    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                      RAILROAD ANTITRUST ENFORCEMENT ACT
                                    OF 2007

    =======================================================================

                                    HEARING

                                   BEFORE THE

                            TASK FORCE ON ANTITRUST
                             AND COMPETITION POLICY

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 SECOND SESSION

                                       ON

                                   H.R. 1650

                                   __________

                               FEBRUARY 25, 2008

                                   __________

                               Serial No. 110-171

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov

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                           COMMITTEE ON THE JUDICIARY

                     JOHN CONYERS, Jr., Michigan, Chairman
    HOWARD L. BERMAN, California         LAMAR SMITH, Texas
    RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr.,
    JERROLD NADLER, New York                 Wisconsin
    ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
    MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
    MAXINE WATERS, California            DANIEL E. LUNGREN, California
    WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
    ROBERT WEXLER, Florida               RIC KELLER, Florida
    LINDA T. SANCHEZ, California         DARRELL ISSA, California
    STEVE COHEN, Tennessee               MIKE PENCE, Indiana
    HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
    BETTY SUTTON, Ohio                   STEVE KING, Iowa
    LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
    BRAD SHERMAN, California             TRENT FRANKS, Arizona
    TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
    ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
    ADAM B. SCHIFF, California
    ARTUR DAVIS, Alabama
    DEBBIE WASSERMAN SCHULTZ, Florida
    KEITH ELLISON, Minnesota

                Perry Apelbaum, Staff Director and Chief Counsel
                                     ------

                 Task Force on Antitrust and Competition Policy

                     JOHN CONYERS, Jr., Michigan, Chairman

    HOWARD L. BERMAN, California         RIC KELLER, Florida
    RICK BOUCHER, Virginia               STEVE CHABOT, Ohio
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
    MAXINE WATERS, California            CHRIS CANNON, Utah
    STEVE COHEN, Tennessee               DARRELL ISSA, California
    BETTY SUTTON, Ohio                   MIKE PENCE, Indiana
    ANTHONY D. WEINER, New York          J. RANDY FORBES, Virginia
    DEBBIE WASSERMAN SCHULTZ, Florida    LAMAR SMITH, Texas, Ex Officio

                Perry Apelbaum, Staff Director and Chief Counsel

                                C O N T E N T S

                                  ----------

                               FEBRUARY 25, 2008

                                                                       Page

                               OPENING STATEMENT

    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, and Chairman, Task Force on
      Antitrust and Competition Policy...............................     1
    The Honorable Darrell Issa, a Representative in Congress from the
      State of California, Member, Task Force on Antitrust and
      Competition Policy.............................................     2
    The Honorable Chris Cannon, a Representative in Congress from the
      State of Utah, and Member, Task Force on Antitrust and
      Competition Policy.............................................     3
    The Honorable Sheila Jackson Lee, a Representative in Congress
      from the State of Texas, and Member, Task Force on Antitrust
      and Competition Policy.........................................     3

                                   WITNESSES

    The Honorable Tammy Baldwin, a Representative in Congress from
      the State of Wisconsin, and Member, Committee on the Judiciary
      Oral Testimony.................................................     6
      Prepared Statement.............................................    13
    Ms. Susan M. Diehl, Senior Vice President, Logistics and Supply
      Chain Management, Holcim (US) Inc.
      Oral Testimony.................................................    23
      Prepared Statement.............................................    25
    Mr. Terry Huval, Director of Utilities, Lafayette Utilities
      System, Lafayette, LA
      Oral Testimony.................................................    30
      Prepared Statement.............................................    32
    Mr. G. Paul Moates, Sidley Austin, LLP, on behalf of the
      Association of American Railroads
      Oral Testimony.................................................    55
      Prepared Statement.............................................    58
    Mr. Darren Bush, Professor, University of Houston Law Center
      Oral Testimony.................................................    76
      Prepared Statement.............................................    79

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Prepared Statement of the Honorable Sheila Jackson Lee, a
      Representative in Congress from the State of Texas, and Member,
      Task Force on Antitrust and Competition Policy.................     4

                                    APPENDIX

    Material Submitted for the Hearing Record........................   125

                   RAILROAD ANTITRUST ENFORCEMENT ACT OF 2007

                                  ----------

                           MONDAY, FEBRUARY 25, 2008

                  House of Representatives,
                        Task Force on Antitrust
                                 and Competition Policy
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Task Force met, pursuant to notice, at 4:02 p.m., in
    room 2141, Rayburn House Office Building, the Honorable John
    Conyers, Jr. (Chairman of the Task Force) presiding.
        Present: Representatives Conyers, Jackson Lee, Smith,
    Goodlatte, Cannon and Issa.
        Mr. Conyers. Good afternoon. The hearing on the Antitrust
    Task Force will come to order.
        We are pleased to have everyone here. I would like to begin
    our discussion this afternoon by observing that under current
    law, the Department of Justice and the Federal Trade Commission
    have limited authority to enforce Federal antitrust laws in the
    railroad industry. This is a subject that has not been on the
    front of the minds of many Members of Congress, and we thank
    Congresswoman Baldwin, a Member of the Judiciary Committee, for
    putting a little focus on this today.
        The Department of Justice and the Federal Trade Commission
    have limited authority to enforce Federal antitrust laws in the
    railroad industry. Why is this important? Well, certain
    transactions among rail carriers, if approved by the industry's
    regulatory body, the Surface Transportation Board or STB, are
    exempt from Federal antitrust enforcement. And so this hearing
    seeks to examine whether the roles of the Department of Justice
    and the FTC, Federal Trade Commission, in the railroad industry
    need to be expanded.
        So the measure under scrutiny today would eliminate some of
    the antitrust immunities that specifically apply to railroads,
    providing the Department of Justice, the Trade Commission, and
    the STB, with concurrent jurisdiction over antitrust matters.
    In addition, it proposes to eliminate some of the restrictions
    on remedies available to private plaintiffs in antitrust
    actions against rail carriers. The bill removes the carve-out
    in the Clayton Act that prevents private plaintiffs from
    obtaining injunctive relief in railroad antitrust suits. The
    bill would enable private plaintiffs to be awarded treble
    damages. Judicial precedent currently limits damages to the
    rail carriers' filed rate.
        So there are several issues I will be looking at carefully:
    Under current law, do shippers have an effective method of
    challenging rate increases? Would the industry benefit from
    having concurrent jurisdiction among DOJ, FTC, and the STB?
    And, is there any reason to continue preserving antitrust
    immunities for railroads?
        So I come to the hearing to listen to a distinguished panel
    of witnesses, but I will be listening most carefully to see if
    the railroads are able to convince the Members of this
    Committee that eliminating antitrust immunities will somehow
    harm their industry, and ultimately the consumers.
        So I look forward to all of our witnesses today, and I
    would turn now to my friend and colleague from California,
    Darrell Issa, who is the acting Ranking Member this afternoon.
    Welcome.
        Mr. Issa. Thank you, Mr. Chairman. Thank you for holding
    this hearing today. I, too, look forward to hearing my
    colleague's views on the bill that she has offered. Certainly,
    H.R. 1650, the ``Railroad Antitrust Enforcement Act of 2007,''
    gives us a starting point to have this discussion. It is rather
    familiar that the Antitrust Task Force hears not about small
    companies needing to be protected from large trusts, but
    rather, as today, we are going to hear more about large
    companies, the railroads, and whether or not they are using
    monopolistic power and some other way gaming the pricing
    structure against other large companies, such as chemical and
    other large bulk shippers.
        That is not altogether different than it was in 1887, when
    Congress passed the Interstate Commerce Act. Although many
    small farmers and rural individuals found themselves with no
    market power, you also had the titans of the industry, some of
    them owners of rails, some not, who used the rail system to set
    prices arbitrarily and to the benefit of their companies and to
    the detriment of their competitors.
        Whether it is the Sherman Antitrust Act or other regulatory
    acts, we in Congress have had an active role for more than 100
    years, actually about 150 years, in dealing with antitrust and
    the railroads. Notwithstanding that, it is clear that the
    railroad today is not the railroad of yesterday. Since 1980,
    and, again, since 1995, when Congress abolished the Interstate
    Commerce Commission, we have seen an unusual shift in the role
    of the railroad. The railroad today competes without any
    monopolistic power against trucks and other surface
    transportation that operate on subsidized highways. It competes
    against air freight. Certainly the growth of DHL and UPS and
    others shows us that people are willing to pay an awful lot
    more than a regulatory rate of a rail in order to move their
    goods.
        Notwithstanding that, though, there are and will always be
    items whose value is such that they can only be moved over the
    surface by rail, or in which the clear need of society is to
    have them moved over rail and not on our highways. To that end
    Congress will always have a role in making sure that rails are
    in existence and able to do those jobs for which there is no
    competition.
        It is that balancing act that today we are going to look at
    of realizing that many, many people ship with rail only when
    they are the least expensive, while others ship with them not
    just because they are the least expensive, but, in fact,
    because they have no choice.
        It is that latter situation that we will deal with from an
    antitrust standpoint. Would the abolishment of the limited
    antitrust exemptions in itself cure this problem, or, in fact,
    is more needing to be done? We in Congress have an oversight
    role over regulatory agencies, and perhaps what we will
    discover is that it is that oversight that is lacking. I look
    forward to the hearing because I believe it will give us a
    better understanding of which of these two paths, or perhaps
    both, have to be explored.
        Last, but not least, it is very, very clear to me that what
    we have today is a rail structure which has now reached
    virtually 100 percent capacity. In a free-market system,
    without regulation, it is very, very clear that rail would
    choose, with no other intervention by the government, to move
    those items which have the greatest return for them, and that
    is likely not to be those that have no choice but to ship by
    rail.
        So, in light of that, I hope that we not only will work on
    the antitrust, but I would hope that our other Committees of
    Congress, such as Energy and Commerce, and others, particularly
    T&I, would work on the fact that rail needs to expand. We
    cannot expect to have rail prices and rail delivery continue to
    improve if, in fact, we do not have enough rail lines and
    capacity.
        Mr. Chairman, I very much look forward to this. I believe
    that this is a very timely hearing, and I yield back.
        Mr. Conyers. Thanks very much, Darrell.
        I notice that Lamar Smith, our Ranking Member, is here. If
    he had an observation at this point, I would be happy to yield
    to him.
        Mr. Smith. Thank you, Mr. Chairman. I do not have an
    opening statement, other than to welcome my colleague, Tammy
    Baldwin. I look forward to her testimony, as well as the
    testimony of the panel. I have to say I won't be able to stay
    too long because of a conflict. I appreciate you having a
    hearing on this subject.
        Mr. Conyers. We will be working together on this, and
    Darrell and I will be happy to debrief you.
        I notice that Chris Cannon is here. I wondered if he wanted
    to make any observations at this time.
        Mr. Cannon. Thank you, Mr. Chairman.
        I appreciate you holding this hearing. You may not know,
    but I actually owned, depending on how you count, between a
    quarter and a half of the largest shipper on the Union Pacific
    line, so I am familiar with the issues. I care about these
    issues a lot. I appreciate your opening statement, and Mr.
    Issa's, and look forward to a very pleasant hearing. Thank you.
        Mr. Conyers. I am glad you made that disclosure before
    these hearings went too far along the way.
        Mr. Cannon. I suspect that means I am on your side on this
    one as well.
        Mr. Conyers. Sheila Jackson Lee, welcome all the way from
    Houston. Any opening comments?
        Ms. Jackson Lee. Mr. Chairman, I don't own any railroads,
    but I will say to you that the city of Houston has had for a
    very long time as a symbol of its existence a train or railroad
    in its city symbol. So I want to thank my colleague
    Congresswoman Baldwin for her legislation, which calls us to
    question the extent of government oversight and, therefore,
    whether or not it needs to be refixed.
        I remain open. I am cautious, however, about treading on
    antitrust exemptions, and hope that as the legislation proceeds
    in this hearing, and as I listen to the testimony of Ms.
    Baldwin, we will find an opportunity to reach common ground or
    a response to what I think is a very vital issue, and that is
    the expansion of freight service in areas not hereto utilized
    or serviced. I think that is an important message.
        I look forward, Mr. Chairman, to the witnesses and this
    hearing. Thank you very much. I yield back and ask that my
    entire statement may be submitted into the record, unanimous
    consent.
        Mr. Conyers. Thank you.
        I will accept all Members' statements into the record at
    this time, including Sheila Jackson Lee's.
        [The prepared statement of Ms. Jackson Lee follows:]
           Prepared Statement of the Honorable Sheila Jackson Lee, a
     Representative in Congress from the State of Texas, and Member, Task
                   Force on Antitrust and Competition Policy
        Thank you, Mr. Chairman, for your leadership in convening today's
    very important hearing on H.R. 1650, the Railroad Antitrust Enforcement
    Act of 2007. I would also like to thank the ranking member, the
    Honorable Ric Keller, and welcome our panelists. I look forward to
    their testimony.
        This hearing could not be more timely, Mr. Chairman.
        This legislation was introduced in 110th Congress and it eliminates
    the limited antitrust immunity that currently exists for the U.S.
    freight railroads. The basic premise of H.R. 1650 is that freight
    railroads enjoy wide-ranging immunity from out antitrust laws, giving
    them freedom from government oversight. This premise is not entirely
    correct. While I am a proponent of fair and equitable competition, I
    believe that we should tread cautiously in removing any antitrust
    exemptions and in allowing a right of private injunctive relief as a
    remedy.
             railroads are generally subject to most antitrust laws
        Freight railroads are subject to most antitrust laws, including
    those that prohibit agreements among railroads to set rates, allocate
    markets, or unreasonably restrain trade. The few, limited antitrust
    exemptions applicable to railroad pertain only to conduct for which the
    Surface Transportation Board (STB), an independent agency within the
    U.S. Department of Transportation, has regulatory authority over
    railroads. The exemptions prevent dual and potentially conflicting
    oversight of railroads by the STB and the courts, while promoting
    safer, more efficient rail service.
        Critics of U.S. freight railroads complain that railroads are
    ``broadly exempt from the nation's antitrust laws.'' The implication is
    that railroads can engage in anti-competitive conduct free of
    government oversight. This is simply not true.
        In fact, freight railroads are subject to antitrust laws that
    prohibit agreements among railroads to set rates, allocate markets, or
    otherwise unreasonably restrain trade. In addition, railroads are
    subject to extensive economic regulation by the STB. Among other
    things, the STB has jurisdiction over rail mergers and a range of rail
    service- and rate-related issues, including the level of rail rates in
    cases where railroads face no effective competition.
              railroads have certain limited antitrust exemptions
        A few limited antitrust exemptions are available to railroads, but
    the exemptions are narrowly applied and only cover aspects of railroad
    conduct that are already subject to oversight by the STB. Because the
    railroads' conduct is subject to regulation by the STB, the limited
    antitrust exemptions exist to avoid dual (and potentially conflicting)
    oversight by the STB and the courts. The exemptions also allow
    railroads to work together in a limited way to increase efficiency and
    enhance safety.
        Mr. Chairman, to further demonstrate we should tread cautiously
    with H.R. 1650, I will outline the narrow antitrust exemptions that
    currently apply to rail carriers and the STB's consideration of
    traditional antitrust principles in its administration of the
    Interstate Commerce Act. Next, I will discuss the portions of the
    proposed legislation that may make effective, integrated economic
    regulation of the rail industry more difficult.
        As I stated earlier, railroads today are already subject to
    antitrust laws. They face civil and criminal liability for violations
    of the Sherman Act (e.g., price-fixing, market allocation, bid
    rigging), and they have been successfully sued for violating that Act.
    See, e.g., In re Burling N., Inc., 822 F.2d 518 (5th Cir. 1987); see
    also, In re Lower Lake Erie Iron Ore Antitrust Litigation, 998 F.2d
    1144 (3rd Cit. 1993). Moreover, the survival of the judicially created
    Keogh doctrine, which had long immunized the railroads from certain
    antitrust civil suits involving rates that were filed with the Board's
    predecessor, the Interstate Commerce Commission (ICC), is in serious
    doubt. Keogh v. Chicago & Nw. Ry, 260 U.S. 156 (1922); Square D Co. v.
    Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409 (1986). And,
    although rail carriers may argue that a court in a particular case
    should find implied antitrust immunity, courts do not favor implied
    immunities and require a showing of ``clear repugnancy'' between the
    regulatory regime and the imposition of the antitrust laws. See Credit
    Suisse Securities, LLC v. Billing, 127 S. Ct. 2383 (2007).
              express statutory immunities from the antitrust laws
        The railroads have several express statutory immunities.
        First, rail transactions reviewed and approved by the TSB under 49
    U.S.C. Secs. 11321-11328 (which include consolidations, mergers,
    acquisitions, some leases, trackage rights, pooling arrangements, and
    agreements to divide traffic) cannot be separately challenged in
    federal court under the antitrust laws.
        Second, the TSB may grant antitrust immunity to certain types of
    agreements related to rates or charges. See 49 U.S.C. Sec. 10706. It
    should be noted that this provision cannot be used to immunize
    something akin to a price-fixing agreement between competing railroads
    because the TSB cannot authorize rail carriers to discuss or
    participate in agreements related to single-line rates, or to inter-
    line rates of a particular movement unless the rail carrier can
    practicably participate in the movement. See 49 U.S.C. Sec.
    1076(a)(3)(A)(i),(ii).
        Additionally, there are two main categories of express immunities
    for railroads under the Clayton Act. Specifically, Section 16 provides
    that only the federal government may bring suit for injunctive relief
    against any common carrier subject to the TSB's jurisdiction. See 15
    U.S.C. Sec. 26. Second, railroads, as common carriers subject to the
    TSB's jurisdiction, are expressly immune from the Federal Trade
    Commission (FTC) Act, which bans methods of unfair competition. See 15
    U.S.C. Sec. 45(a)(2). However, the TSB prohibits the railroads from
    unreasonable competition within the rail industry. See 49 U.S.C. Sec.
    10702.
                     problems with the proposed legislation
        Presently, only the United States Department of Justice (DOJ) or
    the STB may bring suit for injunctive relief against a common carrier
    subject to STB jurisdiction. 15 U.S.C. Sec. 26. The purpose behind this
    provision is to preclude any interference by injunction with any
    business or transaction of interstate carriers of sufficient public
    significance and importance to be within the jurisdiction of the STB,
    except when the suit is brought by the Government.
        One area of concern that I have with this legislation is that H.R.
    1650 would permit private parties to obtain injunctive relief against
    rail carriers in individual Sherman or Clayton Act challenges. This
    presents a serious risk to the centralized oversight of the TSB. Courts
    are not responsible for, nor do they possess the expertise to consider,
    how a decision revolving a discrete dispute between a single carrier
    and a single shipper will affect other carriers and shippers on that
    line or even in other parts of the country. Only the TSB is charged
    with examining the rail industry from both a national, regional, and
    local perspective.
        Giving courts injunctive power in rail-related disputes would also
    create a great potential for conflicting decision from individual
    courts. Presently, the TSB has developed a consistent body of law that
    approaches competition issues with a viewpoint broadened by other rail
    transportation goals and provides the basis upon which both carriers
    and shippers shape their conduct and can assess their remedies. Courts
    would not the benefit of examining the broad public interest
    considerations that are at the disposal of the TSB. For example, the
    TSB has more experience in determining the adequacy of rail revenues to
    support capitol investment, health and public safety, fair wages, etc.
    In addition, some rail disputes might not lend themselves to one-time
    remedies and might need to be revisited often. In these instances, the
    court cannot be a substitute for regulators.
        Many of the injunctive remedies that a court might order in an
    antitrust case may themselves require Board approval. This would simply
    add another layer of complexity and expense that would be added to the
    rail disputes.
        Finally, because the STB already reviews rail mergers, H.R. 1650
    would subject rail mergers and acquisitions to both the approval
    process and criteria of the TSB and traditional Clayton Act standards
    and procedures. Under the current scheme, the TSB must consult the DOJ
    before approving any merger. The TSB takes into consideration, and
    generally follows the recommendation of the DOJ because both are
    concerned with improper mergers. My concern, and the concern echoed by
    the TSB, is that dual merger review would frustrate the TSB's ability
    to fashion merger conditions based upon public interest concerns. These
    decisions are best left to the TSB and not to courts or federal
    antitrust agencies.
        In sum, railroads are generally subject to antitrust laws. All
    aspects of railroad conduct that are exempt from antitrust laws are
    subject to the STB's regulatory jurisdiction. Therefore, ending
    railroad antitrust exemptions would not fill any void in the law.
    Instead, it would provide a dual remedy to shippers, reduce the
    efficiency of rail operations, and interfere with the STB's
    implementation of national rail transportation policies set by
    Congress. Limited antitrust exemptions for railroads exist because
    railroads are subject instead to economic regulation. We should think
    very hard about removing the railroads limited antitrust exemptions and
    we should look more closely at whether a right of private injunctive
    relief would benefit the railroads and the public at large.
        Thank you, Mr. Chairman, I yield the remainder of my time.

