail customers could support if rail customers concerns are addressed and tax credit benefits more than imports and tax credits result in a pro-competitive national rail system.

  • Rail customers will oppose this tax credit if their concerns are not addressed


For more information on cure or the captive rail issue contact
For More Information on CURE or the Captive Rail Issue Contact…

Bob Szabo

Executive Director and Counsel

Consumers United for Rail Equity

Member, Van Ness Feldman

(202) 298 – 1920

rgs@vnf.com

www.railcure.org