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




 
                       FULL COMMITTEE HEARING ON
                       RAIL TRANSPORTATION ACCESS
                        FOR SMALL BUSINESSES AND
                             FAMILY FARMERS

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 1, 2008

                               __________

                          Serial Number 110-90

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               VERN BUCHANAN, Florida, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida

                                 ______

            Subcommittee on Rural and Urban Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DAVID DAVIS, Tennessee
HANK JOHNSON, Georgia

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              MARY FALLIN, Oklahoma, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES

Cleavinger, Mr. David, President, National Association of Wheat 
  Growers, Wildorado, TX.........................................     3
Keith, Mr. Kendell, President, National Grain and Feed 
  Association....................................................     5
Hotchkiss, Ms. Nelle P., Senior Vice President of Corporate 
  Relations, North Carolina Electric Membership Corporation, 
  Raleigh, NC, On behalf of the National Rural Electric 
  Cooperative Association........................................     6
Weber, Mr. Dan, Chairman, Ceres Solutions, Terra Haute, IN, On 
  behalf of the Agricultural Retailers Association...............     8

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    22
Chabot, Hon. Steve...............................................    24
Altmire, Hon. Jason..............................................    25
Cleavinger, Mr. David, President, National Association of Wheat 
  Growers, Wildorado, TX.........................................    26
Keith, Mr. Kendell, President, National Grain and Feed 
  Association....................................................    35
Hotchkiss, Ms. Nelle P., Senior Vice President of Corporate 
  Relations, North Carolina Electric Membership Corporation, 
  Raleigh, NC, On behalf of the National Rural Electric 
  Cooperative Association........................................    40
Weber, Mr. Dan, Chairman, Ceres Solutions, Terra Haute, IN, On 
  behalf of the Agricultural Retailers Association...............    47

                                  (v)

  


                     FULL COMMITTEE HEARING ON RAIL
                    TRANSPORTATION ACCESS FOR SMALL
                     BUSINESSES AND FAMILY FARMERS

                              ----------                              


                         Thursday, May 1, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
1539 Longworth House Office Building, Hon. Nydia Velaquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velaquez, Grijalva, Cuellar, 
Altmire, Clarke, Ellsworth, Sestak, Chabot, Bartlett, Akin, and 
Fallin.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman  Velaquez. Good morning. I now call this hearing 
to discuss rail transportation access for small businesses and 
family farmers.
    Small businesses and family farmers in rural America depend 
on a reliable transportation system to move their goods. In an 
increasingly global economy, rural companies are just as likely 
to ship their products across the world as across the country. 
A key component in helping these businesses achieve success is 
access to an affordable rail system. Whether exporting wheat to 
Asia or shipping fertilizer to a small town in Vienna, rural 
communities have a critical stake in quality rail 
transportation. In many instances, it is the only option for 
sending and receiving goods.
    Today, we will hear from small businesses and their 
representatives who have been confronted with both rising rail 
transportation rates and declining service. The Committee will 
examine how this problem is affecting entrepreneurs and discuss 
ways to address it. Most small businesses do not negotiate 
contracts with Union Pacific. However, they certainly 
experience the impact of rail rates which have gone up by as 
much as 80 percent in the last three years.
    The rising cost of rail affects nearly all commercial 
activity in rural areas. Family farmers, in particular, are 
taking the biggest hit. The payments that wheat and corn 
growers ultimately receive are directly tied to rail costs. 
With up to one third of wheat costs attributable to 
transportation expenses, the situation cannot be ignored. This 
is especially true when one considers growing concerns of 
arising food prices.
    Rail rates have a ripple effect that extend beyond 
commodities and throughout the entire rural economy. Local 
retailers feel the impact of rising rail transport rates when 
they purchase fertilizer, seed, and other equipment. When these 
businesses cannot move and receive their products, it impairs 
the expansion of the local economy.
    Today, increasing costs of rail transportation is also 
having an enormous impact on affordable energy supplies. Coal 
is the primary source for electric generation in rural areas 
and it is shipped across the country on the railways. 
Unreliable and expensive rail transportation would only lead to 
higher energy prices.
    With small businesses already seeing skyrocketing fuel 
costs, this transportation problem is creating another major 
challenge. At a time when there is major focus in rural areas 
with the development of renewable fuels, there must be 
infrastructure in place to support this growth. We need to 
welcome new opportunities for expanding our rural economies and 
assure valuable shipping options are available at competitive 
rates.
    Clearly, the federal policy framework must be examined to 
ensure adequate competition. That is especially true when you 
consider the laws on the books regulating rail transportation 
were establish at a point in our history when railroads were 
not financially viable. The nation's rural businesses have 
shown an ability to adopt and change with the development of 
new technologies, but to keep their products competitive in the 
domestic and global markets, transportation is key. In most 
instances that means rail transportation. If such service is 
not available at a fair price, American farmers and small 
businesses will lose market share. Foreign competitors will 
more easily sell their products to U.S. customers and our rural 
economy will suffer.
    I look forward to hearing about possible reforms to ensure 
the continued growth of small businesses in rural America. I 
appreciate the witnesses coming here today and I thank you for 
taking time off your busy schedule.
    I yield to the Ranking Member, Mr. Chabot, for his opening 
statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr.  Chabot. Thank you very much, Madam Chair, and thank 
you for holding this hearing today on rail transportation 
access for small businesses and family farmers. I also want to 
thank our witnesses for being here and taking the time out of 
their busy schedules to share their views with us on this 
important issue.
    Railroads have played a crucial rule in the history and 
development of our nation and are one of the most important 
contributors to our economy today. They were critical to the 
development of the American West, and have had some part in 
almost all stages of our nation's development. Whether it was 
shipping steel used to build the Golden Gate Bridge, which was 
fabricated in New Jersey, or transporting the Indiana limestone 
and granite which composes the facade of the Empire State 
Building, railroads have played a key role in creating the face 
of America and maintaining the health of our economy.
    Currently, more than 40 percent of our nation's freight is 
moved by rail. Many goods Americans depend on and use every day 
would never even make it into our homes if small businesses and 
family farmers could not ship them via rail. For example, coal 
which is used to produce nearly half of the nation's 
electricity that lights American homes is shipped by railroads. 
In 2006, there were 561 freight railroads operating in America 
with an aggregate revenue of $54 billion.
    Railroads, which contribute billions of dollars each year 
to the economy through wages and purchases, retirement benefits 
and taxes are vital to keeping America competitive in the world 
market. Freight railroads employed 186,000 people in 2006 and 
were one of America's highest paying industries. America's 
small businesses and family farm depends on the rail system to 
safely and efficiently ship their goods to the American 
consumer.
    In the past few years, many of these family farmers and 
small businesses have voiced concern over the rising cost of 
access to these railroads. It is in the best interest of all 
Americans that we make sure small businesses and family farmers 
continue to have access to affordable transport on American 
rail.
    Once again I want to thank Chairwoman Velaquez for holding 
this hearing and look forward to hearing testimony from all the 
witnesses here before us this morning and I yield back the 
balance of my time.