        Mr. Conyers. We turn now to our only Member from Congress,
    the author of the measure, Tammy Baldwin, who is the first
    woman to serve in the House of Representatives from the great
    State of Wisconsin. She has been with us since 1998, and how
    she works on two major Committees, Judiciary and Energy and
    Commerce, is something I can't figure out. She is a forceful
    supporter of civil rights, an advocate for those in our society
    whose voices too often are not heard. She is a pragmatist that
    has brought together conservative as well as progressive
    thinkers, and she spent a great deal of time on health care,
    almost as much as me.
        So I am happy to welcome her to begin her discussions. Of
    course, her statement will be in the record.
        Welcome to your Committee, Tammy Baldwin.

     STATEMENT OF THE HONORABLE TAMMY BALDWIN, A REPRESENTATIVE IN
    CONGRESS FROM THE STATE OF WISCONSIN, AND MEMBER, COMMITTEE ON
                             THE JUDICIARY

        Ms. Baldwin. Thank you, Mr. Chairman. I am delighted to
    have the opportunity today to address H.R. 1650, and delighted
    that you have chosen to have this hearing, and very interested
    in hearing our expert panel that will follow my presentation.
        This important bipartisan legislation will restore
    competition to the rail industry by providing relief to
    thousands of shippers across the country dependent upon freight
    rail.
        Let me begin with a little bit of history. Our Nation's
    railroad system was designed to serve our country, to transport
    goods and products from rural areas and cities to distribution
    points across the Nation. And over the years they have seen
    good times and bad times, but they have always provided an
    essential service to the Nation.
        Back in 1980, the railroad industry was in poor financial
    health, overbuilt and failing. Seeking a remedy, Congress
    removed much of the regulatory oversight over the industry, and
    merger authority was placed under the industry's sole
    regulator, the Surface Transportation Board. Unfortunately, in
    1980, Congress did not remove the antitrust exemptions that the
    industry had accumulated through various acts of Congress
    during the 1900's.
        Free from government oversight by the DOJ or the FTC, the
    rail industry has undergone dramatic consolidation, shrinking
    from over 40 major Class 1 railroads to 4 major carriers today,
    carrying 90 percent of our Nation's freight. This level of
    concentration and the resulting lack of competition certainly
    were never envisioned by Congress back in 1980.
        Over the years, while the railroads have profited, record
    profits, in fact, in recent years, the effects on shippers with
    little or no access to transportation competition along their
    route has been striking and largely ignored by the STB.
    Specifically, shippers report spiking rail rates and unreliable
    service.
        Take one example in my home State of Wisconsin, Dairyland
    Power. This rural cooperative located in LaCrosse, Wisconsin,
    provides electricity for approximately 575,000 people in
    Wisconsin, Minnesota, Iowa and Illinois. Their three coal-fired
    power plants consume 3.2 million tons of coal per year, with 75
    percent of that coal coming from the Powder River Basin located
    in Wyoming. All of this coal, all of it, is dependent upon rail
    for transportation, and Dairyland's power plants are served by
    only one railroad.
        Over the years Dairyland has reported deteriorating service
    quality, at times forcing them to cut back on generation due to
    the insufficient coal inventories. But the real kicker came at
    the end of 2005 when the railroad that holds Dairyland captive
    raised their rates dramatically. The energy cooperative saw
    average rate increases of 93 percent as of January 2006 for 1
    year of rail transportation service. It now costs Dairyland $75
    million per year to ship by rail $30 million worth of coal; $75
    million to ship $30 million worth of coal. The increase has
    translated into a 15 to 20 percent increase in electricity
    rates for the customers served by the cooperatives that depend
    on Dairyland for their power.
        Let me be clear, utilities are not the only companies
    passing on these transportation rate hikes to their customers.
    Consumers also face increased rates from other captive
    shippers, including chemical companies, the manufacturing
    industry, the agricultural sector, forest and paper companies,
    among many others. Of course, consumers also pay the increased
    costs of the electricity consumed by restaurants, hospitals,
    dry cleaners, and other producers of good and services.
        The trade associations representing many of these industry
    sectors, like the American Chemistry Council, the American Corn
    Growers, and the Steel Manufacturers Association, have endorsed
    the Railroad Antitrust Enforcement Act as a means of obtaining
    relief from the railroad monopoly power, and you will be
    hearing some of their stories later today.
        To help ease the burden felt by consumers and shippers
    alike, Representatives Pomeroy, Alexander, Walz and I
    introduced H.R. 1650, the Railroad Antitrust Enforcement Act of
    2007 in the House. Let me take a quick moment to explain what
    the bill does. First, it eliminates the antiquated railroad
    antitrust exemption that has no current public policy
    justification and is protecting anticompetitive conduct by the
    railroad industry.
        A November 2007 letter from 21 State attorneys general to
    the House leadership and Senate leadership is asking Congress
    to remove the railroad antitrust exemption, and it reflects my
    belief that this provision is necessary, and I ask that this
    letter be made a part of the record.
        Mr. Conyers. Without objection.
        [The information referred to follows:]

        Ms. Baldwin. Second, the bill permits the Department of
    Justice and FTC to review railroad mergers under the antitrust
    law to ensure competitive markets.
        Finally, the bill allows State attorneys general and other
    private parties to sue for damages to halt anticompetitive
    conduct, both of which are not currently allowable under
    Federal law.
        I might add that the companion bill to H.R. 1650, which was
    introduced by Wisconsin senior Senator and Chairman of the
    Senate Antitrust Committee has already been reported out of the
    Senate Judiciary Committee by voice vote with no objection and
    is awaiting action on the floor.
        Before I conclude, there is one big myth regarding the
    legislation that I would like to dispel. Opponents argue that
    by subjecting the railroads to our Nation's antitrust laws, we
    will somehow be reregulating them. Our legislation does nothing
    of the sort. Subjecting the railroads to antitrust laws is
    about competition, not reregulation. The bill simply places the
    rail industry under the same antitrust laws that every other
    industry, such as telecommunications, energy, or even other
    forms of freight transportation, including trucking and
    aviation, already face.
        This bill will not fix all the problems with the railroad
    industry, but it will be a starting point for good-faith
    negotiation between rails and shippers, and it will restore
    some of the public interest responsibilities to our Nation's
    rail system.
        Again, thank you, Mr. Chairman and Members of the
    Committee, for consideration of this important legislation. I
    look forward to working with you for its advancement in this
    Congress.
        Mr. Conyers. Thank you, Congresswoman Baldwin. We are
    appreciative that you brought our attention to this matter.
        [The prepared statement of Ms. Baldwin follows:]
    Prepared Statement of the Honorable Tammy Baldwin, a Representative in
      Congress from the State of Wisconsin, and Member, Committee on the
                                   Judiciary
        Thank you Mr. Chairman for the opportunity to testify today. I am
    very appreciative of the Committee's consideration of HR 1650, the
    Railroad Antitrust Enforcement Act of 2007. This important bipartisan
    legislation will restore competition to the rail industry and provide
    relief to thousands of shippers across the nation who are dependent on
    freight rail.
        First, let me begin with a little history. Our nation's railroad
    system was designed to serve our country--to transport goods to rural
    areas and distribution points across the nation. And over the years,
    they have seen good and bad times. Back in 1980, the railroad industry
    was in poor financial health. Seeking a remedy, Congress granted them
    an exemption from U.S. antitrust statutes and merger authority was
    placed under the industry's sole regulator--the Surface Transportation
    Board.
        But, free from government oversight by the DOJ or the FTC, the rail
    industry has undergone dramatic consolidation, shrinking from over 40
    major Class 1 railroads to four major carriers today carrying 90% of
    our nation's freight. This level of concentration and resulting lack of
    competition certainly were never envisioned by Congress in 1980.
        And, over the years while the railroads have profited--record
    profits, in fact--the effect on shippers with little or no competition
    along their route has been striking, and largely ignored by the STB.
        Specifically, shippers report spiking rail rates and unreliable
    service. Take Dairyland Power in my home state of Wisconsin, for
    example. This rural cooperative located in La Crosse represents the
    power needs of approximately 575,000 people in Wisconsin, Minnesota,
    Iowa, and Illinois. Their three coal-fired power plants consume 3.2
    million tons of coal per year, with 75% of that coal coming from the
    Powder River Basin located in Wyoming. All of this coal is dependent on
    rail for transportation.
        Over the years, Dairyland has reported deteriorating service
    quality; at times forcing them to cut back generation due to
    insufficient coal inventories.
        But the real kicker came in the last few years when the supply
    chain railroad raised Dairyland's rates dramatically. The energy
    cooperative saw average rates increase 93% as of January 2006 for one
    year of rail transportation service. It now costs about $75 million to
    ship by rail $30 million worth of coal.
        With increases this high, Dairyland and other captive utilities
    have no choice but to raise their electric rates. So it is consumers--
    our constituents--who bear the burden of this unwarranted antitrust
    exemption manipulated by the rail system. And, let me be clear, the
    costs passed on to consumers are not solely by the utility companies.
    Consumers also face increased rates from other captive shippers--
    including chemical companies, the manufacturing industry, agricultural
    sector, forest and paper companies, among others. These sectors too can
    provide story after story of exorbitant rates, delayed service, and
    surcharge fees. I might mention that many of them (such as the American
    Chemistry Council, American Corn Growers, and the Steel Manufacturers
    Association) have endorsed the Railroad Antitrust Enforcement Act as a
    means for some future relief. And, you will be hearing some of their
    stories today.
        To help ease the burden felt by consumers and shippers alike,
    Representatives Pomeroy, Alexander, Walz, and I introduced the Railroad
    Antitrust Enforcement Act in the House. Let me take a minute to explain
    what this bill does:

              First, it eliminates the antiquated railroad
            antitrust exemption that has no current public policy
            justification and is protecting anticompetitive conduct by the
            railroad industry. A November 2007 letter from 21 state
            Attorneys General to the House and Senate Leadership asking
            Congress to remove the railroad antitrust exemption reflects my
            belief that this provision is necessary--and I ask that this
            letter be made a part of the record.

              Second, the bill permits the Justice Department and
            FTC to review railroad mergers under antitrust law

              And finally, the bill allows state Attorneys General
            and other private parties to sue for damages and to halt
            anticompetitive conduct, both of which are not currently
            allowable under federal law.

        I might add that the companion bill, introduced by Mr. Kohl in the
    Senate, already passed out of the Senate Judiciary Committee by voice
    vote and is awaiting a vote on the floor.
        Before I conclude, there is one big myth regarding the legislation
    that I would like to dispel. Opponents argue that by subjecting the
    railroads to our nation's antitrust laws, we will somehow be
    ``reregulating them.'' Our legislation does nothing of the sort.
    Subjecting the railroads to antitrust laws is about competition . . .
    not reregulation. This bill simply places the rail industry under the
    same antitrust laws that every other industry such as
    telecommunications, energy, or even other forms of freight
    transportation--including trucking and aviation--faces.
        This bill will not fix all of the problems with the railroad
    industry. But, it will be a starting point for good faith negotiations
    between the rails and shippers. And, it will restore some of the public
    interest responsibilities to our nation's rail system.
        Again, thank you Mr. Chairman for the committee's consideration of
    this important legislation. I look forward to working with you and
    other members of this committee to ensure that this bill is passed into
    law in the remaining months of the 110th Congress.

                                   ATTACHMENT

        Mr. Conyers. As Darrell Issa has observed, the other body
    has for once gotten ahead of us. That is an unusual state of
    affairs.
        I thank you very much. We will all be working with you, of
    course, after we hear from our very excellent witnesses today.
        We now would like to invite to the witness table Susan
    Diehl, Terry Huval, G. Paul Moates, Dr. Darren Bush. Please
    join us.
        Ms. Diehl had a great deal of experience in her business
    career. She is senior vice president of logistics and supply
    chain management for Holcim, Incorporated, one of the Nation's
    largest producers of cement. We will put other items concerning
    her career into the record.
        We will accept your statement into the record and invite
    you to begin the conversation among us this afternoon. Welcome,
    Ms. Diehl, to the Judiciary Committee.

     TESTIMONY OF SUSAN M. DIEHL, SENIOR VICE PRESIDENT, LOGISTICS
             AND SUPPLY CHAIN MANAGEMENT, HOLCIM (US) INC.

