The 105th Congress will sharpen its focus on rail economic issues

Railway Age, Jan, 1997 by Frank N. Wilner

Railroads and rail shippers will be interrogated on numerous economic issues by members of the 105th Congress--revenue adequacy, open access, bottlenecks, whether railroads under the antitrust laws, whether the operation of trains should be unbundled from track ownership.

Advocates will do well to assemble, digest, and fully understand the facts and positions of stakeholders.

As for revenue adequacy--the imperative that revenue meet or exceed the current cost of capital--it is a keystone of the Staggers Act. Indeed, Congress insisted that the Interstate Commerce Commission (now the Surface Transportation Board) assist railroads in becoming revenue adequate. Congress will ask if that should continue to be the case.

Lawmakers wonder why most railroads remain revenue inadequate despite one of the longest positive business cycles in American history and the railroads' largely unfettered ability to exit unprofitable markets. They also are curious why substantial premiums have been offered for revenue inadequate railroads--most recently, Southern Pacific and Conrail.

Concerning open access, many shippers minimize the charts showing declining rail rates They believe their inflation-adjusted rates should have declined even more--and would have if mandated open access were the rule. After all, open access is being imposed upon electricity, natural gas, and telecommunications providers. It is logical to inquire why railroads should be treated differently. Two ICC/STB decisions will be discussed--one called Midtec (served in 1986) and the other involving "bottlenecks" (decided recently).

As for antitrust laws, railroads are sheltered from shippers' treble-damage suits so long as rail rate and service offerings are subject to STB scrutiny. This flows from two crucial Supreme Court decisions known as Keogh and Square D. The application-and limitations--of both should be understood.

Don't forget that STB-sanctioned rail mergers and their implementation are immunized from the antitrust laws by statute--although regulators may not ignore anticompetitive harm in approving the transaction and railroads remain subject to prohibitions against monopolization and attempted monopolization.

So why not repeal the Interstate Commerce Act and place railroads under the Sherman and Clayton antitrust acts--to the extent they are not already--just like other industries? Proposed mergers would be subject to challenge by the Justice Department and trust busters would oversee most other railroad commercial activities said to have anticompetitive consequences.

Two years ago, Conrail Chairman Jim Hagen stood alone among the chiefs of major railroads to advocate such a result, and even some shipper groups are considering lobbying for antitrust remedies as an alternative to STB procedures.

Hagen decried having to provide advance notice of rate changes, delays associated with line abandonment applications, regulatory accounting rules, and especially the employee income protection, common carrier, and mandatory interchange obligations of the Interstate Commerce Act.

As for so-called captive shippers, Hagen denies their existence, asserting that even with respect to electric utilities, less than 60% of electricity is generated by coal and only about half of that coal is carried by rail.

Shippers who support placing railroads under the antitrust laws will demand retention of the common carrier obligation, mandatory. interchange, and regulation of line abandonments out of fear that railroads may ignore entirely non-volume shippers or entire lines of business.

Whether this is likely if the business is profitable, and whether it should be mandated if the business is not profitable, are challenges facing policy makers. Also confronting policy makers is the question of whether shippers should have standing to sue--as connecting railroads would--for access under the essential facilities doctrine of the antitrust laws.

Short lines also will insist upon maintenance of adequate interchange facilities and mandatory interchange upon reasonable request, apprehensive that larger carriers otherwise will neglect them. The same questions about traffic profitability and issues of operating efficiency will be important here. Railroads will assert that they must be allowed to pursue efficiency-increasing behavior.

In fact, the most desirable aspect of a railroad is its scarce right-of-way whose capacity--for train travel, pipelines, and fiber optics--should be put to its highest valued use.

Congress may also explore the unbundling of train operations from track ownership. Unbundling ensures open access, which might meet common carrier and mandatory interchange concerns while ensuring no less than constitutionally protected compensation. Involuntary unbundling, of course, will be akin to nationalizing the rights-of-way.

At this stage, all that can be assured is a vigorous exchange of views with opposing advocates advancing the art of explaining what is not obvious.