    Chairwoman  Velaquez. Thank you. It's my pleasure to 
introduce Mr. David Cleavinger. Mr. Cleavinger is a wheat 
grower from Wildorado, Texas and currently serves as president 
of the National Association of Wheat Growers. His production 
has included wheat, corn, grain, sorghum, seed milo, sorghum 
silage, corn and sugar beets, along with stock or cattle. NAWG 
works as a team of state wheat grower organizations to benefit 
the wheat industry at state and national levels.
    Gentlemen, you are welcome, and you will have five minutes 
for your testimony.

    STATEMENT OF MR. DAVID CLEAVINGER, PRESIDENT, NATIONAL 
         ASSOCIATION OF WHEAT GROWERS, WILDORADO, TEXAS

    Mr.  Cleavinger. Madam Chairman and Members of the 
Committee, my name is David Cleavinger and I am a wheat grower 
from Wildorado, Texas. I currently serve as the president of 
the National Association of Wheat Growers and I'm very pleased 
to be here today to discuss an issue of great importance to the 
wheat growers that I represent.
    Wheat growers know that an effective railroad system is 
necessary for the success of the wheat industry. By and large, 
wheat country is centered away from our waterways and ocean 
ports, leaving us primarily dependent on railroads to move our 
products to waterway terminals and export facilities.
    As the GAO found in a recent study, rates in captive areas 
can well be above the threshold of reasonableness established 
under the law and utilized the Surface Transportation Board. 
Full operating costs to most railroads are about 100 to 140 
percent of variable costs. Rates in excess of 180 percent are 
considered above the threshold of unreasonableness by the STB 
and are therefore challengeable. In some captive wheat growing 
areas the rates have run as high as 300 to 400 percent of 
variable cost.
    Farmers are not in a position to pass their freight costs 
along to consumers. In fact, we pay freight on fertilizer and 
other supplies we purchase, and pay freight on the wheat that 
we ship out. Further complicating our position, these farmers 
are not the actual customers of the railroads that haul their 
grain. The grain companies buy the producers' wheat and other 
grains, and order the freight from the railroad, passing the 
cost directly to the farmer. This is an important point, 
because of the rights to appeal to the Surface Transportation 
Board are granted to the actual rail customers which are the 
grain companies.
    NAWG and other agriculture industry leaders have requested 
oversight by the Surface Transportation Board, as we believe it 
is within their charter to do so. But very little progress has 
been made. The STB's proposed new revisions to simplify 
guidelines are highly restrictive and would make challenge 
unreasonable rates virtually impossible for all but a few 
facilities shipping small volumes of grain. This frustration 
with a lack of regulatory oversight has led us to help develop 
and support together with other captive shippers, including the 
Alliance for Rail Competition, legislation that would 
strengthen the rules of the game for growers. We believe parts 
of HR 2125 and Senate Bill 953 would put us in a position to be 
treated as a customer should be treated.
    H.R. 2125 contains language addressing areas of inadequate 
competition, common carrier obligation, bottlenecks, and 
terminal access.
    It would also develop a system of arbitration of rate and 
service issues. While we support these bills we also know that 
these issues will take time to move through the congressional 
process, so paying heed to the old saying ``if you're not at 
the table, then you are on the menu'', we have begun a process 
of problem resolution with one of the four major Class 1 
railroads. Corn, soy, and wheat growers and other interests, 
along with representatives from BNSF Railways, have formed the 
Ag Business Rail Council. Our first meeting was in February, 
and I will have to say we were treated like customers, rather 
than as a third-party who has been picking up the freight.
    The agenda included discussion of railcar allocation, 
harvest congestion, differential pricing, revenue to variable 
cost ratios, and what constitutes a ``reasonable freight 
rate.'' some of these topics will require considerable homework 
on our part, but we are determined to find solutions for our 
growers. This is a forum to educate the railroad about the 
needs of producers. It will also enhance our understanding of 
the rail freight business, with the ultimate goal of finding 
mutually beneficial solutions.
    Wheat industry leaders have been working on rail rate and 
service issues for over 30 years. We believe the complexity of 
this issue has been a deterrent for many of the parties 
including Congress. It would be easy to throw in the towel and 
say ``we're tired of messing with this'', but we can't do that. 
Opportunities exist to increase service to American 
agriculture, such as the new STB accountability, HR 2125, and 
coalitions like the Ag Rail Business Council.
    We understand that new railroads are not going to be built, 
so competition in that sense is unrealistic. What we can 
accomplish is accountability on all sides, to find good service 
at reasonable rates.
    Madam Chairman, thank you again for allowing me to be here 
today and I am here to answer any questions that you have.
    [The prepared statement of Mr. Cleavinger may be found in 
the Appendix on page 26.]

    Chairwoman  Velaquez. Thank you, Mr. Cleavinger.
    Our next witness is Dr. Kendell Keith. Dr. Keith is 
president of the National Grain and Feed Association. He has 
served for 21 years as NGFA president in charge of the overall 
direction and has 900 company members in the grain, feed, and 
processing sectors. The NGFA, founded in 1896, is a broad-
based, nonprofit trade association that represents and provides 
services for grain feed, and grain-related commercial 
businesses.
    Welcome.

 STATEMENT OF MR. KENDELL KEITH, PRESIDENT, NATIONAL GRAIN AND 
                        FEED ASSOCIATION

    Mr.  Keith. Chairwoman Velaquez, Ranking Member Chabot, and 
Members of the Committee. I am Kendell Keith, president of 
NGFA. We do have 900 member companies most of which are small 
businesses throughout the U.S.
    One of the paramount concerns for U.S. agriculture and 
small business in rural communities is that overall rail 
shipping capacity in the U.S. is not meeting the growth and 
demand. While the cost of rail service is a matter of concern, 
more significant is whether there will continue to be 
predictable service at all in some locations. For that reason, 
NGFA is supporting legislation that would provide a tax credit 
for investments in rail infrastructure.
    Railroads are rationing rail transport capacity in today's 
marketplace, often through demarketing strategies that price 
rail service above economic levels. At the same time, some of 
the railroads are investing in new infrastructure to serve the 
growing demand for transportation. But a serious question is 
will the railroads invest in new infrastructure at the rate 
that would be desirable by consumers and the customer base of 
the railroads? We think legislation would help in this regard.
    In the grain-based agricultural industry, railroads have 
been encouraging grain elevators and grain users for a number 
of years to build the infrastructure to ship longer trains. 
This also has caused us increasingly concentration of grain 
handling at fewer loading points which means farmers have fewer 
points to deliver grain to. So the farm-to-market distance is 
increasing on average, leading to more traffic on highways and 
local road systems. The added cost of highway repairs, of 
course, is borne by the taxpayer.
    With the constrained rail capacity, we have seen higher 
freight rates in grain in the last three years. Revenue per 
grain rail car has increased between 27 and 52 percent for the 
major U.S. rail carriers. I might add that that includes both 
fuel surcharges as well as the rates on the cars themselves.
    Part of this rate increase is related to the fuel surcharge 
issue, but mostly it is tied to increased demand for 
transportation. We're not judging whether this level of rate 
change is justifiable or reasonable, but we do think that such 
rate increases suggest the need to monitor the situation and 
consider how increasing rail rates may affect rural communities 
in small business. And the situation of higher rail rates 
underscores the need to review whether there are effective 
tools available to shippers to deal with unreasonable rail 
rates.
    The Surface Transportation Board is in the process of 
making some changes to federal rules that govern the challenge 
of rail rates. But it's been 13 years since the U.S. Congress 
passed the Interstate Commerce Commission Termination Act which 
specifically directed the STB to provide a way for shippers to 
challenge rates in so-called small rate cases. In that 13 
years, no small rate case has been completed which provides 
ample evidence that the STB for most of that period has been 
unresponsive to the needs of rail customers in the clear 
direction given by the U.S. Congress.
    There are three cases now pending under STB's new small 
rate case guidelines. We believe the new STB rules will also 
prove to be of little use to shippers. This is because the 
agency chose to cap the potential benefits of such rate 
challenges at such a low level that it will discourage shippers 
from bringing cases. We think this approach by the STB will 
fail to achieve the market discipline on rates intended by 
Congress and unfortunately also fail to improve the business 
relationship between railroads and their customer. Thank you 
again, and we look forward to questions.
    [The prepared statement of Dr. Keith may be found in the 
Appendix on page 35.]