        Ms. Diehl. Thank you, Mr. Chairman. Good afternoon. Thank
    you, Members of the Task Force.
        My name is Susan Diehl, and I am the senior vice president
    of logistics and supply chain management at Holcim U.S.,
    Incorporated. Mr. Chairman, as a life-long resident of the
    great State of Michigan, I tracked your distinguished career
    for so many years, and it really is a distinct pleasure for me
    to be here today to speak to your Committee about Holcim's
    experience as a captive shipper. I want to thank you for your
    service to our State over so many years, and also to our
    country.
        Mr. Conyers. Thank you.
        Ms. Diehl. As a Michiganian like you, I have seen too many
    jobs shipped overseas and Americans displaced because of
    regulations that defy law and logic and favor the few.
        Mr. Chairman, I realize the rail lobby is powerful, but
    enough is enough. It is time Congress passes H.R. 1650 and
    levels the playing field between captive shippers and Class I
    railroads.
        Holcim is a shipper of a strategic building material,
    namely cement. Cement is a critical component of concrete,
    which is an environmentally responsible building product used
    to build and repair our country's vital infrastructure.
    Concrete, as many of you may not know, is the second most
    consumed product on the planet. Water is the first. Holcim is
    one of the largest producers of cement in the world and in the
    United States, with operations in more than 70 countries, and
    across the U.S. in Michigan, Texas, Utah, and in Congresswoman
    Baldwin's State of Wisconsin. I am proud to say, Mr. Chairman,
    Holcim has been in Michigan for over 45 years and employs
    nearly 500 people in the State.
        Reliable and cost-effective transportation options are
    critical to our industry. Average cement shipments range
    between 250 and 300 miles. Truck transportation increases our
    carbon footprint, clogs our already crowded highways, and is
    not economical much beyond 150 miles. Simply put, we are
    relying on railroads to deliver our product and to transport
    necessary fuels such as coal to our facilities.
        More than 80 percent of U.S. cement-manufacturing plants
    are captive to a single railroad. Most cement plants are unable
    to secure competitive rail rates. To deal with the failings of
    the railroads and to remain competitive, we consistently make
    significant capital investments in our country and our own
    infrastructure to meet the demands of our customers. In the
    last decade, Holcim has invested over $1 billion in the U.S. to
    upgrade its capacity and better serve its customers while
    improving its environmental performance.
        Holcim is investing an additional $1 billion in Ste.
    Genevieve, Missouri, on what will be the largest cement plant
    in the United States. A major reason for the location of this
    investment is the harbor on the Mississippi River that will
    allow us to ensure cost-effective, environmentally friendly,
    and reliable transport of cement by water. We are determined to
    protect these significant investments and the good jobs they
    create for many of your constituents. As much as anyone, we are
    committed to protecting these jobs; however, to do so, we need
    relief and removal of the antitrust exemptions for the
    railroads such as what is proposed in H.R. 1650.
        The current system is broken, and the Surface
    Transportation Board is little more than a rubber stamp for the
    increasingly monopolistic practices of today's Class I
    railroads. Throughout the rail competition debate, Mr.
    Chairman, we have long sought to be part of the solution, and
    we have taken action. In 2003, we created our own railroad,
    Holrail, for the purpose of constructing and operating a 2.3-
    mile common carrier rail line to establish our own competition
    at our cement production facility in Holly Hill, South
    Carolina. Our captivity at Holly Hill allowed the railroads to
    provide us with poor and unresponsive service and charge
    unreasonably high rates.
        Under the protections afforded in H.R. 1650, we believe
    Holcim would not have had to take such extreme measures as to
    construct a railroad at a significant cost. Our captivity leads
    to rates that we estimate to be 35 percent higher than our two
    largest competitors, who are only 3 miles away and have access
    to dual rail, while we are captive. This situation exists
    because the STB has failed its public responsibility to keep
    competition after the Staggers Act. They have done little to
    protect shippers or restrain the increasingly consolidated rail
    industry.
        Given the track record of the STB issuing decisions in
    favor of the Class 1 railroads, it is not surprising that after
    several years, our petition and appeal were denied. It has cost
    us over $600,000 to pursue this case. While our company has the
    resources to take on this challenge, many companies do not.
        If competition is to be restored, we believe that Congress
    must change the system to create a more level playing field.
    What is currently being proposed in H.R. 1650 under your
    leadership, Mr. Chairman, and that of your Committee and
    Congresswoman Baldwin, we seek many key proposals that will
    help to strike the right balance between growth and oversight.
    Indeed, we would not advocate for this bill if we believed it
    would deter growth of our critical rail infrastructure, it is
    so vital to our future.
        We believe that Congress must promote rate competition by
    removing the railroad's antitrust exemptions and allowing
    normal protections afforded to all consumers to be in place. We
    think that they should be subject to the rule that it apply to
    shippers like Holcim and promote competition.
        We deeply appreciate this opportunity to speak about issues
    that are not only vital to our industry, but to our national
    infrastructure and future growth as well. Thank you very much.
        Mr. Conyers. Thanks for starting us off in this discussion,
    Ms. Diehl. I appreciate your bringing the experience in real
    time of Holcim to the Committee.
        [The prepared statement of Ms. Diehl follows:]
                      Prepared Statement of Susan M. Diehl
        Good morning Chairman Conyers and Members of the Committee. My name
    is Susan Diehl and I am the Senior Vice President, Logistics and Supply
    Chain Management at Holcim (US) Inc., which I will refer to today as
    ``Holcim''. I am here to speak to the Committee about Holcim's
    experiences as a captive shipper. I commend you Mr. Chairman, and your
    Committee, for the leadership you are taking on this very important
    issue. As a person who was born and raised in Michigan, and whose
    company has a significant presence in Michigan, I see the devastating
    effects when companies cannot be cost competitive.
        I sincerely appreciate the opportunity to express my deep concern
    over the fundamental flaws in the current rail system, which permits
    and indeed invites four major monopoly powers to dominate U.S.
    shippers, the vast majority of whom are unable to seek cost and eco-
    efficient competition. There exist impenetrable barriers to entry and
    an oversight system that is, at best, ineffective and undeniably
    available to only the privileged few who possess the ability to pay the
    high costs of access. Few, if any, industries can claim the benefit
    that the rail industry has of owning near-exclusive rights to its
    infrastructure, and to prevent the meaningful entry of new competitors.
        Holcim is a shipper of a strategic building material, namely
    cement. In most of the markets it serves, Holcim faces unfair and non-
    competitive rates, on the heels of years of massive rail consolidation
    and utter lack of oversight by the STB and its predecessor. What is
    currently being proposed in H.R. 1650, under your leadership, Mr.
    Chairman and that of your Committee, has many key proposals that would
    help captive shippers like Holcim, for example: 1. removing the
    antitrust exemption under the Nation's antitrust laws; 2. allowing
    Federal Courts to assert jurisdiction in actions against common
    carriers and, 3. extending treble damages to carriers
        Holcim submits this testimony fully recognizing that by doing so,
    it assumes certain risks: the rail lobby is effective and Holcim, as a
    captive shipper, has few alternatives if confronted with further
    erosion of service and cost competitiveness. Nevertheless, we hold a
    deep belief that the only way to continue to supply our country with
    its most fundamental building material and keep jobs in this country is
    to share our experience with you, Mr. Chairman, and your Task Force.
    The current system is unfair and needs change.
     holcim is a leader in the manufacture of cement serving customers in
        more than forty states, with a focus on sustainable development
        My Company, Holcim (US) Inc., is based in Waltham, MA and has its
    largest presence in Dundee, Michigan, where it contributes more than
    $85 million to the Michigan economy. It is a subsidiary of Holcim Ltd,
    a worldwide leader in the building materials sector, with over 150
    million tons of cement and almost 200 million tons of aggregates
    supplied annually. Holcim Ltd is a leader in sustainable development
    and for the last three years, has been recognized as the ``Leader of
    Industry'' by the Dow Jones Sustainability Index for the building
    materials sector.
        As a leader in the US cement industry, Holcim produces and supplies
    nearly 16 million tons of cement and cementitious products annually
    from its 16 manufacturing and 3 import facilities. We have more than
    3000 employees, 475+ of whom are in Michigan and over $1.5 billion in
    annual revenue. We have invested nearly $1 billion to upgrade and
    expand our existing U.S. facilities over the last decade, and are
    investing another $1 billion in Ste. Genevieve County near St. Louis,
    Missouri, to build the world's largest single cement production line.
    Still, this massive investment in capacity and efficiency upgrades is
    not enough to serve the Nation's need for cement, as the industry must
    import approximately 20 million tons of additional cement to meet the
    domestic demand.
        Holcim has four regions in the United States, including the
    Atlantic coast and southern US, the Great Lakes and Mississippi River
    system, Texas and Oklahoma, and the Rocky Mountains. We serve customers
    in over 40 states from our 16 plant facilities, and from over 55
    additional remote distribution sites, or terminals. Roughly 7.5 million
    tons of cement moves from our manufacturing facilities to these remote
    company terminals, for final distribution to customers; 4.5 million
    tons or more (or 60%) of that volume moves by rail. In addition, Mr.
    Chairman, we bring critical raw materials such as coal and gypsum to
    our manufacturing facilities to feed their continuous operations.
    How Cement is Made
        The Committee may want to understand that cement is produced from
    various abundant raw materials including limestone, shale, clay and
    silica sand. These minerals are ground and heated in large rotary kilns
    to temperatures as high as 3,400 degrees Fahrenheit. The heat of the
    combustion fuses these materials into clumps of an intermediate
    material called clinker. When the clinker is discharged from the kiln,
    it is cooled and later ground with a small amount of gypsum to produce
    the gray powder known as portland cement. Different types of portland
    cement are manufactured to meet various physical and chemical
    requirements.
        Portland cement manufacturing facilities use an enormous amount of
    energy. In fact, energy is the largest cost component in the
    manufacture of portland cement. The U.S. cement industry is largely
    coal fired with over 80% percent of all plants using coal, pet coke, or
    some combination of the two as primary kiln fuel in 2004. The domestic
    cement industry is one of the largest industrial consumers of coal.
    Much of the coal utilized to heat cement kilns is delivered by rail.
        The cement industry is regional in nature, Mr. Chairman. Most
    cement manufacturing plants are located in rural areas near large
    limestone deposits, the principal ingredient in producing cement.
    However, at the same time plants also must be located near markets
    because the cost of shipping cement quickly exceeds its value. As such,
    customers traditionally purchase cement from local sources.
        In 2007, we spent in excess of $60 million on rail freight and fuel
    surcharges (to move cement within our company, and even more when
    adding what is spent to bring raw materials into our facilities). What
    is interesting to note, Mr. Chairman, is that these costs cannot always
    be passed along to our customers, because sometimes our competitors
    have a local manufacturing presence and have no need to move cement by
    rail. In this type of situation, we need to be as cost competitive as
    possible.
        As evidenced by the amount of product that moves by rail, and the
    remote areas served (e.g., Bliss, ID, Lehi, UT, Superior, NE), we
    recognize the railroads as an important component of our business.
    Unreliable service can force our operations to shut down due to lack of
    raw materials and fuels, and worse yet, leave customers stranded with
    no cement to complete their building work.
    the cement industry is strategically important domestically and holcim
      is committed to continuing investments to improve its environmental
                      efficiency and increase its capacity
        Considering the regional nature of the cement industry, it is
    critical that there are reliable and cost-effective transportation
    options available. Average cement shipments range between 250 to 300
    miles. Truck transportation is not economical much beyond 150 miles; it
    is also not as environmentally friendly as rail. We are reliant on
    railroads to deliver our product. Only five of Holcim's sixteen cement
    plants have access to water transportation for domestic shipments and
    then only to select markets. The railroads have sometimes argued that
    these cement facilities are not captive since there are alternative
    modes of transportation available. This simply is not the case, Mr.
    Chairman. The US Cement Industry relies on rail transportation to move
    approximately 50 percent of all shipments between cement plants and
    distribution terminals, according to 2004 U.S. Geological Survey data,
    the most recent independent figures. It is highly important to our
    industry that the railroads provide reliable, efficient and cost-
    effective service to meet the widespread demand for our product. More
    than 80 percent of U.S. cement manufacturing plants are captive to a
    single railroad. Due to the absence of competition, these plants are
    unable to secure competitive rail rates and often receive poor service.
    On the other hand, dual rail-served facilities promote competition,
    leading to better rates and more reliable service.
        The railroads also transport millions of tons of inbound coal
    shipments to fuel cement manufacturing plants each year. There are
    examples within the industry in which cement plants that are served by
    two railroads receive coal from a supplier that is captive to a single
    railroad. There are also instances where both the cement plant and the
    coal supplier are captive to a single railroad. These situations result
    in unnecessarily high rail rates that add to the cost of cement and,
    ultimately, to the cost of infrastructure.
       increasing competition is the best way to drive efficiencies and
                   promote investment in rail infrastructure
        Mr. Chairman, the railroads' argument that ``re-regulation'' will
    have a chilling effect on business growth is flawed and presents a
    false choice. H.R. 1650, currently before Congress, presents an
    opportunity to improve service, and increase rate competition, without
    impacting rail capacity.
        The Staggers Act of 1980, which selectively removed regulations of
    the railroad industry in instances where transportation competition
    exists, has improved the industry's efficiency and financial stability.
    However, since deregulation, there has been a sharp decline from 63
    Class I railroads in 1976 to just four major Class I railroads today
    handling 90% of the nation's rail traffic. This consolidation has
    contributed to diminished competition as well as ineffective and
    inconsistent rail service for the cement industry and many others.
        Inconsistent and unreliable service from the Class I railroads is
    one of the most serious problems Holcim faces in its efforts to bring
    an affordable and essential product to market. Service encompasses many
    aspects of rail transportation, including picking up rail cars (covered
    hoppers), on-time delivery of rail cars and providing empty rail cars.
    The cars supplied by the railroads are typically old, poorly maintained
    and frequently a safety concern.
        In recent years, Mr. Chairman, Holcim has been forced to purchase
    private rail cars because Class I railroads have refused to add cement
    rail cars to their fleets. Meanwhile the railroads have added tariff
    provisions charging for the storage (demurrage) of Holcim-owned
    (private) rail cars. This results in increased costs (in the form of
    capital investment, maintenance and service fees) to the cement shipper
    while providing no incentive to the rail carriers to improve their
    service.
        We face uncertainty daily regarding the service reliability of the
    railroads. The Company is also disadvantaged competitively when
    competitors have dual service to serve markets where we are captive.
    Holcim has had to take extraordinary measures to try to remedy this
    disadvantage.
     holrail is created to create competition with the railroads: 13 years
      and hundreds of thousands of dollars later, and still no competition
        Holcim created HolRail LLC (``HolRail'') in 2003 for the purpose of
    constructing and operating a 2.3 mile common carrier rail line, to
    establish competitive rail service at Holcim's cement production
    facility in Holly Hill, South Carolina (``Holly Hill Facility''). The
    Holly Hill Facility is heavily dependent upon both inbound and outbound
    rail service to produce and distribute up to 2 million tons of cement
    annually. However, the Holly Hill Facility is captive to a single
    railroad, the CSXT. This captivity has allowed CSXT to provide poor and
    unresponsive service while charging unreasonably high rates to Holcim
    (comparable to truck rates for similar distances), which has placed
    Holcim at a competitive disadvantage in the cement market. In order to
    improve its rail service and obtain competitive rates, Holcim concluded
    that it needed competitive rail service at Holly Hill.
        Although the Holly Hill Facility is closed to the CSXT, the Norfolk
    Southern Railway (``NSR'') comes within approximately two miles of the
    Holly Hill Facility, at Giant, South Carolina. Therefore, Holcim
    determined that it could obtain competitive rail service at Holly Hill
    by constructing its own railroad over that distance to connect with the
    NSR. Holcim separately incorporated HolRail for this purpose.
        Holcim has two competitors located within 5 miles of the Holly Hill
    Facility, both of whom are dual served by the CSXT and the NSR. So, not
    only must Holcim try to compete without having a level playing field,
    Mr. Chairman, it must commit to invest in excess of $20+ million to
    level that playing field, incurring more costs due to the CSXT's
    failure to allow a shared right of way.
        HolRail identified two potential routes to connect the Holly Hill
    Facility with the NSR, a ``Preferred'' and an ``Alternate'' route. Both
    routes would extend 2.3 miles, from north to south, across the Four
    Hole Swamp and parallel to CSXT's existing track. The Alternate Route,
    however, lies approximately 105 feet east of the Preferred Route over
    most of that distance. The key distinction between the two routes is
    that the Alternate Route can be constructed almost entirely on property
    owned by Holcim, whereas the Preferred Route must cross over CSXT's
    property for 1.7 miles and would be constructed within the existing
    CSXT right-of-way.
        Despite having a clear path across Holcim-owned property via the
    Alternate Route, HolRail proposed the Preferred Route across CSXT's
    property to minimize the environmental consequences of constructing a
    railroad across the Four Hole Swamp, which is a unique and
    environmentally sensitive wetland. Since there is an existing
    transportation corridor, which includes the CSXT track, State Highway
    453, above ground power lines, and a buried gas line, which already
    constricts the flow of water through the swamp, HolRail determined that
    simply widening that corridor, by constructing the Preferred Route
    immediately adjacent to the CSXT track, would cause the least
    environmental harm.
        In contrast, the Alternate Route would exacerbate the harmful
    effects of the existing corridor by creating a second, entirely
    separate, transportation corridor approximately 130 feet further
    downstream, and deeper into the Four Hole Swamp. In addition to
    disturbing the portion of the swamp actually occupied by the railroad,
    the Alternate Route would disturb the entire area between the two
    corridors, which is referred to as an ``island'' effect. Consequently,
    the Alternate Route would more than double the acres of pristine
    wetlands that would be disturbed by the rail construction.
        The Army Corps of Engineers, the South Carolina Department of
    Natural Resources, and The National Audubon Society submitted letters
    to the Surface Transportation Board independently confirming HolRail's
    observations and expressing their preference for the Preferred Route
    over the Alternate Route.
        The Alternative Route, which the STB ordered HolRail to pursue
    without legal basis, would not only disturb these precious wetlands,
    but will also more than double the costs of construction and would
    force the Company to invest well over $20 million to construct. It took
    over 2 years to get the denial of HolRail's crossing petition from the
    STB, costing hundreds of thousands of dollars in legal fees and
    consulting fees. The DC Circuit Court of Appeals just denied our
    appeal, applying the Chevron doctrine to afford wide deference to the
    STB's decision. The Company may now be forced to pursue an
    environmentally damaging option to create much needed competition.
                  daily operational issues continue to abound
              In May, 2007, the Canadian National Railroad utterly
            failed to service a distribution facility in Green Bay, WI.
            There was no option but to truck product from another facility
            in Duluth, MN. During this time, the Company paid 2.5 times
            more than the rail rate, a cost that cannot be passed on to
            customers. In addition, the truck haulage is less efficient
            from an environmental perspective than rail.

              In the fall of 2006, the Union Pacific Railroad
            threatened to stop serving a manufacturing facility for inbound
            coal. The Union Pacific Railroad stated that the Company did
            not unload cars quickly enough and insisted that Holcim share
            unit trains full of coal with our competitor in the area.

              Some basic analysis reveals that in 98% of all of the
            origins/destinations Holcim serves; either the origin or the
            destination is ``closed'' or captive on one railroad. In one
            instance where competition does exist in our system, the rates
            are over 60% less than a comparable captive haul.

              In 2007 alone, on selected hauls of less than 225
            miles, trucking rates in Holcim are nearly $1.8 million more
            favorable than rail rates, despite the fact that it takes
            approximately 4 trucks to move the same amount of product as 1
            rail car. Holcim wants to be able to leverage rail
            infrastructure to avoid the extra congestion and emissions
            occasioned by having more trucks on the road. Mr. Chairman,
            given that the Company moves more than 45,000 rail cars per
            year, converting this haulage to truck would put nearly 180,000
            extra trucks on the road every year!
     the stb's failure to protect shippers and provide low cost, unbiased
        access to pursue claims is a deterrent to shippers and further
             emboldens the railroads to exert their monopoly power
        As evidenced by the examples above, Holcim lives with the grim
    reality that there is little or no recourse when it can neither obtain
    favorable rates nor service from the Class I railroads. The STB has
    done little since it was formed to protect shippers from the
    increasingly consolidated rail industry, with almost impenetrable
    barriers to entry and few, if any options available.
        The impediments to moving through the system created by the STB are
    evidenced by the fact that HolRail has been trying since 2004 to
    establish a short line; when a decision was finally issued earlier this
    year, the STB ordered HolRail to pursue an ecologically and
    environmentally inefficient option, at nearly twice the cost. In
    addition, to date, legal and consulting fees are in excess of $600,000.
        Holcim has no recourse regarding rates since cement (officially
    ``hydraulic cement'') is classified as an exempt product from rate
    regulation by the STB. Since the STB has done little to address service
    issues, Holcim believes Congress should expand the STB's authority to
    promote transparency around rail service. Congress should also require
    the STB to submit an annual report regarding rail service complaints
    and describe the procedures the STB took to resolve them. Further,
    either party should be allowed to submit a dispute over rail service to
    the STB for ``final offer'' arbitration.
        At present, the Surface Transportation Board does not fulfill its
    mandate ``to respond to the demands of maintaining a healthy and
    competitive . . . national transportation infrastructure. . . . [T]he
    STB [is] charged with ensuring that the nation maintains a strong
    railroad infrastructure that serves passengers and shippers well.'' \1\
    The STB has not fostered competition and improved service during its
    tenure and has not responded well to the needs of shippers.
    ---------------------------------------------------------------------------
        \1\ Statement of Congressman Wise, Ranking Member, Hearing on STB
    Reauthorization, March 12, 1998, U.S. House of Representatives,
    Subcommittee on Railroads, Committee on Transportation and
    Infrastructure.
    ---------------------------------------------------------------------------
                                   conclusion
        As a shipper of a strategic building material, Holcim needs a
    vibrant and profitable rail industry to support the nation's economic
    growth. Holcim must have access to a competitive rail transportation
    system, to ensure timely and efficient delivery of cement to those who
    build our nation's critical infrastructure. It simply requires the rail
    industry to re-invest to grow and stay competitive, like its customers.
    Congress must level the playing field following decades of
    consolidation and growth of monopoly power in the rail industry.
        During the last decade, Holcim has invested over $1 billion to
    upgrade its capacity and better serve its customers while improving its
    environmental performance. Holcim is investing an additional $1 billion
    in Ste. Genevieve, Missouri, on the Mississippi River, to ensure cost
    effective, environmentally friendly and reliable transport of cement,
    in part based on concerns that the railroads will not have the capacity
    or service levels necessary to serve customer needs in the years to
    come. We believe that the railroads must also re-invest; however, that
    investment need not be conditioned on receiving a mandate to continue
    with monopolistic practices.
        What is currently being proposed in H.R. 1650, under your
    leadership, Mr. Chairman and that of your Committee, has many key
    proposals that would help captive shippers like Holcim, for example: 1.
    removing the antitrust exemption under the Nation's antitrust laws; 2.
    allowing Federal Courts to assert jurisdiction in actions against
    common carriers and, 3. extending treble damages to carriers. Indeed,
    Mr. Chairman, we would not advocate for reform that would deter growth
    of our critical rail infrastructure. What we believe is that stronger
    competition creates incentives to become efficient operators with a
    strong customer focus--much like the incentives of the free market
    economy that drive efficiencies and competitive investment by Shippers.
    Competition, not monopoly power, is essential to fuel the railroads'
    and Shippers' growth. Continued monopoly power is by definition anti-
    competitive and will yield no growth. Every business must and does
    invest in renewing its infrastructure in order to remain competitive
    and railroads should be no exception.
        I believe that Congress must especially consider provisions that
    promote rate competition and provide greater oversight on rail service
    related issues.
        I sincerely thank you, Mr. Chairman, and Members of the Committee
    for your time and I again appreciate this opportunity to speak about
    issues vital to our national infrastructure and future growth.

