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“INTRODUCING THE RAILROAD COMPETITION AND SERVICE IMPROVEMENT ACT OF 2007” mentioning the U.S. Dept. of Transportation was published in the Extensions of Remarks section on pages E1015-E1017 on May 10, 2007.
The publication is reproduced in full below:
INTRODUCING THE RAILROAD COMPETITION AND SERVICE IMPROVEMENT ACT OF
2007
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HON. JAMES L. OBERSTAR
of minnesota
in the house of representatives
Thursday, May 10, 2007
Mr. OBERSTAR. Madam Speaker, on May 3rd, I joined with the gentleman from Louisiana, Mr. Baker, and ten of our colleagues, to introduce the
``Railroad Competition and Service Improvement Act of 2007.''
Twenty-six years ago, Congress voted to deregulate the Nation's railroad industry and enacted the Staggers Rail Act. The railroad industry was in crisis: Years of low profits, deferred maintenance, and ill-conceived regulatory policies had resulted in a very debilitated industry. We were assured that deregulation was the cure. We were told that economic regulation had outlived its usefulness; that it was preventing the industry from competing effectively with trucks, barges, and pipelines; and that there were a sufficient number of rail carriers to provide significant rail-to-rail competition. Congress voted to deregulate the industry.
Deregulation did produce some of the benefits predicted: America's railroads are financially much stronger today than they were in 1980. Industry rates of return that hovered in the 1-2 percent range in the 1970s were up in the 6-9 percent range in the 1990s. Today, U.S. railroads account for 42 percent of intercity freight ton-miles, more than any other mode of transportation. U.S. Class I railroads move three times more freight than all of Western Europe's freight railroads combined.
The 40 Class I railroads that existed in 1980 have consolidated into just seven Class I railroads serving the entire United States, four of which control over 95 percent of the railroad business. This unprecedented consolidation has resulted in entire States, regions, and industries becoming captive to a single Class I railroad.
Example: Laramie River Station is served by a single railroad--BNSF--
that delivers 8.3 million tons of coal annually from Wyoming's Powder River Basin to Laramie River Station, a distance of approximately 175 miles. When a long-standing contract for that service expired in 2004, BNSF published new rates for the same service that more than doubled the prior rate. Without Federal intervention, these increased rail rates are estimated to cost consumers $1 billion over the next 20 years.
Example: Dairyland Power Cooperative, a generation and transmission cooperative located in LaCrosse, Wisconsin, has experienced similar problems. The Cooperative asserts that failure by the Union Pacific Railroad to deliver 25 percent of scheduled shipments of Utah coal resulted in Dairyland's overall fuel budget increasing by roughly 10 percent. Dairyland is also bracing for a 49 percent increase in rail rates later this year.
Example: Montana grain producers advise me that their counterparts in Nebraska--where a limited amount of rail competition exists--pay less in transportation costs than do Montana farmers to ship grain to Portland, Oregon, despite the 200 miles in additional distance the Nebraska grain must travel. The Montana farmers estimate that this disparity has cost them about $60 million a year.
This lack of competition has resulted in record profits for railroads. North American railroads earned $42 billion in revenue in 2006. In 2006, BNSF achieved $15 billion in revenues, a 15 percent increase over 2005, exceeded $5.10 in earnings per share, and attained
$712 million in free cash flow after dividends. The railroad's net income was $1.89 billion, compared to $1.53 billion in 2005.
BNSF's 2006 intermodal revenues increased to a record $5.14 billion, an 18 percent increase from 2005's then-record levels. Consumer products revenues climbed to $5.61 billion, a 14.6 percent increase. Agricultural products revenues were up 14 percent to $2.43 billion. Industrial products revenues increased by 15 percent to $3.60 billion. And coal revenues rose $480 million--or 19 percent--to $2.92 billion.
Union Pacific Railroad achieved $14.9 billion in revenues in 2006, a 15 percent increase from 2005 revenues. The railroad's net income was
$1.6 billion or $5.91 per diluted share, versus $1 billion, or $3.85 per diluted share, in 2005. Energy revenues increased by $376 million, or 15 percent, to $2.95 billion. Agricultural revenues were up 22 percent to $2.4 billion. Industrial products revenues were up 13 percent to $3.17 billion. And intermodal revenues were up 14 percent to
$2.81 billion.
CSX's revenues for 2006 were $9.57 billion, a 12 percent increase over 2005 revenues. CSX's net income was $1.31 billion in 2006, a 14 percent improvement from 2005, and the $2.82 earnings per share is a 31 percent improvement over 2005. Metals revenues were up 18 percent to
$673 million. Forest products revenues were up 8 percent to $773 million. Coal, coke, and iron ore revenues were up 14 percent to $2.38 billion.
Norfolk Southern's net income for 2006 was a record $1.5 billion, or
$3.57 per diluted share, an increase of 15 percent compared with net income of $1.3 billion, or $3.11 per diluted share, for 2005. General merchandise revenues for 2006 climbed to a record $5.1 billion, an 11 percent increase from 2005's then-record levels. Coal revenues increased 11 percent to a record $2.33 billion. Intermodal revenues rose 9 percent to a record $1.97 billion.