    Chairwoman  Velaquez. Thank you, Dr. Keith.
    Our next witness is Ms. Nelle P. Hotchkiss. Ms. Hotchkiss 
is Senior Vice President of Corporate Relations for the North 
Carolina Electric Membership Corporation. She's testifying on 
behalf of the National Rural Electric Cooperative Association. 
NRECA was founded in 1942 and is the national organization 
representing cooperative electric utilities. Welcome.

 STATEMENT OF MS. NELLE P. HOTCHKISS, SENIOR VICE PRESIDENT OF 
    CORPORATE RELATIONS, NORTH CAROLINA ELECTRIC MEMBERSHIP 
CORPORATION, RALEIGH, NORTH CAROLINA, ON BEHALF OF THE NATIONAL 
             RURAL ELECTRIC COOPERATIVE ASSOCIATION

    Ms.  Hotchkiss. Madame Chairwoman, Ranking Member Cabot, 
and Members of the Committee: My name is Nelle Hotchkiss and I 
am the Senior Vice President of Corporate Relations for the 
North Carolina Electric Membership Corporation. Our 
membershipconsists of 26 electric cooperatives serving over 2.5 
million consumers in 93 counties of the 100 counties in North 
Carolina. I appreciate the opportunity to speak before you 
today about the issue of rail transportation and the importance 
of adequate rail competition in my state and across this 
nation.
    As member-owned, not-for-profit organizations the 
obligation of rural electric cooperatives is to provide a 
reliable supply of electricity to all consumers in our service 
areas at affordable rates. We take our obligation to serve very 
seriously. The personal and economic health of our members, our 
communities, and our nation depends on it.
    Electric Cooperatives are dependent on the railroads for 
the transportation and delivery of coal. Simply put, we do not 
believe that America's four major railroads are meeting our 
transportation needs in the most efficient and dependable 
manner. Electric cooperatives and other rail customers do not 
receive reliable rail service at reasonablerates. The Surface 
Transportation Board or STB, the government agency charged with 
the regulatory responsibility for the nation's railroads, is 
not addressing crucial rail customer rate and service problems.
    Some utilities are being forced to buy more expensive 
foreign coal because they can't rely on railroad deliveries 
from the Powder River Basin, the richest source of low sulfur 
coal in the world.
    Electric cooperative consumers in North Carolina and around 
the country have experienced deteriorating rail service and 
sharply increased rates. For example, from 2002 to 2007, North 
Carolina's electric cooperatives experienced a 45 percent 
increase in the coal freight component of our energy cost 
which, in turn, was reflected in the wholesale rate of power. 
That increase calculates to over $8.7 million in higher costs 
during this time frame than have been borne by our end 
customers: residents, small farmers, and small businesses. 
Service problems and high rail costs occur primarily in areas 
where shippers are captive meaning they have no transportation 
option but to use a single railroad.
    Captive rail customers are shippers who must rely on those 
single railroads to deliver their products. These customers 
usually move bulk commodities such as coal, grain or lumber, or 
certain materials that, due to size or characteristics, cannot 
be moved on our nation's highways.
    Historically, 20 to 30 percent of the nation's rail 
movements have been ``captive'', with many of these movements 
covering rural America. Today, in a capacity-constrained rail 
system, a majority of rail movements may lack competition.
    The nation's antitrust laws are meant to protect consumers 
and the overall public interest from anti-competitive behavior 
by businesses. The railroads are exempt from antitrust laws and 
do not play by the same rules. The railroads' antitrust 
exemptions are antiquated, have no public policy justification, 
and allow anticompetitive conduct. The resulting lack of 
competition, together with ineffectiveness of the STB, have 
allowed freight railroads to reap huge profits with no market 
consequences or legal accountability for their unreliable 
service or exorbitant rates and fees.
    There are solutions however. The railroads must be covered 
by the nation's antitrust laws, just like other industries and 
the STB must be more responsive to the public interest and 
concerns of rail customers. Legislative activity in the 110th 
Congress has moved to give America the railroad system it needs 
for the 21st century, and to correct current railroad abuses.
    Madam Chairwoman, thank you for conducting today's hearing. 
We look forward to working with this Committee and all other 
stakeholders to resolve these critical rail issues in an 
objective and constructive manner. And I'd be happy to take 
questions.
    [The prepared statement of Ms. Hotchkiss may be found in 
the Appendix on page 40.]

    Chairwoman  Velaquez. Thank you, Ms. Hotchkiss.
    And now I recognize Mr. Ellsworth for the purpose of 
introducing our next witness.

    Mr.  Ellsworth. Thank you, Madam Chairwoman. It's an honor 
for me to introduce one of my constituents from the great State 
of Indiana. Before I do that though I'd like to take just a 
second. Mr. Weber and I were talking before the hearing and he 
inquired about the Farm Bill. Since a lot of farmers and 
ranchers are small business owners, I think it concerns this 
Committee that we do pass a Farm Bill. It does come out of 
conference and the President has signed that. We talk about 
stimulus packages. If our farmers and ranchers knew what their 
future held, that might be the stimulus package that we need. 
So I hope that we can get that out and I'm cautiously 
optimistic that we have a deal cut and that the President signs 
that and we can deliver good news to you.
    With that, it's my honor to introduce, like I said, a 
constituent, someone who hails from the great State of Indiana, 
Mr. Dan Weber. Mr. Weber is chairman of the Agriculture 
Retailers' Association, otherwise known as ARA. He currently is 
vice president of agronomy with Ceres Solutions in Terre Haute, 
Indiana, which is also in my District. The company serves more 
than a dozen counties with agronomic inputs, energy, grain 
marketing and a wide variety of other products and services for 
producers and consumers.
    ARA serves agriculture retail and distribution businesses 
by ensuring a profitable business environment for members.
    Mr. Weber, thank you for coming and the floor is yours.