        Mr. Conyers. We turn now to the director of utilities for
    the Lafayette Utility System in Louisiana and the chairman of
    the American Public Power Association. We have Mr. Huval, with
    a very important background, a little bit different from anyone
    else that is a witness. But Mr. Terry Huval, your experience
    and engineering background, your work over the years in
    Louisiana, and your particular experiences make us very pleased
    that you are before us today.
        We are going to put your testimony in the record and invite
    you to talk with us at this time.

      TESTIMONY OF TERRY HUVAL, DIRECTOR OF UTILITIES, LAFAYETTE
                    UTILITIES SYSTEM, LAFAYETTE, LA

        Mr. Huval. Thank you, Mr. Chairman, and thank you to the
    Members of the Committee here this afternoon. My name is Terry
    Huval, I am from Lafayette, Louisiana, the heart of Cajun
    country. We speak more French than we speak English sometimes.
    In case I just jump into French, stop me and I will go ahead
    and get back to the English part of the story.
        I am serving at the pleasure of the APPA as the chairman of
    the board this year. I have been in the utility business all my
    working career since I graduated in electrical engineering from
    college. I am also representing the Consumers United for Rail
    Equity, which is representing a large number of captive
    shippers not only in the utility business, but also in the
    grain, petrochemical, and many other areas.
        My message to you today is to speak of the STB and how they
    have conducted their business, especially since I noted that
    the rail providers have indicated that the antitrust issues
    that we are trying to address by this bill 1650 are actually
    being overseen by the STB. I will share with you some stories
    about Lafayette.
        We have a coal plant that we co-own that is located about
    90 miles north of us. To get coal to that particular plant is a
    1,500-mile trek from Wyoming to Louisiana. Of that 1,500 miles,
    we have a competitive rail solution for all but 20 miles. So
    only the last 20 miles is only served by one rail provider.
        The STB, in their assessment of how they should be
    overseeing the railroads, takes the position that unless we
    have two rail providers, or these two rail providers, that come
    all the way from the beginning, from the source point, to the
    destination, that the company serving us cannot be forced to
    open up part of their line for competition. So what that means
    is of the 1,500 miles of train track coming to Lafayette, of
    which 1,480 miles we have a competitive option, we are forced
    under a monopoly rate structure for the entire 1,500 miles.
    That is, to us, not reasonable, and I think anyone who would be
    looking at these issues from an antitrust perspective would
    have to question why that takes place.
        Unfortunately, as time has gone on in this business, we
    have noted even when there are alternate rail providers, that
    because to ship coal requires rail, unless you have a river
    close by, requires rail, you are not seeing much meaningful
    competition between the rail providers. That is unfortunate,
    and it has an impact on our customers. In our particular case,
    when we provide electric service to our customers, our total
    cost of providing service is what we charge the customers. If
    we are being overcharged by the rail companies, then 100
    percent of that overcharge goes to our customers.
        In the case of the city of Lafayette, based on experts that
    we have got, we have consulted with, they have indicated to us
    that we are probably spending about $15 million a year or more
    than we should to serve our 120,000 customers in Lafayette.
    Bringing that to something more manageable, if we look at the
    entire education system in Lafayette, whether it is the
    university or the technical college or the community college or
    public schools or private schools, that is almost 10 percent of
    our total electrical usage. So that means that those schools
    are paying about $1.5 million a year extra for electricity
    because of this circumstance.
        It is my suggestion that I think those schools could find a
    better way to use that $1.5 million, and all the rest of our
    customers also. You know, $15 million each year comes up to a
    lot of money. Those are the dollars that our customers and the
    customers of most electric utility companies are being forced
    to pay.
        The last point I wanted to bring up to you has to do with
    the whole notion that we should have a major industry like this
    that is not subject to all of the antitrust requirements that
    other companies are. I have read some of the testimony from the
    rail companies, and I don't understand how every other business
    in this country can operate and be under those types of
    antitrust requirements, but yet the rail companies feel that
    they should not be. I believe that if the jurisdiction of
    dealing with antitrust issues was moved away from the Surface
    Transportation Board, there would be a much more level playing
    field for the captive customers, and still at the same time
    recognizing the need of the railroads to continue to operate.
        With that, I have reached the end of my comments. I thank
    you for your attention.
        Mr. Conyers. Thank you so much for your testimony.
        [The prepared statement of Mr. Huval follows:]
                       Prepared Statement of Terry Huval

                                  ATTACHMENTS

        Mr. Conyers. We now move to Attorney Paul Moates, who has
    had an extensive career in the transportation law. As a matter
    of fact, he heads up that part of his firm's operation. He has
    been a representative on the National Arbitration Panel, which
    hears disputes between freight, railroads and Amtrak. He has
    served as a member in the United States Army, and was assigned
    to the White House Communications Agency, and has written
    extensively with the law symposiums. He is on the Public
    Utility Section of the American Bar Association.
        So we think that your perspective will be very helpful.
    Welcome to the Committee. We have your prepared statement.

     TESTIMONY OF G. PAUL MOATES, SIDLEY AUSTIN, LLP, ON BEHALF OF
                 THE ASSOCIATION OF AMERICAN RAILROADS

        Mr. Moates. Thank you very much, Mr. Chairman, for those
    kind remarks. I appreciate it. It does put in mind of how many
    years I have been doing this, but I think I have a few more
    left, and I welcome the opportunity to appear here today.
        I appreciate this opportunity to appear here today on
    behalf of the Association of American Railroads, which is, I am
    sure you are aware, the national trade association, really, the
    North America trade association, of railroads.
        Just to clarify one thing that Congresswoman Baldwin
    mentioned before I get to my prepared remarks, she is correct,
    there are four major U.S. carriers we are all pretty much
    familiar with after the large consolidations, those, of course,
    being the Union Pacific, the Burlington Northern-Sante Fe, in
    the East Norfolk Southern, and CSX. However, there are several
    other important large railroads, and they are members of the
    AAR. In fact, two of them operate in Congresswoman Baldwin's
    State, referring to the Canadian Pacific system, which includes
    the former Soo Line Railroad, and in the East, the Delaware and
    Hudson, and the Canadian National system, which includes indeed
    the Illinois Central and the former Wisconsin Central Railroad.
    Of course, there is also the Kansas City Southern Railway that
    operates essentially in the middle of the country. So there are
    a few more than four large systems.
        Mr. Conyers. Do you want to put that in the record?
        Mr. Moates. I would be happy to do that.
        With all due respect to my co-panelists, we believe this
    legislation is a solution looking for a problem. In developing
    what we think is a needless solution, it would subject
    railroads to an unwarranted dual system of regulation. We would
    submit that the longstanding statutory scheme should be altered
    only if there is an identified problem, and only if the
    proposed legislation would be effective remedying the perceived
    problem. Again, with respect, we do not believe either
    condition exists with respect to this legislation.
        I think the two panelists to my left both who have spoken
    ahead of me had fairly critical things to say about the Surface
    Transportation Board. Obviously, the elimination or the major
    reform and the responsibilities and jurisdiction of that Board,
    as I understand it, is not part of this legislation, is really
    not before us here today.
        I think the legislation that is before us is based on a
    number of faulty premises. The first is, and this gets repeated
    a lot, the railroads enjoy broad antitrust immunities. Mr.
    Chairman, that is simply not true. Railroads are generally
    subject to the antitrust laws, and the immunities that we do
    enjoy are limited in scope and also subject to regulatory
    oversight by the STB. Specifically, the antitrust laws prohibit
    anticompetitive agreements among railroads to collude in the
    setting of rates, to collude in allocation of markets, or in
    otherwise unreasonably restraining trade. We can't do that. If
    we do, we are subject to the Sherman Act and the Clayton Act
    and the other antitrust laws that you are very familiar with.
        Railroads continue to be subject to the STB's regulatory
    jurisdiction with respect to certain rates and services, the
    terms of entry and exit from the industry, and mergers and
    other restructurings. That is all pursuant to, of course, the
    guidance of Congress as laid out in the Interstate Commerce
    Commission Termination Act of 1995. The few statutory antitrust
    exemptions that remain exist because of the need to avoid dual
    and potentially conflicting regulation by the courts and the
    STB. Moreover, and this is an important point, those limited
    exemptions do allow the railroads to work together in a very
    limited way to efficiently address some of the issues created
    because of our industry's network characteristics, and I will
    come back to that in a minute.
        The second faulty premise is this legislation would benefit
    shippers by subjecting railroads to dual-merger jurisdiction. I
    might say the suggestion was made previously that all we are
    trying to do is level the playing field and make railroads
    subject to the same statutory scheme as other previously
    regulated industries and other freight providers. Again, with
    respect, that is not true. None of those other industries have
    dual-merger jurisdiction of an agency like the STB, which is
    charged with a very specific statute, 49 United States Code,
    sections 11321 to 323, in reviewing and approving, and
    approving with conditions, if it deems that appropriate,
    mergers and other consolidations in the railroad industry, and
    at the same time, as this legislation would do, have those
    kinds of transactions subject to the review of the Department
    of Justice and/or the Federal Trade Commission under the
    antitrust statutes.
        Even more troubling to us in some sense is that this bill
    appears--and I hope I am reading it wrong--the bill appears to
    allow the Justice Department or the Federal Trade Commission
    retroactively after 180 days to look at and challenge mergers
    that have been previously approved by the ICC or the STB long
    ago. Hopefully, that isn't the intent. Hopefully that isn't
    what the drafters have in mind. But it does appear to be a
    possibility in the way the legislation is written.
        Mr. Chairman, there is no reason to believe that this
    change in the law, that is the merger portion of this statute,
    this legislation, excuse me, will provide shippers with
    additional relief in any possible future merger cases. Indeed,
    the Clayton Act standard of preserving competition does not in
    any way give shippers any more protection, somewhat less
    perhaps, than the STB standard for major rail mergers, which
    now requires that merger applicants demonstrate that their
    transaction would result in enhancements to competition. There
    must be a demonstration of procompetitive benefits, not just
    neutral.
        Moreover, dating back at least to the passage of the
    Staggers Act referred to by Congresswoman Baldwin, the STB and
    its predecessor, the Interstate Commerce Commission, have
    consistently used their conditioning authority to ensure that
    as a result of a merger, no customer has lost two-railroad
    service prior to the merger.
        Ms. Diehl mentioned her concern about being exclusively
    served, or captive, in her terms, to a railroad in South
    Carolina, and competitors a short distance away having two-
    railroad competition. If those two railroads were to merge, the
    STB has the authority and typically would impose conditions to
    preserve that two-railroad competition.
        Another of the solutions in H.R. 1650 looking for a problem
    is elimination of the limited exemption the railroads have
    under section 10706 establishing procedures for handling car
    hire payments. That exemption, although severely limited,
    nonetheless remains important since is fosters coordination on
    matters that enhance network efficiency that we don't believe
    are controversial. It is also important to recognize that even
    those rules do not provide for carriers collectively to discuss
    the setting of car hire rates. Those rates are established
    through bilateral negotiations between the owners and users of
    the equipment, and I want to emphasize again that under this
    exemption, competing railroads do not and have not for many
    years collectively set freight rates of any kind.
        This legislation would not replace the existing STB
    regulatory regime with antitrust remedies where limited
    immunities exist. Rather, it would superimpose antitrust
    remedies on top of STB regulation. Moreover, it will not, I
    submit, provide rail customers with any new protections from
    allegedly high rates because high rates alone do not constitute
    an antitrust violation.
        Finally, we have a major concern about section 2 of the
    bill, which permits private injunctions and introduces the very
    real possibility of dual but inconsistent regulation of
    railroads. So long as there remains a single regulatory body
    charged with oversight of the rail industry--and I realize some
    of my copanelists might prefer not to have that body, but as
    long as it is there, it is imperative that the antitrust laws
    and the national transportation policy be implemented in a
    harmonious fashion. In permitting courts to fashion equitable
    remedies in individual civil actions and also by discouraging
    from deferring to the STB's expertise, as section 4 of this
    bill does, the legislation threatens to disrupt that harmony.
        In summary, we believe the legislation is flawed on several
    counts. It fails to recognize the railroads are subject to
    antitrust scrutiny today where there is no regulatory
    oversight, so that eliminating the industry's limited
    exemptions would not fill any void in the law. It also fails to
    recognize the public benefits from the existing limited
    railroad antitrust exceptions. Indeed, it would discourage
    activities that are in the public interest and subject
    railroads to dual and potentially inconsistent standards in
    areas that are being addressed as effectively, if not more
    effectively, through regulatory oversight.
        Thank you, Mr. Chairman.
        Mr. Conyers. Thank you very, very much, Attorney Moates.
        [The prepared statement of Mr. Moates follows:]
                      Prepared Statement of G. Paul Moates

        Mr. Conyers. We now turn to Professor Darren Bush,
    California State University, and the University of Utah. He has
    written extensively and lectured about antitrust laws and
    economics, and received many awards. I am going to include in
    your introduction a list of selected publications which you
    have contributed over the years.
        We welcome you to the hearing.

                 TESTIMONY OF DARREN BUSH, PROFESSOR,
                    UNIVERSITY OF HOUSTON LAW CENTER

        Mr. Bush. Thank you, Mr. Chairman and other distinguished
    Members of this Antitrust Task Force. I want to thank you today
    for giving me the opportunity to speak about competition policy
    in the context of a deregulated railroad industry. My remarks
    today are my own, as I, quite sadly, do not represent anyone in
    this matter. This makes me feel free to discuss the nature and
    effect of the proposed legislation with a certain degree of
    specificity.
        As an antitrust professor and as an economist, there are
    certain things in the legislation that give me pause, there are
    certain things in this legislation that I think are very
    productive, and I think it is very important to discuss all of
    those things.
        The first thing I want to start out by asking is: Is there
    ever a reason to keep an antitrust immunity? As I and others
    have set forth in a recent report to the Antitrust
    Modernization Commission, we believe the burden of establishing
    the case for any immunity should fall upon the proponents of
    the immunity who at a minimum should, one, clearly explain why
    the conduct in the scope of the immunity is both prohibited or
    unduly limited by antitrust liability and is in the public
    interest; make some estimation as to the effects the proposed
    immunity will have in addition to its intended effect; and,
    three, demonstrate that the proposed immunity is necessary to
    achieve the desired policy outcome.
        In the case of railroads, I find no clear benefit to the
    immunity, except perhaps to the railroads and to the Surface
    Transportation Board in the form of exclusive jurisdiction. The
    benefits of such a regulatory scheme are dubious at best, and
    the conduct sought for continued immunization has
    characteristics that could lead, and has certainly led, to
    serious consumer injury.
        For example, it is fair to say that the Surface
    Transportation Board and its predecessor, the ICC, have rarely
    met a merger they did not like. This isn't due to incompetence;
    as stated in my written testimony, it is by design. While the
    goal of a promerger stance is increased investor returns and
    system stability, it is not clear the policy has accomplished
    either. Some recent mergers have created service disruptions
    and spawned shipper complaints, and while the STB has revamped
    its merger policy to some degree, it has yet to be tested by
    any railroad merger.
        The question arises as to whether the STB will be able to
    resist its past practices of allowing mergers to come to
    fruition with Acela-like speed, nor can we conclude much about
    what appears to an be agreement between the DOJ and the STB
    with respect to many of the mergers approved by the STB. The
    DOJ, in absence of an ability to join a merger, will not
    dedicate resources to a thorough examination of the
    transaction. Thus, the DOJ is unlikely to have the same type of
    information available in the context of a railroad merger as it
    possesses in virtually every other industry, including but not
    limited to the ability to issue a second request for
    documentary materials, the ability to submit investigative
    demands to third parties for documentary materials, conducting
    of interviews with relevant third parties, conducting of civil
    investigative demands for oral testimony, and other methods
    necessary to paint a full and complete picture of the nature of
    competition in the marketplace.
        More troubling than STB's merger policy is the STB's view
    with respect to other transactions with clear anticompetitive
    effect and perhaps no procompetitive benefit. This is the case
    with paper barriers. In many sales of secondary trackage to
    small regional players who wish to interconnect with the
    seller's, a major trunk line operator's, main lines, the
    seller, in exchange for interconnection, often demanded that
    the regional player only interchange its traffic from the
    divested line to the seller, foreclosing any opportunity for
    the buyer to interchange with operators. These paper barrier
    restraints were often permanent. The ICC and the STB
    historically approved such restraints. Those would certainly
    change if they were subject to antitrust review by the DOJ, as
    they would typically be somewhat per se illegal since they have
    no terminating time period.
        There are some issues with respect to rates, however. There
    was mention earlier that much of what the railroads do is
    subject to antitrust attack. However, it is not the nature of
    what is addressed in the statute as sort of the umbrella that
    goes beyond the statute. In other words, where there is not a
    statutory exception, there is still pause in the courts to
    address any sort of antitrust issue when there is some realm of
    perhaps immunity.
        This is certainly the case where the STB has sought to move
    certain rates or other activities away from regulation and into
    the marketplace, because the STB often has the option of
    reregulating that conduct. And courts, where potentially
    challenged conduct could be rendered moot upon reregulation,
    are not likely to render any judgment. In other words, the fact
    that the STB could, in fact, render the issue moot would not
    cause judges to allow antitrust suits to continue. The only
    remedy for this potentially judicial hesitation for this
    conduct is to clearly define what is within the STB's realm and
    what is not.
        One other point I want to make, I know I am testing your
    time limitations, is there are certain other aspects of
    immunity that the legislation does not address. There is a
    notion of what is called immunity by proxy. If you read the
    Supreme Court's recent Verizon Communication v. Trinko
    decision, Justice Scalia laments in part for the decision that
    where a regulatory body exists, the benefits of the antitrust
    enforcement will tend to be small. This sentiment was also
    carried forth in the Supreme Court's recent Credit Suisse
    Securities v. Billing decision.
        Now, the question becomes if there is a repeal of the
    express antitrust immunity, will the courts find an implied
    immunity merely because there is regulatory conduct at issue?
    In other words, merely removing the antitrust immunity will not
    necessarily remove all immunity. This is also true of primary
    jurisdiction. The legislation in it has a provision that
    dictates that the courts do not have to defer to the primary
    jurisdiction of the agency, but the primary jurisdiction issue
    is one of discretion for the courts, and there is a question as
    to whether the primary jurisdiction provision will actually
    eliminate primary jurisdiction.
        The third thing that I have that is an issue with the
    legislation is the filed rate doctrine. Now, if you followed
    the electricity cases that have come out of the ninth circuit
    and now the tenth circuit, even where the regulatory agency has
    not expressly authorized a rate, but merely where the rates are
    subject to just submission ex post, market prices submitted ex
    post to a regulatory agency, the courts have found those to be
    filed rates, and therefore they are immune from private
    plaintiff antitrust attack. So merely having a repeal of the
    express antitrust immunity, I think, is insufficient to deal
    with some of those issues that are still plaguing us within the
    courts with respect to deregulated industries.
        I look forward to entertaining questions as to these
    issues. Thank you very much for your time.
        [The prepared statement of Mr. Bush follows:]
                       Prepared Statement of Darren Bush

