RAIL CUSTOMER LEGISLATION INTRODUCED (5/03)

The following features are part of legislation introduced in Congress
by a bipartisan group of Senators, including Dorgan from North Dakota.  It is
supported by ARC(Alliance for Rail Competition), ACC(American Chemistry
Council), CURE(Consumers United for Rail Equity) and others.

Arbitration of Certain Rail Rate, Service and Other Disputes

A number of captive rail customers believe the rate reasonableness process at the STB is too costly, complex and time consuming to be an effective remedy.  A GAO report from several years ago supports this concern.

This provision provides an alternative: “final offer” arbitration, sometimes called “baseball arbitration”.  This remedy would be available for disputes jurisdictional to the STB involving rail carriers and the payment of money, a rate charged by the rail carrier or transportation by a rail carrier.  Arbitration shall be at the selection of any party to the dispute other than a rail carrier.  The arbitrator shall select between the “final” offers submitted by the various parties.  The arbitrator’s decision is subject to very narrow judicial review by the federal district court where the party electing arbitration has its principal place of business.

Removal of “Paper Barriers”

Since enactment of the Staggers Rail Act of 1980, which partially deregulated the railroads, the major railroads have “rationalized” their systems by selling portions of their system to short line and regional carriers.  Sometimes the lines that were transferred to these entities connect with another rail carrier that could provide competition.  However, almost without exception, the agreement transferring this track to a short line carrier included a provision requiring 90% or more of the traffic on the line to be delivered to or received through the selling carrier. The effect of this mechanism is to free the major railroad of responsibility for the line while it retains the power to control freight movements on the line. But for these “paper barriers”, freight on the short line would have access to other, competing carriers. These “paper barrier” provisions were approved by the Interstate Commerce Commission and its successor, the Surface Transportation Board, in the various transactions transferring lines from the major carriers to the short line railroads.

This provision prohibits such “paper barriers” in the future and allows the STB to declare invalid any such “paper barriers” that have been in place for at least 10 years unless “termination of the restriction would materially impair the ability of an affected rail carrier to provide service to the public or would otherwise be inconsistent with the public interest”.

Remove “anticompetitive conduct” test from Terminal Area and Switching Agreement Policy of ICC/STB

The free flow of freight between rail systems and into those areas served by more than one railroad, but where a single railroad operates the rail facilities serving shippers and receivers, is facilitated by traditional mechanisms called “terminal area access” and “reciprocal switching”.  A provision to enforce these mechanisms was included in the Staggers Rail Act of 1980 and is included today in the ICC Termination Act of 1995.  The STB (previously the ICC) has the power to require the use of these mechanisms at reasonable rates and conditions when the Board finds it to be in the “public interest”.

In the mid-1980’s, in the Midtec decision, the ICC determined that it would not find the use of such mechanisms to be in the “public interest” unless the rail carrier that controlled the facility was shown to be involved in “anticompetitive conduct”.  The statute does not contain this test.  Since the “anticompetitive conduct” test was added, transforming complaints on these matters into complex anti-trust type cases, no rail shipper has been able to prevail in a terminal area access or reciprocal switching case at the STB.  No cases have even been filed since the enactment of the ICC Termination Act of 1995.

The legislation prohibits the use of the “anticompetitive conduct” test in the terminal area access and reciprocal switching provisions of the ICC Termination Act.

Cap on Filing Fees

The exclusive forum for a captive shipper “rate reasonableness” case is the Surface Transportation Board.  Captive shippers may not bring such cases in the federal district courts, where the filing fee for most civil litigation is $150.  Currently, the filing fee for rate cases where the “coal rate guidelines” (stand alone cost) are used, is approximately $65,000.  This high filing fee acts as an unintended economic barrier to rail customer access to the mechanism provided by Congress to protect the rail customer from unreasonably high rates.

This provision would remove this unintended economic barrier by reducing the filing fee in “coal rate guideline” cases to the same filing fee charged for civil litigation in the federal district courts (currently $150).

Requirement That Railroads Must Quote Rates to Their Customers

In December, 1996, the Surface Transportation Board decided three consolidated cases referred to collectively as the “bottleneck case”.  The issue involved the situation where the rail customer is served by a single railroad, but that railroad’s line intersects a line of a competing carrier within a relatively short distance from the origin or destination of the rail customer’s movement.  At the intersection point, there is the ability to gain access to rail to rail competition by moving cars from one railroad system to the other.

Railroads that have single line service to the rail customer and can move the customer’s freight from origin to destination routinely refuse to provide a rate to the intersection point with the competing railroad carrier. Thus, the rail customer is “captive” for the entire movement despite the fact that rail competition is available physically for a significant portion of the movement.  Rail customers believe that access to the competing carrier for the competitive portion of the movement would result in better rates for the entire movement and better service.