 STATEMENT OF MR. DAN WEBER, CHAIRMAN, CERES SOLUTIONS, TERRA 
 HAUTE, IN, ON BEHALF OF THE AGRICULTURAL RETAILERS ASSOCIATION

    Mr.  Weber. Thank you for the introduction, Congressman 
Ellsworth.
    Madam Chairwoman and Members of the Committee, thank you 
for inviting me to testify today on behalf of the Agriculture 
Retailers Association concerning rail transportation access for 
small business and family farmers. I'm Dan Weber, Vice 
President of Agronomy, with Ceres Solutions LLP, a cooperative 
selling crop inputs and application services in the State of 
Indiana. I am also Chair of the Board of Directors for the ARA 
which represents a significant majority of the nation's ag 
retailers and is located in Washington, D.C.
    Ceres Solutions is an agricultural cooperative owned by 
farmers, operating 26 agronomy retail locations serving 5,000 
agricultural producers in Western Indiana with crop inputs and 
application services. I began my role in the agronomy division 
of Ceres Solutions in February 2007. My background includes 34 
years in agriculture retail sales and management, wholesale 
fertilizer, crop chemicals and seed distribution in the Midwest 
Region. Ceres Solutions' key agronomy products marketed to 
farmers are nitrogen, phosphates and potash.
    Rail services played a critical role in the distribution of 
the necessary crop inputs in the past and was a reasonable cost 
effective transport alternative. In my job I oversee the 
procurement and receipt of about 125,000 tons of fertilizer 
with 40,000 tons of that being rail delivered into our 
facilities.
    In doing business with the railroads for the past three and 
a half decades, I have experienced a deterioration in the 
service to the agriculture industry. In the 1960s, the industry 
moved away from animal manures and bag fertilizer to bulk and 
spray applied fertilizer. These new fertilizer retail 
facilities were built next to the railroads. Railroad service 
to these facilities was acceptable through the '70s, but 
beginning in the '80s, the railroad began to abandon service to 
many of the smaller communities and business operations. By the 
1990s, most of their service to the smaller communities was 
lost.
    Now, the railroad is giving preference to the unit car 
receivers. Unless you are a large distribution center 
fertilizers are typically shipped to your retail operations in 
small quantities because of the short side tracks and the 
storage limitations at our retail operations.
    As an example, one railroad just announced the rates of the 
phosphate shipments from Florida which will increase in June by 
10 percent for single car shipments while unit train shipment 
of 65 cars will increase six percent and unit train shipments 
of 85 or more cars will increase only 3 percent.
    An example of excessive fees is the railroad's practice of 
arbitrarily invoicing for services. If one of our retail 
locations received less than 25 freight cars per year, we 
received an invoice of $6,000 for an annual side track 
connection charge. Most of our facilities in the country 
average six cars annually.
    Furthermore, the railroad has changed their tariffs without 
giving receivers adequate warning. This practice can result in 
huge investment losses for our business that have expanded or 
changed their business model based on the expected tariff or 
car credits that were in place and we thought would continue. 
We've learned to get their promises in writing.
    One difficulty in dealing with the railroad fees and 
tariffs is that small business owner has little recourse to 
challenge the railroad's decisions because of the cost of 
arbitration and the long length of time the process requires. 
In my opinion, the railroads increased poor service is caused 
by: one, the railroads' unwillingness to carry toxic-by-
inhalation chemicals which is like our anhydrous ammonia; two, 
because of their monopoly status on our industry, and third, 
the lack of oversight by the Surface Transportation Board.
    ARA has a number of recommendations in the written 
testimony, but a few are: increase the transparency in the 
charges and rates, reform the STB to make it more accountable 
and responsive and review the railroads' antitrust exemption 
status.
    Please remember that for every rail car that is eliminated, 
that we receive fertilizer in, we add four semi-trucks to the 
road to move that same volume.
    Thank you, Madam Chairman for allowing me to testify and I 
will be willing to answer any questions the Committee may have.
    [The prepared statement of Mr. Weber may be found in the 
Appendix on page 47.]