        Mr. Conyers. Thank you, Professor Bush.
        There's been a point rasied about whether we have an answer
    that is in search of a problem. I'm going to ask anyone to
    respond to any parts of these questions. Do railroads really
    have that much immunity in the first place? Is there any reason
    to keep antitrust immunity?
        Opponents of this bill claim concurrent jurisdiction is
    unnecessary; that not only is insufficient oversight provided
    by STB, but STB uses a tougher standard than DOJ. And then
    there was the last question that you raised about the
    imperfection of the legislation, Professor Bush.
        What have you been thinking about all of this, Ms. Diehl,
    since you started it off?
        Ms. Diehl. Thank you, Mr. Chairman. What I've been thinking
    is, my goodness, of course, they don't want their antitrust
    exemption lifted. Why would they? Because they're able to
    maintain two duopolies in this country. So really there is no
    question about fixing prices when you are a monopoly by the
    very nature of what you do in business. You have the power to
    set prices. And so what we find to be very challenging as a
    private shipper is that we have to be super competitive. And
    when we go in for merger analysis, the DOJ is looking at, are
    you going from six to five. Here we're going from two to one,
    and there is no recourse. And the railroads own their own
    highways. So even when people like us go to try and be part of
    the solution and build our own rail, we are thwarted, and it
    costs us hundreds of thousands of dollars and potentially leads
    us to having to go and build across a wetland because we
    haven't gotten anyone to concur with our position that we
    should be able to co-exist on the railroad's property.
        So, for me, I look at it, and I think absolutely the right
    thing to do is to make sure that all of us are playing by the
    same set of rules that are going to promote true efficiency and
    competition that help the consumers.
        Mr. Conyers. Thank you very much. Director of utilities for
    Lafayette, what are your impressions? How have you been moved
    by what you've heard here today?
        Mr. Huval. I don't think it takes too much digging into it
    to see that there is some anti-competitive behavior being taken
    by the railroads. And that is--that is the kind of issues we
    need to deal with. To suggest that the Surface Transportation
    Board is really overseeing that, when you look at the various
    examples on how railroads can take advantage of captive
    customers, there is no regulator that I'm aware of that would
    allow that sort of thing to take place without putting some
    limits on that. The comment raised about the railroads have a
    network, and so, therefore, they need to have this exemption
    from antitrust in order to be able to incorporate with each
    other, to build--to work out their networks, we in the
    electrical utility industry have networks that are subject to
    regulation by the Federal Interregulatory Commission, by State
    public service commissions. We have to engage in those kinds of
    discussions also. It doesn't require us to have some type of
    exemption from antitrust. I think just the concept of a
    solution looking for a problem is just a spin job, and it
    really has no merit in what the issue is here. And the issue is
    clearly that the STB has taken its role as being the overseer
    of antitrust in a way--to protect antitrust in a way that is
    favorable to the railroads and not favorable to the people of
    this country.
        Mr. Conyers. Thank you very much. Professor Darren Bush.
        Mr. Bush. I was thinking, while listening to my colleagues
    on the panel, that there are certain types of conduct that the
    antitrust laws can prevent, and there are certain types of
    conduct that regulators can prevent. And those two are often
    compliments to--substitutes for one another. Mr. Moates had
    mentioned, for example, in the anti-trust laws, as currently
    applied to the railroad, industry suggest that they cannot
    collude in prices or rates, which is perfectly fine except that
    the antitrust exemption has allowed them to gain monopoly
    power. And if I have monopoly power, I don't have to collude
    with anyone because in fact I am a monopoly. Certain other
    types of regulation can run at loggerheads with antitrust as
    well. For example, the fact that I'm subject--that railroads
    are subject to STB regulation can certainly create problems for
    antitrust plaintiffs both in the sense of judges who are
    unwilling to step upon an agency's turf where that turf is not
    clearly defined in terms of filed rate doctrine, in terms of
    primary jurisdiction, in terms of implied immunity. So there
    are clearly some inabilities for any sort of remedy apart from
    going to the STB. And it doesn't seem clear to me that the STB
    has been effective in promoting competition, nor was it
    designed to. The STB was not designed to promote competition.
    The STB was designed--and ICC prior to that to consolidate the
    railroads. In fact, that was its legislative, essentially,
    mandate, was to consolidate the railroads in the wake of
    shortages during World War II. So when you have a mandate that
    suggests to you consolidation, that runs antithetical to the
    antitrust laws certainly. In other industries, you do not have
    this type of--this need for consolidation. In the electric
    utility industry, we certainly have some degree of competition,
    as you pointed out. There is no need for interlocutory
    directorates, there is no need for an antitrust exemption. In
    fact, the electric utilities are subject to concurrent
    jurisdiction with FERC and the Department of Justice, and State
    and public utility commissions. It may drive them a little
    crazy, but in fact, it has proven to be an effective check on
    the competitive process. So if you ask me whether or not there
    is a problem, it seems to me that just by looking at the
    legislative mandate of the Surface Transportation Board, there
    is a problem. Certainly the testimony here today suggested
    there is a problem, and the antitrust laws can help resolve
    some of those problems.
        Mr. Conyers. Thank you very much.
        Counselor, Mr. Moates.
        Mr. Moates. Thank you, Mr. Chairman. I think my colleagues
    here and friends have given me one or two things I need to
    respond to. The first thing I'd like to do is ask us all to
    take three or four or five metaphorical steps back and pause
    and think about where we are and how we got to where we are
    with the actually very efficient and pared down large rail
    systems that we have today that we've talked about. The
    Congressman in his opening remarks made reference to the fact
    that it wasn't that many years ago that we had a real problem
    with the railroad industry in this country. It was overbuilt.
    It was underfunded, and it was undercapitalized, and there were
    a lot of bankruptcies.
        Congress did indeed--I agree with Professor Bush on this--
    very clearly first in the Railroad Revitalization and
    Regulatory Reform Act of 1976, the 4R Act, and then in the
    Staggers Rail Act of 1980 address a lot of the ills that the
    railroad industry had faced, including over-regulation by the
    Interstate Commerce Commission and its rates, including the
    fact that it had way too much capacity, and it took way too
    long to rationalize the plant by abandoning and selling lies.
        We've come a long way, I'm very happy to say, and most of
    this has been during my career. And it has been an interesting
    thing to be part of and to observe. But where we are today is
    with a very large efficient railroad system. What we do lose
    sight of is, this country's freight rail system is frankly the
    unparalleled best freight-rail system in the world. We hear
    that all the time from people around the world. And it's a
    system that the taxpayers don't pay for. It is a system that
    the railroads pay for. And they have to pay a lot for it. And
    another reference is made by the Congressman in his opening
    remarks to the capacity and the infrastructure concerns that we
    all share about all this Nation's infrastructure. But from our
    perspective, the railroad industry infrastructure, which indeed
    is at unparalleled strains because of the capacity and the very
    near-capacity situation it faces in most major corridors;
    railroading is an expensive business. We have to earn a lot of
    capital to be able to reinvest in our business and to attract
    scarce investment dollars to the industry. We are regulated to
    a significant degree in how we do that. The STB does regulate
    rates. I represent railroads in rate cases right now. The STB
    has in the last couple of years reformed the way that it
    calculates the industry's cost of capital. I work with the AAR
    on that matter. The STB has issued a decision, that has not
    been mentioned here and was not mentioned in your staff's
    paper, just in the last few months about this paper barriers
    issue, which again is one that on its face appears easy to
    target; look what the railroads did, they sold their branch
    lines to startup railroads, to regional railroads, and they put
    these gimmicks in there to make sure that they got all the
    traffic. Well, of course they did, Mr. Chairman. Because of the
    gimmick, that is the requirement that the new short line
    railroads, formerly part of the big railroad, didn't funnel the
    traffic that did come off of that line to the big railroad, it
    wouldn't make any sense for the big railroad to have done the
    transaction. It would have been better off, all things being
    equal, to have just abandoned the line or done something else
    with it. We're all glad it didn't happen. We're glad that there
    aren't a lot more rights of way in this country with 40-foot
    trees in the middle of them as opposed to a very robust
    regional and short line railroad industry that partners with
    the big railroads.
        I don't mean to get on my high horse here, but there are
    one or two other things that I just wanted to address that were
    mentioned by the other witnesses. Ms. Diehl has mentioned
    several times this proceeding that she and her company went
    through at Holly Hills, South Carolina--to serve their Holly
    Hills, South Carolina, facility to build, she says, their own
    railroad. What they wanted to build was a 2.3 mile line coming
    out of their property that is presently served by the CSX
    Transportation, a very large class one railroad to build to a
    line 2 miles away from the Norfolk Southern Railroad so they
    would get access to a second railroad. But their proposal was
    to build on the right of way of CSX. You guys are there. Sure
    it is your property. But there is enough room for all of us.
    And they filed an application with the STB to do that and at
    the same time an application for authority to cross CSX's line.
    And there is a provision in the commerce act that allows for
    that crossing under very specified, carefully controlled
    circumstances, not the least of which is you're not going to
    unduly burden the operation of the other railroad.
        After a full proceeding, full adjudication, the STB ruled
    against them and said that their application did not meet the
    standards of such a crossing. I think she said--and we can
    check the record--she referred to that as the STB rubber
    stamping of what the railroad wanted.
        Last Friday, a nondivided, unanimous panel of the United
    States Circuit Court of Appeals for the District of Columbia
    Circuit affirmed the STB decision, and I don't think anybody--
    and I'm sure not even Ms. Diehl--would suggest the D.C. Circuit
    was rubber stamping anything. They took a hard look at it and
    concluded that the agency's decision was absolutely appropriate
    and consistent with the statute.
        One last point if I may. Professor Bush said that--and he
    has a point here, but I fear he overstates it a bit. He said
    the Department of Justice will not devote resources to railroad
    mergers while the STB has exclusive jurisdiction. It is another
    way of saying, you know, we're the Justice Department; if we
    can't control things and play them by our rules, we're not
    going to play. Again, with all due respect, I know from
    personal experience it isn't true. The Department of Justice,
    again, pursuant to the Commerce Act, is a statutory--let me be
    more clear. The Attorney General of the United States and the
    Secretary of Transportation are statutory parties to all
    railroad merger cases. Their Departments participate. And in my
    experience, the Justice Department usually participates in a
    vigorous and very meaningful way.
        I told this story--we had a hearing on this bill on the
    Senate side, and I'm embarrassed to have to do it again. But
    one of the not so great moments of my legal career was in the
    1980's when I was one of the lawyers representing the proposal,
    the proponents of the merger of the Santa Fe Railway with the
    Southern Pacific Railway. And the Interstate Commerce
    Commission, at the urging of the Department of Justice and
    after 2 years of hearings, turned that merger down. It didn't
    happen. It was rejected as being anti-competitive. It would
    violate the antitrust laws. I think we all know that
    subsequently the Santa Fe Railway merged with the Burlington
    Northern Railroad, and the Southern Pacific Railroad later
    merged with the Union Pacific Railroad. So those railroads are
    somewhere else today if you will. They are part of a bigger
    system, but not the system that was proposed. And----
        Mr. Conyers. Darrell Issa, can you throw a little light on
    this discussion, please?
        Mr. Issa. I think that the Chairman just said that your
    time is up. He will do the same to me in due course. Look, I
    want to take a line of questioning because I think we have two
    things before us. We have Ms. Baldwin's legislation, which I
    have no doubt will depart this Committee after many, many
    opportunities to amend and to view it in light of the details
    you've brought up. So I'm not going to go back down that same
    line, although it was an interesting line. Let me go through
    just a couple of sort of businessmen questions.
        Ms. Diehl, I'll start with you. You make cement. You know,
    after unbottled water, I don't know of anything that is more of
    a commodity than cement. I said unbottled, because clearly
    bottled water you could afford to airfreight. Why aren't you
    operating at a seaport? Why is it you depend on rail, which is
    four times more expensive than water since you're in Michigan,
    and there is a body of water there?
        Ms. Diehl. That is a great question because--I mean--and
    some of our competitors, in fact, in Michigan, do operate on
    the water. Well, what we have to do, though, is--we are burning
    millions and millions of tons of raw materials every year. And
    so we locate our plants right at the site of our quarries,
    which make us very driven to places where we have good
    limestone quarries and reserves. Our parent company happened to
    find Dundee, Michigan, as the place in the U.S., but we have
    three or four of our facilities--I think maybe even five now
    that are on the water. But most of them--if we're going to get
    to people in Utah or the State of Colorado, unfortunately,
    there is not a lot of water there. And so we do have to move by
    rail. And not only Holcim, but over 50 percent of our industry
    moves their product by rail.
        Mr. Issa. And my reason for my question was, if you had
    water, a deep body of water at your front door, you wouldn't
    even be asking rail to bid on the job, would you?
        Ms. Diehl. Well, we believe that the water facet of the
    business certainly makes us more environmentally responsible.
    It is lower cost. It doesn't have the congestion. And our
    recent billion dollar plus investment is on the Mississippi
    River and----
        Mr. Issa. And I bring that point up because whether it is
    trucks or trains or other forms of transportation, ultimately
    this Committee should not be making those business decisions
    for you. And I ask that I think because that is one of my
    concerns, is that rail is cheaper than truck, and ships are
    cheaper per ton mile than rail. And some of those decisions we
    can't change even from the dais of this great Committee,
    although the Chairman I'm sure will try some day.
        Mr. Huval, you oversee a regulated utility; is that right?
        Mr. Bush. That's correct.
        Mr. Issa. And what are the profits of that regulated
    utility, and how does it compare in the delivery of electricity
    based on its cost base and return to its stockholders versus
    the average rail company?
        Mr. Huval. Well, we are a regulated utility by our city
    council. We are owned by the citizens of the City of Lafayette.
    So whatever dollars we make on providing electric service goes
    back to reinvesting into the system.
        Mr. Issa. So if you're inefficient, the taxpayers just pay
    more?
        Mr. Huval. If we're inefficient, the taxpayers either pay
    more or they would decide they don't want us to provide the
    service to them and decide for some other company to provide
    the service.
        Mr. Issa. Have you bid against private utilities and other
    utilities to just shut down your operation the way the City of
    Cleveland did and just run the power in through your power
    lines and not produce it? In other words----
        Mr. Huval. Yes, we have looked at the cost of trying to buy
    power from others and have found that generally we could
    provide more reliable power at a lower cost by generating it
    ourselves.
        Mr. Issa. Okay. Because again, you know, the rail company
    can't make you more competitive than your production facilities
    are. Mr. Bush, Professor Bush, a hypothetical question. If we
    modify this act to eliminate the rate system and make rail
    completely antitrust eligible and just got rid of surface
    transportation, would that meet your requirement or do you want
    the Surface Transportation Board to do a better job, and oh, by
    the way, you want these other entities to have access to a
    piece of the backside of rail? I'm not trying to lead you, but
    I am trying to ask if we're going to make rail, and maybe we
    will, less exempt or not exempt, why should we regulate them
    if, in fact, sans antitrust, they're entitled to whatever the
    market will bear?
        Mr. Bush. I'm thankful you raised that point, and I was
    going to object to the question as being leading.
        Mr. Issa. I would, too.
        Mr. Bush. I'm not in a position intellectually to determine
    whether or not the STB should exist. I am in a position
    intellectually to determine what are the effects of STB's
    existence on antitrust cases. And if you, in your hypothetical,
    remove the STB from existence, I would say that the initial
    effect is you already have monopoly power in existence because
    of the STB's actions. But for a challenge under the merger laws
    that have no statute of limitations really to undo those
    mergers which you can't really practically undo anyway, they
    are already a monopoly in many areas, and you can't--and the
    antitrust laws do not bring--take offense at monopolies. They
    take offense at monopolization. So I can charge as high a price
    if I want to if I'm a monopoly. So the removal of STB does not
    actually counteract a monopoly. It does however counteract
    three basic issues. If you remove the STB to three issues that
    would immediately be challengeable are the paper barriers,
    interlocking directorates and, as we've just talked about, the
    mergers that have taken place. Those are the three issues where
    you see the greatest tension there. And as Mr. Moates has
    discussed earlier, while--while the DOJ is certainly involved
    in the merger review before the STB, let's not make any mistake
    about this--this is an agency I used to work for, and in fact,
    I used to work for the Transportation, Energy and Agriculture
    section which used to do all the merger stuff for the Antitrust
    Division. And I will assure you that when you have a whole
    bunch of active mergers where we can actually bring a case, you
    would certainly not see a lot of resources wasted of trying to
    plea with the STB about challenging a merger, particularly when
    we don't have all----
        Mr. Issa. I got that point. Mr. Moates, lest you think that
    I'm just going to pick on the three of them and give you a
    pass, I've given you a lot of fodder here, and I'll give you a
    fair chance to maybe disagree with some of the positions. But
    let me look at it another way. I've done a little bit of the
    research, and regulated public utilities are doing pretty well,
    like electric companies, for example, relative to the rail. The
    rail is not competing effectively for, if you will, the first
    dollar of venture capital. So I have one question which is, if
    it is a monopoly, where is the money going? But I have a second
    one, and I'm going to--this is the only question exclusively
    for you in addition to responding. Ms. Diehl had an interesting
    point when trying to create a competition, even if it was on
    CSX's lines. And that was for 2\1/2\ miles, why am I a single
    source, why is it I can't essentially get some sort of relief
    on a deminutus cost; 2\1/2\ miles is not what rail--you know,
    you take the highest rail rate you can think of for 2\1/2\
    miles. It is not going to make the difference of having real
    competition beyond. So I can understand what their company
    tried to achieve. I can understand why any rail company would
    try to not give away their right of way for purposes of being
