STB's new tack on "collusion and price-signaling"

Railway Age, April, 2008

The Surface Transportation Board has dropped a controversial proceeding that sought to interpret the term "contract" and has instituted a new one to consider imposing a "full disclosure/informed consent requirement" on railroad pricing practices.

An Advance Notice of Proposed Rule-Making announced last month seeks public comment on the new proposal, which would require railroads to include a disclosure statement "in any document they considered to be a rail transportation contract under 49 U.S.C. 10709."

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The deadline for comments is May 12.

STB noted that in a rulemaking announced on March 29, 2008, it sought "to interpret the term 'contract' ... as embracing any bilateral agreement between a carrier and a shipper for rail transportation in which the railroad agrees to a specific rate for a specific period of time in exchange for consideration from the shipper, such as a commitment to render a specific amount of freight during a specific period or to make specific investments in rail facilities."

"Our objective," said STB, "was to address two issues arising from hybrid pricing mechanisms, such as the one involved in Kansas City Power & Light Company vs. Union Pacific Railroad Company ... which, despite having characteristics of rail transportation contracts beyond the board's jurisdiction under 49 U.S.C. 10709, are designated by the carrier as common carriage rates subject to the board's jurisdiction."

"The first issue is uncertainty," STB said. "While Congress expressly removed all matters and disputes arising from rail transportation contracts from the board's jurisdiction, the statute provides no clear demarcation between a common and a common carriage rate.

"The second issue was our concern that increased use of hybrid pricing arrangements could create an environment where collusive activities in the form of anticompetitive price signaling could occur."

STB said shippers and carriers opposed that rulemaking: "Shippers generally share the board's concern regarding the potential for collusion and price signaling from hybrid pricing arrangements such as the one involved in KCPL, and they also express concern that such arrangements have resulted in higher rates. Nevertheless, several shippers question the board's authority to act with respect to contracts, and they argue that where a contract exists is a matter governed by the intent of the parties.

"Carriers argue that section 10709 adequately defines the term contract and that the proposed rule conflicts with congressional intent to allow for and promote pricing flexibility and innovation by giving railroads broad pricing discretion. Further, carriers argue that public pricing is not per se anticompetitive. Like the shippers, carriers assert that the board lacks jurisdiction over contracts and that a court, not the board, is the sole forum for determining whether an enforceable contract exists. Carriers, like shippers, argue that the board should rely on the parties' intent in determining whether a rate is for common carriarage or contract carriage."

For these and other reasons, STB concluded the proposed rule "could well result in unintended consequences that are best avoided." STB said the alternative rule now proposed reflects its continuing concern "with the lack of any clear demarcation between common carriage rates and contract pricing arrangements and the resulting ambiguity regarding the board's jurisdiction."