    Chairwoman  Velaquez. Thank you, Mr. Weber.
    Mr. Cleavinger, I would like to address my first question 
to you. With rising food prices, there has been a great deal of 
discussion as to what is driving grain and corn prices. Do you 
believe increasing rail costs are part of the reason we are 
seeing higher commodity prices?
    Mr.  Cleavinger. No. Rail costs have nothing to do with the 
price of the commodity paid by on the top side. We've seen a 
reduction of $4 per bush in wheat in the last two months, yet 
we haven't seen a reduction in bread costs. So the commodity 
prices have nothing to do with--on the top side have nothing to 
do. They have to do with what the farmer actually gets for his 
wheat, but not what the top side.
    Chairwoman  Velaquez. Can you explain to us how do rates, 
rail rates generally affect the bottom line for farmers?
    Mr.  Cleavinger. What we are paid for wheat comes off, the 
freight cost comes off our per bushel wheat. Like where I am, 
we take the futures market and subtract the freight costs to 
get what I'm paid for a bushel of wheat. So that's how an off-
rate cost comes off that, including rail, trucking, whatever it 
takes to get it to the market.
    Chairwoman  Velaquez. Dr. Keith, I understand you believe 
that the Surface Transportation Board, STB, is not being 
proactive in their case management. What are some examples of 
delivery problems your shippers are facing?
    Mr.  Keith. Well, one of the most common complaints we get 
is when facilities will order a train to be delivered for 
loading. There are restrictions on how long you have to load. 
Generally, it's 15 hours or you start to incur penalties. And 
so you try to plan for the arrival of the train and you try to 
have labor available, but it is still very unpredictable when 
some train will be delivered and sometimes they're delivered on 
Friday night at midnight and those kinds of things, so it 
forces the labor situation at your facility to be more 
difficult to manage.
    We're also getting some complaints about slow approval of 
new switches to gain access to rail service, in particular, in 
new ethanol facilities where they're trying to ship both the 
ethanol product as well as the DBG's byproduct.
    Chairwoman  Velaquez. Can you talk to us as to how STB 
handles those types of complaints?
    Mr.  Keith. The STB has a formal complaint process that you 
have to go through if you want to lay out arguments. They've 
also got an informal complaint process that you can go to a 
particular office and sometimes get quick resolution. On things 
like this, though that have a significant impact on a business, 
generally, you go through a formal complaint process and those 
formal complaints can take a long time. That's part of the 
problem. There was a complaint that was on storage of tank cars 
that lasted five years from start to finish. And it just 
shouldn't take that long.
    We think the STB is starting to improve in some areas in 
trying to expedite some, but when it takes five years of 
litigation, it gets costly. It sours relationships with your 
carrier and we should be able to do better than that.
    Chairwoman  Velaquez. Ms. Hotchkiss, one of the problems 
you mentioned is how the lack of rail car access creates 
unpredictable or limited coal shipments. Has this problem 
become so severe that rural electric co-ops are seeking 
alternatives to coal?
    Ms.  Hotchkiss. Madam Chairwoman, this problem--I wish we 
could do it that quickly or it's like taking off your coat and 
putting on another coat. When you build a power plant it's 
built specifically to burn a particular fuel, in this case 
they're impacted by this problem, our coal plants. So to seek 
an alternative fuel for those particular plants is really not 
an option. So what we try to do is when inventories get too 
low, sometimes we have to buy on-the-spot market which is very 
expensive and that flows right now to consumers in costs. Or we 
have to import coal from foreign sources and ultimately it is 
cheaper to do that which to me just doesn't make sense when we 
are so rich in that particular mineral resource.
    Chairwoman  Velaquez. So you don't see in the foreseeable 
future rural electrical co-ops start shifting towards 
alternative sources of fuel?
    Ms.  Hotchkiss. Well, I think if this particular problem 
isn't solved, as well as other challenges that we face in the 
electric industry that perhaps aren't specific to this 
particular problem, we will be looking at other sources, for 
instance, natural gas, perhaps. But then you have capacity 
problems and pipeline issues that they have to be built out for 
that. So there isn't a really good solution. Our view is that 
these exorbitant costs and poor service and poor resolution 
process at the STB needs to be resolved so we can bring a 
better value to our consumer. Because right now that's not 
bringing a value to the consumer.
    Chairwoman  Velaquez. Thank you. Mr. Weber, I heard when 
you say that you have been involved for almost 34 years or 35 
years. Can you compare service and rates from when you began 
your business with today? What are some of the changes you have 
seen?
    Mr.  Weber. Madam Chairwoman, I think the major change is 
the shift from the local yard having the control to position 
our cars versus going to a regional control. The local no 
longer makes that decision. The cars may be sitting in their 
yard, but they're taking direction from a regional distribution 
control.
    I think that's the major--before we could talk to the local 
and tell them what we expected as far as needing a car in so 
many days or where we were at in movement. Now we don't have--
we don't have access to that regional guy, they don't answer 
the phones. You get recordings instead of people.
    Chairwoman  Velaquez. With utilization of new technology, 
is rail service better today than it was 35 years ago?
    Mr.  Weber. No. Do you want me to expand on that? I don't 
think so. I think we have more difficulty getting, specially 
the two and three-car shipments than we ever have. But I 
understand the economics. The railroad wants to push for the 
multiple cars, 65-car plus units, 85 cars. Much more economical 
for them, but that's not what our facilities were built around. 
Most of them were built around two and three car receiving 
locations in the '60s and '70s and okay it has not improved. 
It's deteriorated.
    Chairwoman  Velaquez. Mr. Chabot?
    Mr.  Chabot. Thank you, Madam Chair. Mr. Cleavinger, I'll 
start with you, if I can.
    As you had mentioned the rates of reasonableness for 
shipping have been established by law and are to be used by the 
STB to evaluate rail rates. The current threshold for the rate 
of unreasonableness is 180 percent of variable costs. You also 
stated that some rates in wheat growing areas are as high as 
300 to 400 percent above the variable costs. So just a couple 
of questions. Could you sort of explain what is meant by 
variable cost, what goes into that and how are shippers in 
these areas handling the situation right now and how do they 
make ends meet and what attempts have been made to remedy the 
situation?
    Mr.  Cleavinger. Well, the AJL Studies were done in 2006, 
so a lot of this information was from that time period. That's 
the most recent data we've had. And I stated that some, they 
have been as high as 300 to 400 percent. With some negotiations 
we've had with the railroads, they are working. We've had one 
huge problem in Montana in that state as far as rates go and 
they are working to get those rates down and I think a lot of 
it has--is a direct result of our going to the railroads and 
through this process of bringing legislation forward. Had this 
legislation not been brought forward, there was no incentive to 
address rate issues. So all those variable costs are passed on 
to the producer and also was stated a lot of these efficiency 
that the railroad has become more efficient with shuttle 
trains, it has been at the expense of the producer because 
instead of delivering our wheat to a local facility, we've had 
to truck it further distances to get to a shuttle facility and 
putting more costs on producers. So I think that's an important 
point to make.
    The railroad has become more efficient and rates have gone 
down on shuttle facilities, but it's larger shipments and it 
has put more costs on the producers.
    Mr.  Chabot. Thank you very much. Dr. Keith, if I could go 
to you next. You had mentioned one of the costs that have to be 
dealt with is the fuel surcharges which have been going up.
    Mr.  Keith. Yes.
    Mr.  Chabot. And I assume that that's related to the 
overall additional increases in energy that consumers are 
dealing with at the gas pump or that our truckers are dealing 
with with diesel. It's costing us much more. And my question 
would be getting to what we, as Congress, or what we as a 
nation ought to be doing about that, would you agree that one 
thing, one of the problems is that we're too dependent on 
foreign sources of energy, we need to go after what we have 
accessible to us and that two of those places that we do have 
access to that we've put off limits are up in Alaska and ANWR 