    in a competitive situation and perhaps making less money. I've
    been in that position in consumer electronics. It is a little
    different than Mr. Cannon. But very clearly I have a
    sensitivity to it. But this committee has this piece of
    legislation in front of it--or this Task Force has this piece
    of legislation, and the full committee will have legislation in
    front of it. But it also has the bigger issue of, in fact, is
    there a better way to deregulate rail. And my question to you
    is, if the CSX-type situation, if the Congress were to say that
    the right of ways belong to the American people because of
    their historic right and like the airways--airwaves and the
    airways that the radio frequency people operate in and the
    airlines operate in, we'll recognize that you have certain
    preferred rights but not exclusive right to landing rights or a
    particular frequency and so on. If Congress in order to see
    that there not be excess or windfall profits, if we can't do it
    through a regulatory scheme, what would you say to the fact
    that that 2\1/2\ miles from the dais appeared to be an
    unreasonable barrier to what would otherwise be ordinary
    competition? Not on behalf of a company that didn't want to
    have it happen, but from the dais, why shouldn't we have
    modified the law to say that the short distance--and I think it
    was Congresswoman Baldwin that also talked about--oh, no.
    Actually, it was you, Mr. Huval. They talked about 1,500 miles
    versus 20 miles. Why shouldn't we look at those short
    distances, relative to the whole amount, and make sure that
    they not dictate the overall price in opposition to what would
    otherwise be a competitive environment that would provide a
    lower price? So that is the question for you. The others you
    can answer, but that one does from the dais look like it flies
    in the face of fair competition.
        Mr. Moates. I'll settle for just that one.
        Mr. Issa. Wise move.
        Mr. Moates. That's a very good question and a difficult one
    in many ways. But I would start by saying--and I don't want to
    be argumentative--but unlike the airwaves, this is our
    property. We built those railroads. We have deeds. That is our
    track. That is our ballast. It is our billions of dollars of
    investment. I'm not sure what you mean, Congressman. If you
    mean----
        Mr. Issa. No, the history of right of ways and how they
    were gleaned by your forefathers' forefathers is one in which
    we're not granting such deals again, that many, many, many
    right of ways--and for that matter, it is true of all public
    utilities, not that you're a public utility. But I can't get
    two transmission lines to my house. I can't get two cables to
    my house. I can't get two telephone lines to my house because,
    although I have these three wires and they might be able to
    compete, the truth is each of them was granted a monopoly. And
    so this Committee and the Congress for years in other areas,
    such as telecommunications and so on, has tended to say that
    the access to these roads, these access--should not be
    unreasonably the exclusive right of somebody who has been given
    an exclusive right meaning it is understandable--nobody should
    get a right to your right of way without a fair return. But at
    the other end, we didn't grant an exclusive right to that. You
    don't have the right to exclude, if you will. And part of it is
    how you got the right of ways, no different than other
    utilities did in various communities. That's what I was getting
    to.
        Mr. Moates. Well, with all due respect, I think in many
    cases it was and is different. The--we're all thinking probably
    about the Pacific Railroad Act of Abraham Lincoln and how the
    Union Pacific and the Central Pacific were built and the land
    grants out west. And that has all been looked at very caefully
    by the way. In fact, I believe--I could stand to be corrected
    on this. I think the General Accounting Office did an analysis
    of rail rates within the last 10 years that included a look at
    the issue of how much of the return that the railroads are
    getting were attributable to land grants and how they got their
    right of ways. And my recollection is, they concluded at this
    point in time it was gone, whatever had been there is gone. The
    railroads, if you will, have rebuilt their systems many times,
    over, just--and in some parts of this country, we rebuild them
    every 3 or 4 or 5 years, like out of the Powder River Basin in
    Wyoming where there is such heavy, dense traffic. So my first
    concern would be--I would have to take a little issue with your
    premise, that it is not in my view analogous to the airwaves.
    It is our private property. If we're talking about a public
    taking for some public purpose, I recognize there are legal
    doctrines for that. But I would urge you not to think about
    going down that way. I would come back to Ms. Diehl's concerns
    and ask about a couple of things. Number one, surely when
    Holcim built that facility in Holly Hill--and I don't know the
    facts at all--but it had to be aware that it was building it on
    one railroad. It made a business decision for whatever reason.
    Number two, if it later concluded the business decision was a
    bad one and the railroad raised the rates--as far as I know, it
    has never filed a rate case at the STB to complain about those
    rates. And if--and to get a finding that they are unreasonably
    and unlawfully high under the Commerce Act, it has the legal
    ability to do that. Number three, this 2.3 miles here, 20 miles
    in the gentleman's case from Louisiana, part of what they refer
    to is this bottleneck. The STB has promulgated regulations for
    challenging bottleneck rates. The regulations are laid out in
    49 CFR. There is a decision back in the mid '90's that says
    what the standards are. They haven't been invoked. So I really
    would urge the Committee to take a hard look at those kind of
    issues before it concludes that there is no effective possible
    relief today.
        One answer might be, but we don't like the way the STB
    regulates rates. It defines all rates to be reasonable. Well,
    in a sense, I wish that were true because I try rate case, but
    it isn't true, number one. And number two, the standards by
    which the STB judges these cases have been to the court of
    appeals numerous times and have been affirmed and have been
    found to be lawful. So I think what we're hearing here is a
    much greater broader concern about the STB and the way it
    administers the Commerce Act as opposed to specific concerns
    about the antitrust exemptions.
        Mr. Conyers. Thank you very much. I'd like to ask the
    distinguished and thoughtful lady from Texas, Sheila Jackson
    Lee, to ask her questions of the witnesses and also sit in the
    Chair.
        Ms. Jackson Lee [presiding]. I yield to myself. Thank you
    very much, Mr. Issa. Let me thank the witnesses very much, and
    I thank Ms. Baldwin for her thoughtful legislation as well. And
    let me try to query some of the persons present and acknowledge
    Professor Bush from the University of Houston Law Center in my
    congressional district, one of the Nation's outstanding law
    schools. And we certainly thank you for your thoughtful
    presentation. I'm going to start with Ms. Diehl and see if I
    can understand your story from the perspective of the role that
    railroads play in impacting your bottom line. You are poised or
    in a posture where you're not near water, so you are using rail
    lines. And I imagine that these rail lines come right up to
    your property and right--connected to your product and you use
    these rail lines to get your product to market. Start me there.
    What happens that is the result of an unregulated or an
    antitrust exempt railroad system, what happens to your
    business?
        Ms. Diehl. Well, let me step back one step and say that we,
    in fact, to Mr. Moates' point, have had to actually construct
    our networks around where the railroads exist because we ship 5
    million or so tons of product just between our plants and our
    distribution facilities around this country.
        Ms. Jackson Lee. And you ship them by rail?
        Ms. Diehl. And we ship them by rail. We ship about 10
    million total but 5 million of that goes by rail. And so when
    we actually make our decision, we cannot really say, awe, we
    are going to go to some new facility and expand. We have to
    serve our customers and our consumers, and we have to make
    these decisions even when we understand that we are captive.
    And, in fact, we are captive, if you were to look at our origin
    and destination pairs, in nearly 98 percent of our facilities,
    so it is a false choice that Mr. Moates presents that somehow
    we can go somewhere else. We're bound by the raw materials that
    we utilize in our process which is primarily limestone and----
        Ms. Jackson Lee. So you've chosen to be near that product,
    to build your factory near that product?
        Ms. Diehl. That's correct.
        Ms. Jackson Lee. And therefore, the rail lines connect--do
    they connect to you, or were the rail lines there first?
        Ms. Diehl. Some of our facilities go back over 100 years.
    And so we have chosen facilities that are not only by our
    product, but we have had to, to connect----
        Ms. Jackson Lee. The rail lines would obviously draw to a
    place that would provide them with business?
        Ms. Diehl. That's correct.
        Ms. Jackson Lee. All right. So take me forward.
        Ms. Diehl. So in the case that Mr. Moates refers to, the
    Holly Hill case we were talking about in South Carolina----
        Ms. Jackson Lee. One of your business----
        Ms. Diehl. One of our business entities, a major plant. We
    just underwent a $250 million expansion of that facility to be
    able to serve the markets in the Carolinas and also in the
    south. When we did that, of course, we did it based on business
    decisions. But we knew from the beginning that there was this
    secret document that we are not aware of called the Carolinas
    plan that somehow prevented us from being able to access the
    Norfolk Southern. And hydraulic cement is actually an exempt
    product, and so we are, you know, not under the rate regulation
    scheme. And when we have done this, what we have chosen to do
    is to really be part of the solution. We've chosen to be part
    of the solution. And in the case--yes, Mr. Moates is right, the
    D.C. Circuit did deny our appeal. But in doing so, they didn't
    even get to the question of what fair compensation we----
        Ms. Jackson Lee. Let me--what I really want to get at--
    you're captive. You have a rail line that passes by the--98
    percent of your businesses. What actions are the rail lines
    taking that interfere with your business bottom line?
        Ms. Diehl. Well, there are a couple of things. First of
    all, we don't have the access to an alternative. We are really
    stuck. So in normal business dealings, if we don't like one
    coal supplier, we can go and talk to another one. In normal
    business dealings, we can go and shop to find the best possible
    rates and service, and we can have that leverage. The only
    leverage that we have relative to the railroads is only when
    there is another mode available. So, for example, in the
    southern corridor, we do have truck rates, but it is not really
    economical beyond 150 miles.
        Ms. Jackson Lee. So you can't negotiate a lower rate with
    the sole provider of the service? That is one.
        Ms. Diehl. Correct.
        Ms. Jackson Lee. That one railroad. What else?
        Ms. Diehl. The second thing is, in terms of getting the
    bottleneck issue taken care of where they won't quote the small
    part of the line, where they actually refuse to quote the small
    part of the entire route, that is another area where we could
    get competition where we can't actually go ahead and do it
    because of this bottleneck issue. One of the issues that----
        Ms. Jackson Lee. Jammed up on the rails, just trains just
    sitting there?
        Ms. Diehl. The bottleneck meaning when you have a really
    long route and a very small part of it can't be served by
    another railroad competitively, the main carrier won't even
    quote the rate separately for that small part saying, you know,
    we'll only quote for the whole rate. And that is an issue where
    Chairman Nottingham of the Surface Transportation Board said it
    was the most talked about issue.
        Ms. Jackson Lee. So another line cannot interject itself in
    the open area because the rail bids on the whole--the whole
    line?
        Ms. Diehl. We can't get a breakout rate for that small
    portion where we could actually get competition. That's
    correct.
        Ms. Jackson Lee. Anything else?
        Ms. Diehl. In terms of getting service, generally, we have
    been asked by the railroads to actually invest in their
    capital. So we at Holcim actually own 2,100 railcars where we
    have taken the burden of investing in capital equipment so that
    we can be served by the railroads. We have to invest in rail
    cars, and it costs us millions and millions of dollars to do
    that.
        Ms. Jackson Lee. With the bill that is before us, what
    relief would you get directly? The same rail line is there,
    meaning a certain track rather is there. How would you get
    relief?
        Ms. Diehl. I would say that it is a good place to start
    because the argument has been made, and I think it is a good
    one, that the railroads own their own highways. So, right now,
    we're in this situation where we only have these four class-one
    railroads moving 90 percent of the business in this country. So
    we have to get to a point where we can actually allow
    competition in any way possible through debottlenecking, and
    this bottleneck issue I talked about, looking at issues where
    if there is this agreement that prevents someone from, you
    know--or has these track agreements, that somehow we can
    challenge them in district court and have it be open and
    transparent for the shippers.
        Ms. Jackson Lee. So the idea of removing the exemption
    would put you in a better posture? Just the idea, just the
    concept of removing the exemption helps you?
        Ms. Diehl. I believe that the concept of having that
    exemption lifted puts us all on the field where we have to
    behave by a certain set of rules that are common to us. You
    can't be a monopoly and unregulated. I mean, they have both.
    They are both a monopoly, and they're unregulated. And so,
    because of that, there is no power that is really holding them
    accountable to making sure they are as competitive as they can
    be relative to rates and service.
        Ms. Jackson Lee. And again, I'm asking--so the removal of
    the exemption would help you?
        Ms. Diehl. Yes.
        Ms. Jackson Lee. Mr. Moates, tell me why a provision that
    allows private plaintiff actions is so detrimental. Two, I
    noticed there are 21 attorneys general that have joined in
    support of this legislation. I noticed that the State of Texas
    has not. If you understand the landscape there, explain to me
    why our attorney general, you think, is not involved. I do have
    an experience with the cement issue, and to Ms. Diehl, it may
    be very different from what you are speaking of, but my
    contractors, my builders, a year or two ago were incensed about
    their inability to get cement and the trains stuck on the
    tracks and not moving, and maybe you'll comment on that as to
    what my dilemma was, and we were just frustrated.
        But I ask Mr. Moates, one, about the private plaintiff
    action that is allowed by this legislation and why that would
    be, if you will, a posture that you'd not like to have us put
    the railroads in. And if you know any more details about the
    railroad structure in Texas, why would you think that the
    attorney general in Texas has not joined or made mention of
    their support for this particular legislation? Answer the first
    question first, please.
        Mr. Moates. I'll address but I can't answer it because I
    don't know the answer to that. I know that Professor Bush is
    from Texas. Possibly he may have insights that I don't have.
        Ms. Jackson Lee. He is going to get his chance.
        Mr. Moates. Yeah. I would answer if I knew. I honestly have
    no idea.
        Ms. Jackson Lee. That--the plaintiff provision, I assume
    you have some comment on that.
        Mr. Moates. Yes, and it was part of my prepared remarks.
    What it comes down to----
        Ms. Jackson Lee. It is always better to get it in the
    question.
        Mr. Moates. Yes, it is. Thank you very much. What it comes
    down to fundamentally is our very grave concern that the reason
    that Congress in its wisdom had prohibited private plaintiff
    actions when it drafted these acts initially still obtains, and
    that is that there is a very real possibility out here that if
    private injunctive actions were permitted as this legislation
    would allow, that we could see a real patchwork, a set of
    regulations and outcomes. The district court judge here decides
    one thing. The State court judge here decides something else.
    The STB decides a third thing, and it is the same railroad
    running through various judicial districts, maybe even
    different States, and it would have different kinds of, if you
    will, injunctive behavioral mandates applicable to it. You
    know, I'm not going to try to build a giant house of cards, but
    it doesn't take a lot of imagination, I would submit, to think
    that a judge here or a judge there may conclude that something
    about the local situation--well, I'll make up a hypothetical.
    What if a shipper brought an injunctive action and convinced a
    judge somewhere that its plant should be served twice a day by
    that railroad because the cement wasn't getting to people who
    wanted the cement. I'm just--I'm literally making this up. But
    suppose further that one of the reasons for their not serving
    the plant twice a day was there hadn't been sufficient volume
    for that, and the railroad had a limited number of crews, and
    it had other shippers that were also demanding service. At the
    end of the day, railroads are businesses, and they make
    decisions like all businessmen do about the best way to serve
    their customers. They're not there to anger their customers.
    They are there to provide the best service they can. If
    sometimes that results in someone not getting the service as
    promptly or in the manner that they would immediately like to
    see, do we want judges in private injunctive actions sort of
    telling the railroad that is the way it must be? If you have to
    go switch my plant twice a day, maybe you can only go to that
    plant down the line or in the next county or in the next State
    once a week. Again, I'm making this up. I don't know of
    anything----
        Ms. Jackson Lee. You're putting your best argument forward
    for the railroads, and you should be commended, and they should
    be grateful. Let me--as I go to Professor Bush, let me just
    make this one point. The point is that--of course, Mr. Issa
    made the comment that this bill will probably see a number of
    amending processes going forward. I understand there will be a
    hearing or a markup or it is moving toward Committee in the
    Senate. And I would argue that there are probably opportunities
    to put provisions in the bill that provide some guidance to the
    courts, some consistency through policies or language from the
    SBT because most Federal judges have the sense, if you will, of
    the catastrophic impact of their decisions, particularly as it
    relates to Congress. And so we might help them along with
    language that gives them structure to their decisions. We
    wouldn't want an injunction so deeply embedded and so long
    lasting that the entire commerce as handled by railroads would
    be shut down. That wouldn't be advantageous to us as well. So I
    would offer to say that we have some work on that. You raise a
    valid point, that we have some work to do on it. But I would
    counter and say that the Federal courts might be responsive to
    the fact that they couldn't shut down commerce either. Let me
    just go to Professor Bush to comment again on how interfering
    the bill would be to commerce. I believe you support the bill.
    And coming out of Texas, have you studied why our attorney
    general is not engaged or advocating or aware of this bill
    because we certainly have sort of the same situation that Ms.
    Diehl is talking about, where railroads come right up to
    businesses, tracks come right up to businesses, and they also
    come right up to neighborhoods. Maybe you might comment on the
    impact this bill would have on people living in neighborhoods
    where railroads are coming right up to their window. In the old
    days, they appreciated it because they had a house; they had no
    place else to live. Today, I think in my community, they are
    certainly raising concerns as to whether they continuously have
    to be subjected to railroads right outside their backyard.
    Speak to this bill in particular as it relates to Texas, if you
    have any knowledge of that and the last point about the
    antitrust, the provision of plaintiff lawsuits that this bill
    will provide.
        Mr. Bush. Thank you. They are both excellent questions. And
    also thank you for plugging the University of Houston Law
    Center, which I concur is an excellent law center.
        Ms. Jackson Lee. Any time.
        Mr. Bush. With respect to why Texas is not a signatory to
    this letter, I haven't the foggiest idea.
        Ms. Jackson Lee. And you'll go and look for me if you
    would.
        Ms. Diehl. I will.
        Ms. Jackson Lee. Investigate for me. Thank you.
        Mr. Bush. My notion is that there are certain States--and I