In the bottleneck case, the STB interpreted the ICC Termination Act to deny the Board authority to direct the railroad with single line service to provide a rate to the point of competition.  The Board did hold that it could do so where the rail customer has in hand a written transportation contract for the competitive portion of the movement.  Rail customers report that the competitive carrier in these situations will not provide a written contract, such that “bottleneck” relief from the STB is not available. 

The Court of Appeals upheld the “bottleneck” decision of the Board as not being an “arbitrary or capricious” interpretation of the ICC Termination Act.

This provision overturns the bottleneck decision by providing that railroads must quote rates to their customers for movements between any two points on their systems, when requested by a rail customer.  The provision does not require that the rates be reasonable, but such rates may be subject to rate reasonableness challenges if they are unreasonably high. A rate case focusing on a bottleneck rate should be simpler and less expensive than a rate case covering the entire movement from origin to destination.  Perhaps more importantly, the availability of a bottleneck remedy should encourage negotiated commercial settlements.

Tri-Annual Study by DOT of Rail-to-Rail Competition 

The Secretary of Transportation is directed to study tri-annually the degree of competition that exists in the rail industry and the effectiveness of the mechanisms in law for ensuring competition for rail customers and reasonable rates for those rail customers that lack competition.  The study is to be provided to Congress on November 15^th of each year in which the study is due.  The Secretary shall include in the study recommendations to Congress regarding appropriate actions to enhance competition and prevent unreasonable rates for captive rail customers.

Area of Inadequate Rail Competition

A State, authorized State agency or Member of Congress from the state may petition the Board to designate the State or one or more regions thereof as an “Area of Inadequate Rail Competition” (AIRC).  Such State or region shall be found to be an AIRC if the Board finds, as to rail services within the AIRC, (1) that the region encompasses a significant number of origins or destinations that are served exclusively by a single Class I railroad and (2) the region encompasses a significant number of shippers or receivers of rail transportation that (a) pay rail rates equal to or exceeding 180% of variable cost or (b) have experienced impaired competitive opportunities or other adverse economic impacts due to the high cost or poor quality of rail service or (c) qualify under both (a) and (b).

A petition for designation of an area as an AIRC may be limited to shippers or receivers of one or more specific commodities within the area(s) in question.

If the Board designates an area as an AIRC, the Board shall seek to address the problems giving rise to such designation and may order, on petition, one or more of the following remedies as well as those remedies otherwise available in law:

1.      reciprocal switching and terminal access within and extending beyond the limits provided in 49 U.S.C. Section 11102; provided that the Board shall not require a showing of “anticompetitive conduct” in applying these remedies;

2.      haulage service: the incumbent railroad must transport cars to or from a competing railroad for a fee established by the Board;

3.      mandatory, expedited final offer arbitration of rate reasonableness or the right to challenge, under expedited procedures, the reasonableness of rail rates over bottleneck segments or other lines from or to the AIRC; in either of these proceedings, great weight must be given to the comparisons of rates in the AIRC to rates for the same or similar commodities in markets where there is rail to rail competition, and the stand-alone cost and other tests used in formal rate reasonableness cases before the STB shall not apply; and

4.      expedited procedures for challenging increases in jurisdictional rates or charges or new transportation service tariff provisions, with the burden of proving reasonableness of such charges borne by the railroad proponent of the change.  Such procedures shall take account of disparities as to new rates and charges between shippers located inside and those competing shippers located outside the AIRC.

Rail Customer  Advocacy Office Established  at USDA; state may create

There shall be established in the US Department of Agriculture a Rail Customer Advocacy Office (RCAO).  The RCAO shall have the right to:

1.      Initiate and participate in STB proceedings dealing with rail issues affecting shippers of agricultural and forestry commodities and products;

2.      Gather and maintain information regarding the cost and efficiency of rail transportation of agricultural and forestry commodities and products; and

3.      Perform studies regarding rail transportation of agricultural and forestry commodities and products using available sources of information, including STB data bases.

States may create Rail Customer Advocacy Offices.

The views expressed by the USDA RCAO or State Rail Customer Advocacy Offices shall be given significant weight by the Board in its deliberations.  The Board shall explain in detail its reasoning when it disagrees with such views in a proceeding.

Within three years after the effective date of the Act, the USDA RCAO shall produce a study of, and report to Congress on, the effectiveness of the Area of Inadequate Rail Competition remedies for shippers of agricultural and forestry commodities and products, with special emphasis on the effectiveness of remedies for facilities that ship such commodities in volumes not exceeding 1500 rail carloads per year.