[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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