    can think of them off the top of my head--that are more active
    in legislative processes at the Federal level than others and
    also active in antitrust enforcement at higher levels than
    others. Many Sates, because of budget considerations, are--
    their antitrust laws are only enforced with respect to what is
    called naked price-fixing agreements to restrain trade, and
    that is the extent of their antitrust enforcement. But I will
    go, and I'll actually find out what the nature of Texas's
    antitrust enforcement is.
        Ms. Jackson Lee. Thank you.
        Mr. Bush. With respect to the private plaintiffs issue,
    there's a couple of points that need to be made. First of all,
    when we talk about private plaintiff actions in Federal
    antitrust law, we think in terms of this notion of treble
    damages, which is provided for in the Clayton Act. In reality,
    however--and this is something that was there for a reason--
    treble damages were thought to deter anti-competitive conduct
    because, of course single damages is just disgorgement. If I
    steal a computer, you know, I have a chance of getting caught,
    right, but if my only penalty is giving it back, then it is
    really not much of a deterrent. So we have treble damages in
    Federal antitrust law for that reason.
        However, studies have kind of shown--I'm thinking of Bob
    Lande's study out of--from the University of Baltimore with
    John Connor, that treble damages are rarely effectuated in
    Federal antitrust law. So what we're talking about is really
    not a threat of treble damages to the railroads but single
    damages. With respect to injunctive relief and this notion
    that, gee, one--one district court might actually have us paint
    our railcars red and the other district court will have us
    paint our railcars green, Federal courts are much more
    sensitive to regulatory agencies and regulated entities than
    that. And I've already mentioned two Supreme Court cases that--
    as evidence of that. For example, in part four of Trinko--of
    the Trinko case, Justice Scalia is very cautious about the use
    of antitrust law where there is regulation. I'm not as cautious
    as he is. But courts are much more savvy than that. And, in
    fact, there is a history in every other industry apart from
    railroads where there is a substantial degree of coordination
    across circuits, electric utilities, natural gas
    transportation, airlines, a whole host of other industries that
    were once regulated that are now--that have been subject to the
    antitrust laws. So we've not seen that kind of effect. So I
    think, unless--we can come up with hypothetical after
    hypothetical, but it has just not been the practice that we've
    seen that kind of effect.
        Ms. Jackson Lee. Let me thank you, Professor Bush. You
    might contemplate some more questions along those lines. As I
    have an opportunity, I want to pose that line of questioning
    again. Because Mr. Moates makes a point, and I want to be clear
    that we've looked at every aspect that would give us comfort
    that that would not be the result of the private lawsuits that
    would be allowed. So I thank you very much.
        And at this time, I'd like to recognize the distinguished
    gentleman from Virginia, Mr. Goodlatte for 5 minutes.
        Mr. Goodlatte. Thank you, Madam Chairman.
        And I find both the difficulty that the complainants have
    disturbing, but I'm also concerned about the solution that is
    proposed with this legislation.
        Mr. Moates, is it correct that as I've heard, that captive
    shippers are charged considerably more? I've heard 20 percent
    or more than those shippers who are not captive.
        Mr. Moates. Congressman, there is no single lever to apply
    to a captive shipper. Captive shippers is a group. And of
    course, that is sort of a pejorative sounding term. We all
    understand what we're talking about.
        Mr. Goodlatte. They only have one choice.
        Mr. Moates. If it is a shipper that only has one railroad
    serving its facility. As a group, they are definitely charged
    more, and they should be. And the STB and the ICC before it and
    the reviewing courts of appeals have all agreed they should be.
    Why? Because in the words of the economists, they are the most
    demand in elastic customers of the railroad. I don't mean to
    lecture, but a railroad is a very large system, has very large
    fixed and common costs that must be paid for by all of the
    users. Some of the users of the system don't need the railroad
    as much. The paradigm is the--you know, the UPS trailer going
    down on the flatcar. It doesn't take a whole lot to get that
    thing off the flatcar and onto the road. So, therefore, that
    kind of service is typically priced at a lower profit margin,
    if you will, than coal to an electric utility that absolutely
    has to have the railroad provide the service because economic
    theory and experience teaches and the STB's regulatory
    philosophy about these rates, which has been again affirmed by
    several courts of appeal, say you have to charge the so-called
    captive shipper more if the railroad is ever going to have a
    reasonable opportunity to earn what in the words of the statute
    are adequate revenues defined as sufficient capital to pay for
    its whole system.
        Mr. Goodlatte. Mr. Huval, is that how you pronounce your
    name? I'm sorry.
        Mr. Huval. That's correct, yes.
        Mr. Goodlatte. Would you want to respond to that since he
    just identified you as somebody who should pay more because of
    the inelasticity of your demand?
        Mr. Huval. I was glad to hear him admit it that that is
    indeed the case, and that's what we've known for some time on
    our end. You know, I guess our concern is that we may agree
    that perhaps that maybe there should be some additional costs
    applied to captive shippers. It is a matter of degree. If you
    take a look at how the Surface Transportation Board handles
    these sorts of rate cases, compare it to what happened in other
    regulated areas--for example, electric utility companies. The
    electric utility company that serves people who are served by
    monopoly, the electrical utilities, cannot decrease your rates
    without getting prior authority from their public service
    commission or from the city council In the case of the City of
    Lafayette or from some entity that oversees them, and it is
    supposed to be based on some type of cost base plus a rate of
    return for doing so. In the case of the Surface Transportation
    Board, the way it works is that the railroad company decides
    one morning they want to change the rate and charge the
    different rate, a much higher rate, that is up to the customers
    to have to appeal that to the Surface Transportation Board. And
    our burden of proof is to show that we could build our own
    railroad and provide service to ourselves cheaper than the
    railroad company can and that shows how lopsided----
        Mr. Goodlatte. Let me interrupt you there and just say I
    understand that. But quite frankly, when you go and appeal,
    you're basically asking for one or it might be one consumer
    rate or one business rate, but for the entire State of
    Virginia, in the case of utility companies serving most or all
    of that State, there are only a few questions to be raised
    there. But the railroad has to set a different fee for a whole
    array of different types of products that it hauls for a wide
    array of different types of equipment that it has to provide to
    haul those products for literally thousands of different
    customers. And to each time they have to do that, go to a
    commission and ask for them to meet and to consider a change
    would be--I hope you would agree--a very inflexible way to do
    that. It takes--your utility--I don't know about your utility.
    But in Virginia, it takes many months, sometimes a year or
    more, to get a rate change and go through the process of
    presenting that evidence. When you're talking about a--one
    change meaning a multimillion dollar change in revenue to the
    utility, I understand that. But when you're talking about one
    change meaning one of thousands of decisions that have to be
    made by the railroad each time, I'm not sure that type of
    system would work. And it would seem to me that the cure would
    be worse than the disease here.
        Mr. Huval. Well, I guess--then I'm not sure how--I don't
    know how the railroad company comes up with their rates. But
    obviously, they have some structure to decide what they're
    going to charge captive customers. I mean, they actually have a
    circular that indicates what the rate charges are going to be.
    So if there is more transparency in that process so people can
    understand how it works and what is in there, I think that
    would certainly be a lot of benefit. But right now----
        Mr. Goodlatte. I would be interested in knowing of a
    mechanism that worked efficiently to give a captive shipper
    some way of utilizing the antitrust laws to be able to do that.
    But having to go through a rate review process like that for
    each change, it sounded like where we came from, not where we
    ought to be headed to.
        Professor Bush, what do you believe is the relevant market
    for antitrust purposes here? Should we look at just railroads
    alone, or should we look at the competition that they face in
    some markets but don't face in others from trucking, from
    shipping--from water shipping and so on, pipelines.
        Mr. Bush. This will sound facetious, but the answer is yes.
    The answer is, it depends upon which consumer we're talking
    about and the types of alternatives available to that consumer.
    When we talk about relevant markets in antitrust, we talk about
    what used to be called a hypothetical monopolist test. And in
    that test, which is under the 1992 U.S. Department of Justice
    Federal Trade Commission of Horizontal Merger Guidelines, the
    question is, could a hypothetical monopolist raise the price by
    a small and significant nontransitory amount profitably? And
    this is to gauge whether or not consumers could actually seek
    alternatives. It is harder to do that in the railroad industry
    because I believe in many instances we are already at a
    monopoly price, if not a duopolistic price. So you have to
    think about what would be a competitive price. And if you
    raised the competitive price by a certain amount, would
    consumers switch? In many instances, it would not be that
    consumers would switch from railroads to other modes of
    transportation. For example, take Ms. Diehl's problem. She has
    an input that is located at a certain location, and she needs
    to transport that after it is processed to other locations.
    Where should I put my facility? If I put it near a seaport so
    that I can have alternative modes of transportation for the
    output market, I may still only have a monopoly on the input
    market. If I locate my plant where the input is, I will have--I
    may have a monopoly on the output market, but I won't have any
    issues on the input market. So it really depends on the
    consumer. Now, one other thing I was thinking about when
    listening to my colleagues on the panel----
        Mr. Goodlatte. Let me interrupt you and ask you, as you
    consider what Mr. Moates said to me, do you agree or disagree
    that in order for railroads to be profitable--and these are
    private, you know, stock corporations that have to report a
    profit and so on if they are going to stay in business--do you
    agree with him that they have to charge captive shippers more
    than they charge shippers who are in a competitive situation,
    or they will never make a profit because it will drive--the
    competition will drive them below what they can operate
    profitably at?
        Mr. Bush. I would be hesitant to buy that argument mostly
    because I don't see a lot of situations where we're talking
    about some sort of vibrant competition. A competitive market of
    two--for example, two railroad lines is not competitive, it is
    a duopoly. And therefore, any price that will be charged in
    that market will still be substantially above cost, and I don't
    necessarily buy the argument that we need to charge the captive
    shippers more. We can charge the captive shippers more because
    we have monopoly power over them. If you want to do something
    about that--which the antitrust laws, by the way, will not do
    anything about. If you remove the exemption, then the captive
    shippers will still be charged monopoly prices. Absent some
    other conduct, the antitrust laws can't get at that. The only
    way you can do something about that is to have some sort of
    requirement of an open access provision which is done in every
    single network industry. With electricity, with gas pipelines,
    we have this open access provision which does put some degree
    of regulation on top of a competitive framework.
        Mr. Goodlatte. Thank you.
        Madam Chairman, might I ask if Mr. Moates could--I know my
    time has expired--if he might be able to respond to the
    observations of Professor Bush?
        Ms. Jackson Lee. Mr. Moates, please respond.
        Mr. Moates. Thank you. And I'll be brief.
        But thank you, Congressman. With all due respect to
    Professor Bush, He is an antitrust professor. He is not a
    regulatory economist. It may be his view that what I described,
    which is called differential pricing or Ramsey pricing, has
    been adopted by the STB and the ICC before it as the regulatory
    standard for determining maximum reasonable coal rates, which
    is what we were talking about. The Third Circuit and the D.C.
    Circuit and other courts of appeals have affirmed that
    reasoning. So it isn't a matter of my making it an argument
    here today to see if anybody agrees with me. I'm telling you
    that is the law, and it is sound regulatory policy. And again,
    with all due respect, removing antitrust exemptions that deal
    with things like railroad mergers and whether district courts
    should defer to the doctrine of primary jurisdiction of the STB
    and the like has nothing to do with any of that. What we're
    talking about here is the way the STB administers its
    regulation of the maximum reasonable rail rates under the
    Commerce Act, not the antitrust laws. Thank you.
        Mr. Goodlatte. Thank you, Madam Chairman.
        Ms. Jackson Lee. I'm going to yield to Mr. Cannon, but I do
    want Professor Bush to clarify his background.
        Mr. Bush. I do have a Ph.D. In economics that is based upon
    antitrust law and regulation. Thank you.
        Ms. Jackson Lee. I yield now to the gentleman from Utah,
    Mr. Cannon, for 5 minutes.
        Mr. Cannon. Thank you. Professor Bush, do you also have a
    law degree, or do you teach at the law school with----
        Mr. Bush. I also have a law degree, sir.
        Mr. Cannon. Great. Thank you. So--and you have worked in
    the area of antitrust for a long time; is that not true?
        Mr. Bush. I've worked in--my mike keeps going on and off. I
    worked in the Department of Justice for 3 years. I've also done
    substantial consulting on antitrust matters for quite longer
    than that.
        Mr. Cannon. Thank you. I began earlier by suggesting a
    similar interest of Ms. Diehl and my personal background. But
    let me just say, this is a very complex area, and I haven't
    jumped to my conclusions on this bill yet. But, Mr. Moates, Mr.
    Huval recently--or just a little while ago--stated that what he
    thought the burden of proof was and that was essentially you
    could show that you could build your own railroad for less. Do
    you want to respond to what the burden of proof is on the
    shipper?
        Mr. Moates. Thank you, Congressman.
        Yes. I think what the gentleman was referring to is what is
    known as the stand-alone cost test, which is how the STB
    implements this differential pricing standard I was just
    talking about.
        As a somewhat oversimplified but a not wholly inaccurate
    way of describing the test, what the STB has developed in this
    rate standard--again, I keep seeing this multiple times in
    reviewing United States Courts of Appeals--is a determination
    that if you can show that to replicate the rail facilities
    needed to serve you at a cost that is less than that generated
    or incurred by the railroad, the real railroad in the real
    world to provide you the services that are supported by the
    rate that is being challenged, if you can call it that, then
    you win. You prevail under what is called the stand-alone cost
    test.
        It is really sort of a surrogate for, and the rubric is
    what is the least cost, most efficient alternative method of
    transportation to the railroad you are complaining about, their
    rate, that could conceivably be invented? It is pretty
    conceivable. I mean, in doing these analyses, the STB has
    declared that we are not going to consider barriers to entry.
        Something we talked about earlier, the land grants, take
    them out. You can't consider that. A railroad spent a lot of
    money to put a grade crossing in on this line. It can't be
    considered. This is a barrier to entry, because the railroad
    didn't have that cost when it was first built. Environmental
    mitigation. Take the cost out.
        It is a complicated test. It is controversial. The Congress
    has had multiple hearings with the STB to talk about it. The
    Board has refined its test over the years; and, in fact, as we
    speak, there is yet another appeal to the D.C. Circuit pending,
    dealing with the most recent change by the Board on those
    rules. The shippers appealed, and the railroads appealed. So
    everybody has concerns.
        May I have just one moment of privilege? I misspoke
    earlier, and Ms. Diehl corrected me, and she is right, and I
    want the record to be clear. I gave an answer about the things
    she could do to deal with her rate other than to build on to
    the CSX right-of-way in Holly Hill. I said one thing she could
    do is file a rate case. She absolutely correctly reminded me,
    because I had forgotten, hydraulic cement is a commodity that
    the ICC a long time ago exempted from rate regulation. Now
    there is a procedure where they can move to have that exemption
    revoked as to them on a demonstration of need, essentially, and
    then file a rate case. But she is correct, and I don't like to
    misspeak.
        Mr. Cannon. You have cleansed your conscience, cleansed the
    record, even though we are getting awfully technical on some of
    these issues.
        Ms. Diehl or Mr. Huval or Professor Bush, would you like to
    respond to the statement by Mr. Moates about what the standard
    is? I think Mr. Moates has laid out the illegal standard. Do
    you want to respond either to whether or not this was a correct
    statement of the law or whether that makes sense in today's
    world?
        Mr. Huval. I am not going to dispute whether it is a
    correct interpretation of the law. But I will say that, from
    the standpoint of how typical regulation of monopolies take
    place, it is 180 degrees out of synch with that. If you look at
    every type of oversight of an entity that has a monopoly,
    whether it is a real monopoly or de facto monopoly, that it is
    done based on some process that starts from the bottom up
    versus having a customer have to stand up and react to it.
        And can you imagine if a person wasn't happy with their
    electric rates, if the electric company just said, look, build
    your own generator if you can do it cheaper than we can? It is
    really an observed concept, from our perspective; and all it
    does is it results in very few appeals being filed because the
    burden of proof is so heavily upon the entity that is suffering
    the rate impact.
        Mr. Cannon. Thank you. I think the fact that we have so few
    rate appeals makes your statement self-evident.
        I would like to make a few comments. Seems to me the
    suggestion by Mr. Moates--and if you would like to respond, you
    may--but I would like to comment that the private litigation as
    a function of different courts coming to different conclusions,
    I think Mr. Bush answered that well. I don't think that is a
    significant problem to this legislation.
        I was intrigued by Mr. Issa's questioning about creating--I
    am not sure how to characterize it--but having some kind of, I
    think he said, people of the United States owning the rights-
    of-way. I suppose that would come with some kind of
    compensation or property rights.
        But we have learned a lot in America. In 1977, we had a
    large power plant in Utah that entered in 30-year contracts for
    coal. Those contracts were for $85-a-ton coal. I have a ball
    asking my constituents what the price of coal was in 2007, and
    they think maybe $300, because that would have been inflation,
    but the price is down in the range, I think, based on Ms.
    Baldwin's testimony, about $15 a ton. So $30 million for her
    local utility and $75 million for transportation.
        It is not the same, but a telephone, mobile phone or an
    Internet access uses a common line much more effectively, much
    more efficiently than our current railroads do. It would seem
    to me if we had more competitive pressure we might find that
    there are better ways to make money. And not to suggest that we
    ought to nationalize our railroads, but it seems to me that in
    this debate we need to be thinking about efficiencies.
        It does cost a lot of money, Mr. Moates, a lot to build and
    maintain a railroad. That is, I don't think, a matter at issue.
    The question is, can we do the system much more efficiently?
    Because we are suffering for want of cement worldwide. The rest
    of the world is growing so rapidly. Maybe with the housing
    problem, we will drop a little bit off on that. But commercial