and in the Outer Continental Shelf. It's a debate we have 
around here all the time and I don't know if you'd like to 
weigh into it.
    Mr.  Keith. Yes. Dependence on foreign oil is a national 
problem and we think it's time to get down to business on 
solving the problem in practical ways. We don't think that the 
railroads are out of line by wanting to recoup some of their 
increased costs. It is the cost of doing business. However, 
some of the formulas that they had at one stage were extremely 
biased toward their revenue bottom line and those things, we 
think have been largely corrected.
    We're a little disappointed that the STB did not require 
the railroads to provide more information about how they 
compute surcharges across modes because you cannot compare the 
surcharges applied to grain and compare that whether it's fair 
compared to coal or intermodal. You simply don't have the data. 
That was another STB ruling that we were a little disappointed 
in.
    Mr.  Chabot. Thank you. Ms. Hotchkiss, you had mentioned in 
your written testimony that rail transportation is often 
unreliable and that this contributes to the loss of customers. 
In your past experiences what have the railroads done that make 
them unreliable? Do you have any particular instances?
    Ms.  Hotchkiss. What we have experienced nationally is not 
dissimilar to what the other gentlemen here on this panel have 
discussed. Time frames that they were supposed to have 
delivery, we had one instance where a major railroad put an 
embargo, basically just stopped delivery for a while and 
there's Catch-22s in that because of certain contractual 
situations. You can't go to another hauler. And so you're 
forced perhaps to truck it in and has already been mentioned, 
if you have to truck it in, you're looking at four or five 
trucks on the road as opposed to a rail car.
    We had tried to meet the railroads in a way of actually 
paying for the building out of infrastructure when we get into 
the short line situation. We have paid literally paid for the 
rail cars. We've tried to get the lighter rail cars that 
they're asking us and the longer ones for aluminum. So 
basically, we feel like we keep trying to help and we keep 
trying to be a good customer and we're not necessarily getting 
the same response back. And that has just continually been an 
issue. And so when we run into low inventory situations, we 
have to find alternative ways to either get the coal there or 
we have to buy on-the-spot market. We just don't have it. Those 
are things that wreak havoc on our systems.
    Mr.  Chabot. Thank you very much. I should probably note 
you mentioned Catch-22. I heard this morning on NPR that I 
believe today is Joseph Heller's--would be his birthday who 
wrote the book Catch-22 that that comes from. I knew everyone 
would appreciate me bringing that to their attention.
    Finally, Mr. Weber, what type of special handling do the 
goods that you ship require and are they more difficult to 
handle and I assume that has something to do with the increased 
cost as well. Is that correct?
    Mr.  Weber. Somewhat. The rail cars they use for coal is 
the same we use for fertilizer. The same rail cars they use for 
grain are the same ones we use for fertilizer. They just sweep 
them out, clean them and they'll load grain going back to the 
receivers.
    The only one that has a special use is the pressurized 
vessels for anhydrous ammonia. That is a specific use vessel 
and that adds more cost. The railroad has been asking for a 
waiver where they wouldn't be held accountable if there was an 
accident on the rail system and anhydrous was released. They 
were wanting to cap their liability there. If they do that, 
they need to do the same for truckers. We have to employ four 
more trucks for every rail car we don't receive. Right now, I 
have real difficulty finding enough trucks when that rail car 
doesn't show up because there's the difficulty in the drivers--
availability of drivers and the NH3 bottles themselves that we 
need for transport.
    Mr.  Chabot. Thank you. And just to make sure I have this 
clear. The general breakdown would be about--if you had four 
tractor-trailer trucks, you're talking about the trucks that 
would equal, in general, one railroad car?
    Mr.  Weber. Right.
    Mr.  Chabot. Thank you very much. I yield back, Madam 
Chair.
    Chairwoman  Velaquez. Mr. Sestak.
    Mr.  Sestak. Thank you, Madam Chairwoman. I think I only 
have three questions. I apologize I wasn't here and if you 
mentioned this, I hope you don't mind my asking again.
    The question I have is mainline railroads began to rent out 
or do other short line railroads. There were certain agreements 
made, you might say certain restrictions at times made to 
what's known as you well know, paper barriers. What is your 
take, if I might ask, you two gentlemen, about this impact 
for--on rail-to-rail competition in the sense that--I mean 
should there be some movement towards disallowing these to help 
this ability to bring down price?
    Mr.  Cleavinger. Obviously, if there's an agreement that 
only one railroad can carry freight and they have to carry that 
freight and other competition is not allowed, it affects what 
cost will be involved in that freight carrier. So those paper 
barriers of allowing only that short line to carry that freight 
causes anti-competition.
    Mr.  Keith. Our view is that sometimes paper barriers are 
necessary on a temporary basis, maybe for a three or five-year 
period because it affects the value of the line. And the 
railroad may be faced with situations do we abandon the line or 
do we spin it off and if they spin it off and it's affordable 
to operate for a short line operator, then we think there may 
be some justification for a short period of time. But maybe the 
burden of proof should shift. If you've got one of these and it 
extends beyond say five years, the burden of proof should be on 
the carrier to demonstrate why it's necessary to have an 
agreement like that in perpetuity.
    Mr.  Sestak. So you're saying after a while it may be bad 
public policy to not allow shippers to utilize all potential 
routing options?
    Mr.  Keith. Yes, and to the extent you can create 
competition by forcing--
    Mr.  Sestak. Is this something STB should look at?
    Mr.  Keith. They already have looked at that.
    Mr.  Sestak. Have they looked at it well?
    Mr.  Keith. My conclusion is the way the STB decided on 
this was that they decided not to establish any firmer rules or 
guidelines than what exist today.
    Mr.  Sestak. Got it. Let me ask that question along the 
same line, if you don't mind, bottlenecks, through rates. Has 
that also had a similar impact upon the cost so that somebody 
ships from Washington, D.C., Chicago, but it goes to Pittsburgh 
and so you could off-load or short line or something there, but 
you do not ever see that they are permitted only to show you 
what the through rate is rather than showing you what the 
competitor might do here. There's this--would that help at all?
    You know what I'm talking about.
    Mr.  Keith. There's no question that competition affects 
rates.
    Mr.  Sestak. But is this a problem, this bottleneck through 
rate issue on the cost again, it's something we should be 
looking at?
    Mr.  Keith. It's probably more of a problem in the energy 
than it is in agriculture per se, but yes, there's places where 
it does create issues.
    Mr.  Sestak. Ms. Hotchkiss, did you have a comment on that, 
since you mentioned energy?
    Ms.  Hotchkiss. Yes, sir. Bottleneck rule has been a 
problem. One particular cooperative in Arkansas had experienced 
this and a third-party independent carrier was willing to do it 
and they could not and it does increase the cost. There's no 
doubt about it.
    Mr.  Sestak. Are they precluded from it or are they self-
precluded from it because they know somebody else will--they 
could be two main lines doing this, but one main line from 
Pittsburgh, he may have--from Chicago, but he knows that if he 
offers a separate rate, he's going to be jammed on the other 
side. Is that wrong?
    Ms.  Hotchkiss. No. I mean I think there are times when 
there may be a situation that does exist and needs to be 
addressed, but I think there have been abuses using this.
    Mr.  Sestak. Is this something STB should look at?
    Ms.  Hotchkiss. Absolutely.
    Mr.  Sestak. Do they do it well now?
    Ms.  Hotchkiss. The ruling so far have not been in favor of 
the shippers.
    Mr.  Sestak. My last question is probably more 
philosophical, but the common carrier obligation under Title 
49, what do you believe is reasonable obligation? Has the STB 
interpreted that correctly, do you think under Title 49 to 
provide real services at a reasonable request of obligation? Do 
you know what I'm asking, sir?
    That's kind of a subjective phrase.
    Mr.  Keith. We are concerned because we've got capacity 
limits today and because we're not seeing an expansion of 
capacity in rail that we're going to run into more and more 
service problems dealing with this issue. I think the issue, in 
particular, though may be a sensitive one for the chemical 
industry.
    Mr.  Sestak. Is that?