All of these gains for the railroads have come at a price for captive shippers, who look to the Surface Transportation Board (STB) for help. They quickly realize that they can't afford the $178,200 filing fee or the millions of additional dollars necessary to fight their rate cases. Shippers see that the Board is more concerned about the financial health of the railroads than with the financial health of railroad customers, and they decide it's not worth the effort and cost to protest a rate case. Instead of alleviating the problems shippers face, the STB is actually discouraging captive shippers from filing rate cases.
This is hardly the competitive environment envisioned when Congress voted to deregulate the railroad industry, and when Congress tasked the STB's predecessor, the Interstate Commerce Commission, to ensure that rail rates remain reasonable when there is an absence of effective competition.
That is why I introduced legislation in the past four Congresses to reform STB's policies and procedures. Other Members of Congress, including Congressman Baker, introduced similar legislation to reform railroad regulation. But to date Congress has failed to act upon these bills.
The ``Railroad Competition and Service Improvement Act of 2007'' will preserve existing rail-to-rail competition in areas of the United States where competition is working, and take action to reduce impediments to competition that adversely affects rail customers. The bill provides directives to the STB for implementing current law. It requires the STB to: (1) Ensure, to the maximum extent possible, effective competition among rail carriers at origins and destinations;
(2) ensure reasonable rates for rail customers in the absence of competition; and (3) ensure consistent, efficient, and reliable rail transportation service for rail customers, including the timely provision of rail cars requested by rail customers.
The bill will also:
Eliminate ``bottlenecks.'' Under the bill, on the request of a shipper, the carrier must establish a rate for any two points on the carrier's system where traffic originates, terminates, or can be interchanged. In addition, the reasonableness of the rate would be subject to challenge. This bill will give shippers access to competitive rail service even if a single carrier has monopoly control over a short, bottleneck portion of a route.
Create competitive rail service at switching points. The bill requires rail carriers to enter into reciprocal switching agreements where the STB finds that such agreements are in the public interest or where agreements are needed to ensure rail service is competitive. The bill also prohibits the STB from requiring that the petitioning carrier show conduct inconsistent with antitrust laws.
Eliminate ``paper barriers.'' These barriers are contractual agreements that prevent short-line railroads that cross two or more major rail systems from providing rail customers access to competitive service on one of these systems. The agreements require the short-line railroads to deliver all or most of its traffic to the major carrier that originally owned the short line facilities. Under the bill, the STB must terminate these restrictions, upon request, unless the STB finds that the termination would be inconsistent with the public interest or materially impair the ability of an affected rail carrier to provide service to the public.
Establish a new regulatory process for ``Areas of Inadequate Rail Competition.'' The bill allows the STB to designate a State or substantial part of a State as an Area of Inadequate Rail Competition
(AIRC), upon petition of a Governor or Attorney General of a State, or the Rail Customer Advocate of the Department of Transportation. Upon the designation, the STB has 60 days to provide remedies authorized by current law to resolve the anti-competitive conduct. The bill also requires the Rail Customer Advocate to conduct an oversight study of AIRCs within 1 year of the date of enactment.
Address rail service problems. The bill clarifies the railroad's obligation to provide reliable and efficient service, and allows rail customers to hold railroads liable for damages sustained due to poor service. The bill also requires the STB to post on its website a description of each complaint from a customer about rail service, and how and when the STB ultimately resolved the complaint. The STB is also required to submit an annual report to Congress regarding rail service complaints, and the procedures the STB took to resolve them.
Create an arbitration process for certain rail disputes. The bill allows one party to submit a dispute over rail rates, rail service, and other matters involving any agricultural product, including timber, paper, and fertilizer under the jurisdiction of the S11B for ``final offer'' binding arbitration.
Reduce fees for filing rail rate cases. Shippers are now required to pay a $178,200 fee for filing a rate case. This rate is expected to rise again this year. Under this legislation, filing a rate case would cost the same as filing before a federal district court, about $500.
Improve the rate reasonableness standard. The bill prohibits the STB from using their current practice of requiring shippers challenging rail rates to submit estimates of the costs, or constructing and operating a new, hypothetical railroad that carries only the commodity that the shipper transports. The STB currently compares the expense of the hypothetical railroad with existing rates to determine whether the challenged rates are reasonable or not. Under the bill, the STB would be required to adopt a new method based on the railroad's actual costs, including a portion of fixed costs and an adequate return on debt and equity.
Create an Office of Rail Customer Advocacy in the Department of Transportation. The Rail Customer Advocate would accept rail customer complaints; collect, compile, and maintain information regarding the cost and efficiency of rail transportation; and participate as a party in STB proceedings. The Rail Customer Advocate may also petition the STB for action.
Direct the 5TB to investigate complaints over service. Our bill directs the STB to follow up on complaints over rail carrier service, and suspend the action in dispute if it finds the allegation has merit.
I join with my colleagues from both sides of the aisle in introducing this bill. Together, we will work to ensure passage of this important legislation.
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