    building is still very strong here and worldwide, and cement is
    in short supply.
        And for a company like Ms. Diehl's to decide to invest a
    large amount of money in a new plant, her investors have to
    decide whether or not it is worth living with the high cost of
    real transportation; and, in fact, that marginal increment to
    your business represented by a new cement plant ought to be
    something you should want to induce instead of be the barrier
    for. Recognizing also, at the same time, there is a huge
    increase in demand from rail service, it is going to take a lot
    more capital in the future.
        It occurs to my mind that we need to be thinking about how
    we can be more efficient, how we make the market more
    efficient, how, regardless of the intransigence and the
    determination and the historical precedent on how we do rail
    fees, that we may want to take a different look at that.
        So I don't think I have co-sponsored this bill yet, but I
    certainly think we need to pursue the consideration of this.
    This is one of the really great, perhaps, opportunities in our
    economy for transformation change and maybe we could even say
    improvement, since change doesn't always equal improvement.
        So I want to thank you.
        Thank you, Madam Chairman, for indulging me; and I yield
    back
        Ms. Jackson Lee. I thank the gentleman from Utah.
        I have a few more questions that I would like to offer,
    sort of the probative practical questions.
        Let me first go to Mr. Huval, who I did not include in my
    earlier round of questions, and just get your take on your
    presence here today as a regulated industry--is that my
    understanding--and, therefore, speak to the unfairness.
        You are a utility and--electricity?
        Mr. Huval. That is correct.
        Ms. Jackson Lee. So you are not engaged in the business of
    railroad, but you are here today to talk about this concept.
    Tell me why--other than being invited, and we thank you for
    being here.
        Mr. Huval. Thank you. Thank you for the opportunity.
        Certainly our issue is pretty simple. We have 1,500 miles
    of railroad to get to our plant. Only 20 miles is owned by one
    company. We could have competition on 1,480 miles, but the
    Surface Transportation Board's rule and the railroad companies
    don't want to let that happen.
        So our perspective is that, where there is competition, we
    should be able to enjoy the benefits of competition. When there
    is no competition, then there should be some kind of regulated
    price, some set price for where there is no competition. It is
    as simple as that.
        Our customers are paying more because of that. This is not
    an issue where we are taking it on the chin. Our customers,
    every one of them, whether residential or commercial customers,
    are having to pay that extra cost.
        Ms. Jackson Lee. Educate me in what you are shipping on the
    railroads.
        Mr. Huval. We are shipping coal from Wyoming to Louisiana.
        Ms. Jackson Lee. To provide the utility through coal.
        Mr. Huval. Providing for our coal-fired power plant, that
    is correct.
        Ms. Jackson Lee. You have the ability to utilize physically
    a wide array of railroads, wide array of different railroad
    companies.
        Mr. Huval. We have an opportunity to have two railroad
    companies. There are two railroads that will start in Wyoming.
    They will come down to the center of Louisiana. Our plant is
    located 20 miles away from that second railroad, and that is
    where our issue is.
        Ms. Jackson Lee. The STB blocks you from utilizing that
    second railroad?
        Mr. Huval. That is correct.
        Ms. Jackson Lee. So this is a plain and simple bottom line
    for you, which is--say, for example, STB issued a regulation
    that would cure your problem. That would satisfy your economic
    question.
        Mr. Huval. I think generally that would be the case, yes.
    The bottom line is, where we have competition, we ought to
    enjoy the benefit of competition. When there is not
    competition, there ought to be some rate set based on some
    reasonable circumstance.
        Ms. Jackson Lee. And STB has not given you that relief.
        Mr. Huval. That's correct.
        Mr. Cannon. Would the Chair yield to follow up on that
    question?
        Ms. Jackson Lee. I'd be happy to yield.
        Mr. Cannon. Are you saying the STB won't let you use the
    second line, or that the cost you would be charge by the second
    line plus the 20 miles of truck transportation are prohibitive?
        Mr. Huval. What the STB is telling us is they will not
    force the company that owns the entire line to give us a quote
    only for the 20 miles. So without a quote for the 20 miles,
    that puts us--we have to have that 20 miles to get to our
    plant. So it forces us to have to buy service all the way back
    to the Wyoming plant, the Wyoming site for the coal.
        The second thing the STB does is it won't force a second
    company. Not only not force a second company, the second
    company won't even make an offer to provide service, assuming
    that we would build an alternate line. If you want to say,
    suppose we build the last 20 miles to connect up to the second
    rail company, the second rail company's position is that we
    won't even give you a price until you build. So you can't make
    a business decision, if it makes sense to do that or not.
        Mr. Cannon. Thank you, Madam Chair. Yield back.
        Ms. Jackson Lee. Mr. Huval, is that a staff answer that you
    have gotten, or you have actually been before the Board and
    gotten a decision?
        Mr. Huval. No, it has not been before the Board. It is
    taking the Board's previous decisions and making requests as we
    have to the rail companies to consider either of those options
    and not getting a response.
        Ms. Jackson Lee. But did you get an oral response from the
    staff saying, because of these previous decisions, we are not
    giving you any latitude?
        Mr. Huval. To appeal one of these things takes--I forget
    what the number is--like $188,000 to make an appeal. It doesn't
    make sense for us to do that when we know what the track record
    has been.
        Ms. Jackson Lee. So you have accepted previous
    interpretations to suggest to you that you wouldn't find
    relief, and you are just going on. And you have tried to sort
    of make way on your own negotiations, and you have not been
    successful.
        Mr. Huval. That is correct. There is really no more
    negotiations anymore in that regime.
        Mr. Goodlatte. Madam Chairman, I wonder if I might follow
    up on that.
        Ms. Jackson Lee. I would be happy to yield to the gentleman
    from Virginia.
        Mr. Goodlatte. I thank the Chairwoman.
        I would like to ask Mr. Moates, the gentleman makes a point
    regarding the fact that they are a captive shipper, and they
    have only one alternative to choose from, and they are getting
    charged what they think is a very excessive rate. What is their
    alternative? What do they do? Do you think that the STB is
    evenhanded in these decisions, or do you think they are biased
    in favor of the railroad? What is your take?
        I can kind of guess at your answer, but what is your
    response to him? Is it just go to the STB and lump it?
        Mr. Cannon. Would the gentleman yield so I can sort of
    clarify the question?
        Ms. Jackson Lee. I would be happy to yield to the
    gentleman, reclaiming my time. And I assume Mr. Goodlatte is
    not finished. So let me yield to you and then back to Mr.
    Goodlatte.
        Mr. Cannon. Suppose Mr. Huval invests $100 million to build
    20 miles of line. Now he has access. But he is now no longer a
    captive user. Does that mean that we should change the STB
    standard? In other words, does he have to buy $100 million--or
    whatever it would take him to build that 20 miles--so he can
    now not be a captive user and escape from your paradigm of
    return that is most heavily--the burden put on the captive
    user?
        Mr. Goodlatte. It is a little different question, but maybe
    he can answer both.
        Mr. Moates. I will try.
        First, let's make sure we have the actual facts in mind.
    There are these two large western railroads, as Mr. Huval said,
    that serve the Powder River Basin. It is going to his plant in
    Lafayette, Louisiana. What he is saying is one of those big
    railroads has tracks that go all the way, they are the ones
    that serve him, and they charge him a rate that he doesn't
    like.
        Point number one, he is not hydraulic cement. His rates are
    regulated. He can file a rate complaint with the STB and
    complain about that. He talked about the filing fee of being
    $185,000 or whatever. The STB in the last month, pursuant to a
    mandate from this Congress, you passed legislation that
    required the Board to reduce those filing fees dramatically.
    They are now only a couple hundred dollars.
        Back to the economic situation. The other railroad, I will
    take his word for it, is about 20 miles away in Alexandria,
    Louisiana. You asked could he truck it. I don't know that that
    was explored. Maybe that is too expensive. Maybe there is too
    much volume.
        Mr. Goodlatte. I didn't ask that. What I asked was, leaving
    aside this specific example, he spoke in general terms at the
    outset of his comments about how, when you are a captive
    shipper, you don't have any recourse other than to a board that
    he thinks the weight of evidence is overwhelmingly siding with
    the railroads. Is that your understanding or do you have a
    rebuttal to that?
        Mr. Moates. There are two things that are available. The
    first is, file the maximum rate case against the railroad that
    goes all the way. If the rate is actually unreasonably high
    under the Act, and they can demonstrate that, the STB can and
    will order a prescription of a rate, new rate, and can and will
    order rate reparations damages.
        Mr. Goodlatte. How often is that done, and how often does
    that result in a lower rate?
        Mr. Moates. I am not going to remember the number. There
    are a not insignificant number of coal rate cases, but they are
    not filed every week. Maybe a couple a year, and they are
    mainly against the western railroads. I have defended a couple
    against the eastern railroads filed by a couple of eastern
    utilities a few years ago. Those are the cases I can speak to.
        I have been involved in one or two western cases, and in
    the eastern cases we prevailed. The rates were held to be not
    unreasonably high. So no relief to the eastern utilities.
        Some of the western utilities have gotten rate relief. They
    have had rate prescriptions, and they have had reparations
    ordered, not in all cases. I am not going to speak for the
    shippers. But, generally, the shipper community is unhappy with
    the amount of relief it has gotten from these STB rate cases.
        I am a railroad lawyer, and I represent the railroad
    industry. I think the Board has done, all things considered, a
    reasonable job of administering the statute. I disagree with
    the Board ardently sometimes on some of these cases, and I
    think it has made some determinations of this stand-alone cost
    test that I think are wrong, and in some cases we have appealed
    those to the courts of appeals. It is an evolving area, to a
    degree.
        But the other question, he says, can I make the other
    railroad--can I make the railroad that serves me give the other
    railroad a rate so we can connect that 20 miles? What he means
    is the second railroad would bring it all the way to Alexandria
    and then it would turn it over to the railroad that brings him
    the coal today for that last 20 miles.
        This procedure there is to invoke the so-called bottleneck
    rate standards that I referred to a couple of times that have
    not been used since their implementation. Shippers take the
    position that the standard to get relief is too high. What is
    the standard? A demonstration that the railroad that is
    bringing the coal all the way today is either engaging in anti-
    competitive conduct or is abusing its market power.
        Those are the concepts we have been grappling with. That is
    available to them. They can file such a cause.
        I hope that is responsive.
        Ms. Jackson Lee. I thank the gentleman.
        Let me pursue the line of questioning that I started
    pursuing, and I appreciate Mr. Goodlatte and Mr. Cannon
    expanding on it.
        Let me emphasize, without polling all the Members of this
    Committee, that you believe there are some individuals who
    remain open-minded or remain quizzical, and ultimately this
    will be before the full Committee. The bill will.
        So, Mr. Moates, you have partly made the statement about
    the STB. In fact, you mentioned successes in your western cases
    and eastern cases. I might make note of the point that you seem
    to be able to work that system. I would argue or ask the
    question why you couldn't work the western district and the
    eastern district in a variety of Federal courts, because you
    work with different decisions through the STB.
        Though I know it is regulatory, I just wanted to raise the
    question, not necessarily asking for an answer on that. Let me
    move to the question I want. But I do want to note that you get
    different decisions in different regions. So we could probably
    resolve whether or not courts would be disruptive, because
    courts usually are very sensitive in being disruptive in
    commerce.
        But I want to go to the point of the STB saying--and I
    perceive your point is that the railroads--and you are doing a
    great job for them--should not be subject to regulation by both
    the STB and be subject to the antitrust laws as provided for by
    the Sherman and Clayton Acts. You state that the STBs provide
    that there should be balance and sustainable competition, but
    two of our witnesses have spoken about this concept of captive
    railway situation.
        I have mentioned the plight of those needing cement in
    Texas and being held captive because they have not been able to
    get the product in. In fact, I have had contractors, builders
    standing in line on rail cars to move for their cement to get
    there. So what then is the relief? The STB does not seem to be
    adequate. What then is the relief to this concept of a captive
    railway situation?
        Mr. Moates. I will see if I can do the best I can with
    that. I am not an expert on moving cement.
        Ms. Jackson Lee. I don't want you to talk about cement. It
    could be coal. I just want you to speak to the captive railway
    situation. We are, in essence, blocked in getting our product
    to market.
        Mr. Moates. That sounds to me as though there is a service
    issue. I am not sure what time frame we are talking about or
    what the real problem is. The western railroads in the mid to
    late 1990's had some very well-publicized problems with
    service, some of them resulting in the wake of two very large
    mergers. Those issues have been resolved.
        Actually, as full as the system is today in the sense of
    the capacity being heavily used, I think the service metrics--
    and I think the shippers agree with this--the service metrics
    across the rail industry are really quite good now. The
    railroads, most of them are running what they call scheduled
    railroads. That isn't exactly like United Airlines landing
    within 2 minutes of what it claims it will, although it doesn't
    do that all the time either, but at least has a schedule like
    that.
        The railroads aren't, of course, quite that scheduled but
    much more than they used to be. So, in this case, the Texas
    cement shippers should have a much better idea.
        Ms. Jackson Lee. But if the STB is a regulatory authority
    and they don't do anything to enhance competition, what relief
    do the shippers have?
        Mr. Moates. I am trying to respond to the cement movement
    in the context of competition. I am not sure it is a
    competitive problem. I think it may be more of an issue of
    service issues and capacity issues and how many trains can we
    get through the choke point at a given point in time and whose
    train goes first and are the cement cars on there or are the
    coal cars on there. I am not sure that is a competitive
    problem.
        If we are talking about expanding the capacity, that is
    something the industry and its customers want to do, the
    industry is doing it, but it is expensive, and it is going to
    take time, and we have to be able to earn our cost to capital,
    or something close to it, to be able to do that. So I bring my
    point back.
        If I may make one comment on your initial observation. I
    said--and perhaps I misled you, and I apologize if I did. I
    said there have been coal rate cases in the east, generally in
    the west, generally more in the west, but they have all been
    decided by one decision maker, the STB, under the same
    standards. That is these coal rate standards to stand-alone
    cost tests.
        So I don't think that would be quite the same as the
    possibility of judges in different parts of the country perhaps
    approaching issues using different standards and different
    lenses, if you will, in terms of how they look at a problem.
        Ms. Jackson Lee. Thank you for clarifying that.
        I guess, as a lawyer, I would argue in Federal courts they
    would certainly have the STB decisions to be guided by. We do
    know that Federal courts most often try not to be catastrophic
    in their interference with commerce, or I think there would be
    some balance, but I respect your interpretation.
        Let me just conclude with Professor Bush and take the
    questions that I have just posed to Mr. Moates, who took a very
    healthy stab at it on behalf of his position. But what are the
    checks and balances in the system if the STB fails to preserve
    or enhance competition? I am putting it to someone who I think
    favors the bill. Are there any checks and balances on the STB?
    If not, where does that take us? Is it a service problem that
    Mr. Moates has spoken to?
        Mr. Bush. I will state that I am generally in favor of the
    bill, with caveats, because there are certainly some issues
    that the bill does not address, particularly the implied
    immunity, primary jurisdiction issues that I raised before.
        Right now, what we have is I think the worst of all
    possible worlds. We have a business that is subject neither to
    competition policy nor regulation. And keep in mind that----
        Ms. Jackson Lee. Does STB foster competition? Do you think
    so?
        Mr. Bush. Nor was it designed to foster competition. It was
    designed originally to foster consolidation. And it has done
    that superbly.
        The antitrust immunities in general--and I have studied all
    of them, actually--are usually not with some economic rationale
    or justification. In most instances, it is some sort of special
    interest legislation that transfers wealth from consumers such
    as shippers to others, for example, railroads. So we should not
    take the position that the antitrust immunity that, just
    because it is there, should always remain there.
        Is there a service problem? Yes, there is a service
    problem. The question is, what is the origin of the service
    problem? Recall, those of you who are old enough, AT&T prior to
    its deregulation. You could have any phone you wanted so long
    as it was black. It could be tossed from a 20-story building,
    cheap phone cord that tangled, and you had to lease it. It was
    only after the destruction or divestiture of AT&T that you
    started getting some sort of competition and innovation in the
    industry. You kind of see the same things in a different way in
    the electric utility industry where you started implementing
    competition in electric generation under the auspices of energy
    conservation in 1978.
        If we did something similar to the railroads, one wonders
    what kinds of service problems we would have, if any. Because
    competition is the impetus for the creation of service. You do
    not have any sort of incentive to provide service if you are a
    monopoly it. It only exists if there is some level of
    competition.
        Ms. Jackson Lee. Let me thank the witnesses for a very
    thoughtful presentation and discussion. In fact, I know that my
    colleagues and myself would be eager for this to continue into
    the evening. We, unfortunately, will be called soon to the
    floor of the House. But it has been an important, broad
    discussion and potential roadmap as we move forward.
        Professor Bush, I would appreciate on behalf of the
    Committee if you would expand on your statement, where you talk
    maybe more expansively about your thoughts about the
    legislation before us, particularly those elements that maybe
    you shortened in your remark. Maybe you would have a document
    that you have case law to provide in writing.
        Mr. Moates, if there are some additional thoughts after
    thinking about it, we welcome you having some submissions, as
    we do the other witnesses in clarifying your market. That might
    be very helpful to us. I know the Committee would welcome this
    thoughtful analysis.
        This will continue to pose a series of questions. This is
    an antitrust task force. I want to thank Chairman Conyers for
    his leadership on this issue and Ranking Member Smith. We take
    our jurisdiction very seriously; and we welcome, again, your
    additional thoughts.
        This hearing is now adjourned.
        [Whereupon, at 6:30 p.m., the Task Force was adjourned.]
                                A P P E N D I X

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