    Mr.  Keith. The chemical industry in situations where the 
railroads would like to see some relief from the common carrier 
obligation because of what they perceive as the risk involved 
in hauling that type of freight, but that's really not in my 
area of expertise.
    Mr.  Sestak. I guess and this is something--I'm done for 
time. I'm sorry.
    Chairwoman  Velaquez. Time has expired.
    Mr. Bartlett.
    Mr.  Bartlett. Thank you very much. Two of the reasons that 
your costs are going up are lack of competition and the 
increase in energy costs. It's very attractive when looking at 
the increasing energy costs to question why we haven't drilled 
in ANWR and offshore and on our public lands. I for one am glad 
that we have not drilled there because I have 10 kids and 16 
grandkids and 2 great grandkids and I'd like to have a little 
energy for their generation, thank you.
    The world has now reached its maximum capability for 
producing oil. That happened in our country in 1970. It has 
happened in the world now. IEA and AEA, the two big 
organizations that track this have verified that with their 
data. There's a finite amount of oil in the world. It is not 
infinite. If we drilled ANWR it would be ten years before any 
of that hit the market. It is not a solution to our current 
problem. I'd just like to get that on the record, Madam 
Chairman. There are solutions to our current problem. Drilling 
in ANWR or offshore or public lands is not one of those 
solutions.
    Your rates are up for shipping. Are the railroad companies 
making exorbitant profits?
    I haven't seen their profit sheets, but I would doubt that 
they're making exorbitant profits. So we have to look at why 
the rates are up. Is their cost shifting? Are some of their 
customers getting lower rates and they are disadvantaging you 
by increasing your rates?
    Before we know how to solve a problem, we have to know what 
the problem is. I don't really know what the problem--you have 
a problem and that is unreliable service and rates that are too 
high. But I don't know why the service is unreliable and why 
the rates are too high. Clearly, lack of competition and Mr. 
Cleavinger, I was very interested in your first graph. It 
looked like a tennis elimination. We start out with a whole lot 
of railroads and now we're down to four. Country-wide, we're 
now down to four railroads.
    Madam Chair, I don't know what the ultimate solution is, 
but clearly, clearly, we have got to have competition. 
Unfortunately, we have been moving away from rail to trucks 
which are just a little handier and when oil was $10 a barrel 
and I remember buying gasoline six gallons for a dollar, six 
gallons for a dollar back during the Depression. I can remember 
that. It didn't make any difference that it was five times more 
expensive than moving by truck than it was by rail because it 
was so darn cheap to move it either way because energy was so 
cheap. That's not true today. And unfortunately, we have 
allowed our rail system to deteriorate. We have had a Rails to 
Trails program. I'm glad for that, as I mentioned, when I said 
hello to you because now that means those road beds are still 
there and now in the future, Madam Chair, we may have a very 
aggressive Trails to Rails program, as we take those roadbeds 
and put rails back on them.
    I don't know what the problem is and until we know what the 
problem is we don't really know how to get a solution. You have 
a problem. That is your rates are too high and your service is 
unreliable and I think it's incumbent on us to try and find out 
why and what can be done about it, to turn back the hands of 
time and to start over and to keep in place the enormous rail 
system that we have. Now unfortunately, we have developed an 
infrastructure in our country which is essentially 
unsustainable in a carbon-deficient world. We have nowhere near 
the rail transportation that Europe has, for instance, and the 
developing countries are now putting in rail transportation 
because that's their first transportation.
    So I am very interested in this hearing. Thank you, Madam 
Chairman for holding it. I just don't know what the problem is. 
And until I know what the problem is, I don't know how to 
address the problem.
    I thank you all very much for your testimony. We 
appreciate, for the record if you can, your analysis of what 
you think the problem is and how we can solve these problems. 
If they're cost shifting, we need to stop that. If someone else 
is getting good service and you're getting lousy service 
because of discrimination against you, we can help stop that. 
But we don't know what the problem is and until we know, we 
don't know how to solve the problem.
    So thank you very much for your input and Madam Chair, 
thank you for holding this hearing and I yield back.
    Chairwoman  Velaquez. Ms. Fallin, are you ready? If not, I 
could go on and ask some questions. Are you ready to ask your 
questions now?
    Ms.  Fallin. I might just ask a few. Thank you. I wish I 
could have made it to your testimony a little earlier, but I 
had some other commitments, but I appreciate all of you being 
here today. In my State of Oklahoma much of our state was built 
with railroads throughout our rural communities and were very 
important to the beginnings of our state and of course, now as 
has been mentioned, we're seeing a decline in access and 
available and infrastructure. I also serve on the 
Transportation Committee, and so we talk about rail a lot and 
all modes of transportation for our nation. And as was 
mentioned by Congressman Bartlett, we are experiencing some 
challenges with our energy industry and how do we supply the 
energy that our nation needs and the world needs. I can 
disagree with him though on the need to look at other energy 
sources and more exploration of production. I hope we do do 
that as a nation.
    And as we continue to look at alternative sources of fuel, 
are there any other alternative sources of fuel that can be 
used in the rail industry that maybe Congress could help 
encourage? I know that your main source of energy on the rails 
are usually coal. That may not be in your expertise, but do you 
see any other forms of energy that could be used to power the 
rail systems and help you transport your goods and services?
    Ms.  Hotchkiss. As the energy person here, I don't know 
that I could address specifically to provide an alternative 
fuel to the actual railroad itself. I will tell you they also 
move material that we use for the operation of our nuclear 
plants. And to provide--these are base load plants. These 
provide power 24-7 and rail is very important in that aspect, 
so to switch to different types of fuels for us away from more 
conventional fuel which we use for base load at this time with 
the technology that we have today, we are still going to be 
dependent on the rails for quite some time.
    I'd like to take a moment to address something that Mr. 
Bartlett said is that we would love to see more transparency 
with the STB, to find out why some of these costs are so high. 
So I absolutely agree with you, sir. I think that is part of 
the concern that we have. We have these decisions come down and 
we're not exactly sure why they made that decision and 
typically they're not helpful to us. But you'd have to ask the 
railroads as far as alternatives to be able to literally move 
the trains down the track. I don't know enough about that 
industry to tell you.
    Mr.  Keith. Diesel is the primary fuel for locomotives, but 
there has been some technological gains in diesel fuel 
utilization and I mean the engines that they're making today 
are much more efficient than they were say ten years ago. And 
so as we try to expand capacity, the addition of new 
locomotives will help the fuel efficiency.
    Today, with current technology, there's really not a good 
replacement for diesel, at least at this stage. There are 
concepts in development, but it's probably going to be diesel 
for quite a while.
    Ms.  Fallin. I was meeting with a railroad concern a couple 
of weeks ago and they were talking about the cost mile per 
gallon in transporting of services and goods on trucking versus 
the railroad and we're saying when you look at the miles per 
gallon per transport that the rails actually have a better cost 
factor when it comes to delivering products and services versus 
the diesel engine of a truck. And I don't know if you've ever--
of course, you may not be able--I don't know if your industries 
can use trucking at all, but I'm sorry I missed all your 
testimony, but have you ever looked at the cost comparison 
between shipping on rails versus shipping on the road?
    Mr.  Weber. We receive probably the 125,000 ton. We use 
40,000 ton by rail and the rest is by truck. And we--the cost 
to do the trucking for us is more of a time issue. We can get 
more timely delivery with a truck. Rail is still the cheapest 
delivery because our product comes from the phosphate mines in 
Florida, the Canadian potash mines and then we have four 
nitrogen producers left in the United States and one large one 
in Canada. All of our product travels long distance. We bring 
the product primarily to a central hub distribution center. 
Then we have to truck it out of there if we cannot receive 
direct distribution by rail from the production. And so, yes, 
we use trucks and it is more expensive for us, but it sometime 
is the only way we can put product into our ag retail 
facilities.
    Ms.  Fallin. Is that because of availability of rail or is 
it sometimes based upon congestion, like we talk a lot about 
congestions on our highways and how congestion is time and it's 
money when it comes to shipping products and goods.
    Mr.  Weber. I would say that in listening to the railroad 
systems and some of their comments, congestion is an issue 
because so much more product is moved by rail than it was ten 
years ago. It is much more economical for them to ship a 65 or 
an 85-car unit to an area and then allow us to truck it rather 
than to continue as we have had in the past with a two- and 
three-car receivers. The two- and three-car receivers is still 
my cheapest way of receiving product. From an economic and a 
rail congestion perspective, they are doing the things that are 
going to make them the most money and that is the unit trains. 
But that is not what we have invested in from our ag retail 
facilities since the 1960s. We were building these facilities 
on two- and three-car receiver locations.
    Ms.  Fallin. Thank you so much. I think it takes a 
combination of both, rail and trucking to make it all work.
    Mr.  Weber. It is now, yes. I agree with you.
    Ms.  Fallin. Thank you.
    Chairwoman  Velaquez. Dr. Keith, as demand for rail 
transportation grows, our rail shipping network will continue 
becoming strained, creating capacity constraints.
    From your experience what is the best way to address the 
issue of limited rail capacity?
    Mr.  Keith. Well, to the extent that you can, we think you 
should rely on the industry, private industry making decisions 
as to where we need capacity most. If you look at railroad 
where capacity constraints exist, it's not even throughout the 
system and the railroads really know best where their 
constraints are most serious and need to be dealt with.
    We support this concept of an investment tax credit, at 
least on a limit basis because we think it would speed the 
investment decisions. We think we would get more bang for the 
buck early on in the process and we're quite fearful that if 
start to get another growth spurt in this national economy that 
we're going to see constraints like we've never seen before if 
we don't build infrastructure soon.
    Chairwoman  Velaquez. To expand rail capacity, do you think 
that only by investment and commitment coming from railroads or 
do you think that a combination of the federal government and 
the private sector?
    Mr.  Keith. We think the federal government has some 
involvement and some responsibility, frankly, from a national 
network for transportation. The federal government doesn't want 
to have to build more and more highways because we've run out 
of rail capacity and pushed freight on to highways. And so 
there's a national interest here, we think, but we also think 
we need a system of monitoring how those investments were made 
and to make sure that we are expanding capacity and we're not 
just replacing old ties and infrastructure. We need new 
capacity.
    Chairwoman  Velaquez. Any other of the witnesses would like 
to comment?
    You all agree on this? Okay.
    Ms. Hotchkiss, you discuss the problems that small shippers 
face in the agriculture industry and you discuss the lack of 
transparency of STB. Do you think that within the authority 
that was granted to STB that they can make the changes or do 
you believe that a legislative fix is needed, and if it's 
needed, what are the legislative options that are before us, 
which one addresses the issues that you raise?
    Ms.  Hotchkiss. Well, thank you, Madam Chairwoman for that 
question. We have--I would agree with Dr. Keith that the STB is 
working on things. Our concern is that it perhaps won't go far 
enough or that perhaps these conversations are going on the 
Hill that that conversation now is taking place at STB.
    Our particular thought in what would make our consumers, I 
think, more comfortable and our customers more comfortable 
would be that Congress look at reforming the STB. Chairman 
Oberstar has Bill 2125 and that would make STB more accessible 
to rail customers.
    One of the things I wanted to bring to light, especially 
for small business, to go through the formal process. It can 
cost $175,000 just to file a case. That doesn't include the 
money that goes--it goes into the millions of dollars to 
actually see that case through when we're looking at two and 
three and four and five years of working on one issue. So we do 
believe that legislative and reform legislation is necessary.
    There is also the Antitrust Enforcement Act, HR 1650. That 
was reported out of House Judiciary yesterday and we are 
supportive of that legislation as well. When the Staggers Act 
was changed in 1980, this was a problem that antitrust 
exemptions continued and I think it can help address some of 
the issues we've talked about today.
    Chairwoman  Velaquez. Any other of the witnesses would like 
to comment on any legislative fix to the problems facing?
    Mr.  Cleavinger. We just believe if the STB is accountable 
and fixes some of these problems that we've seen and actual 
accountability on their end and rate cases, as Ms. Hotchkiss 
said, they're very expensive to file and they haven't been very 
effective up to this date, so if we would require STB to be 
more accountable we feel like that would be part--help part of 
the problem.
    Chairwoman  Velaquez. Thank you. Mr. Chabot, do you have 
any other questions?
    Mr.  Chabot. Yes, more a comment than a question. 
Unfortunately, the gentleman that I wanted to respond to had 
left the room, but I'll be brief and I was going to be kind in 
any event, but relative to whether or not we should go after 
the energy that is contained in ANWR up in Alaska or in the 
Outer Continental Shelf, the--excuse me, the gentlemen 
mentioned what well, even if we passed it now, we wouldn't get 
it for ten years or some--that's what he said, but we don't 
know the exact number. It would be a number of years down the 
road until we actually got it. This legislation has been before 
this Congress for over the last ten years and unfortunately, 
the Congress has decided to keep that off limits. So had we 
voted this way--Bill Clinton vetoed legislation when it went to 
his desk some years ago that would have included ANWR, so had 
we done it back then we'd have the access to that oil now so 
that would be reflected in the amount that we have available to 
us here and would be reflected in the energy costs that we're 
paying and the gas that we're paying at the gas pumps.
    And also, I would note that even if we--since we didn't 
take that action back then and I argue we should have, even if 
we did take the action now, much of the price reflected at the 
gas pumps that's killing consumers in this country right now is 
speculative in nature. So if we pass this now, I think you 
would see that reflected very quickly even though we wouldn't 
necessarily get the oil to them now because what happens out 
there is people are betting on what it's going to be down the 
road, and right now people think it's going to be higher and 
higher. And if we continue to put large amounts of our oil that 
we know about off limits, ANWR, Outer Continental Shelf, it's 
going to continue to go up and there are other things that we 
need to do as well, like make it possible to build oil 
refineries, once again in this country. We've made that 
virtually impossible. The last one we built is back in '76.
    We had over 300 oil refineries in this country at that 
time. Now we have fewer than half that. We have 148. So even if 
we have enough crude, we can't refine it quickly enough. These 
boutique fuels that have to be dealt with makes it that much 
more difficult to solve this problem. And I am very much for 
what many of my colleagues on the other side of the aisle would 
also be for and that's alternative sources of energy, whether 
it's wind, solar, biomass, all those, hydrogen fuel cells. We 
do need to put money into those technological advances 
somewhere down the road. But until those occur, the fact is we 
in this country, as other countries around the world, we're 
very dependent upon gas and diesel and the rest, and unless we 
do something about it, we're going to have some real problems.
    And that, I think, is reflected in the weakness of the 
economy to some degree and whether we're in a recession and we 
argue about that all the time, whether we're in a recession, 
apparently 81 percent of the American people, according to some 
poll I saw recently, think we are in one, and of course, it 
depends on the definition. The definition that's accepted is 
two quarters of negative economic growth and one just came out 
indicating that it was low growth, but it wasn't negative. So 
apparently, by definition, we're not in a recession, but 
whether we are or whether we're not, it's tough times out there 
for a lot of people. One thing that we could do to help is at 
the gas pump and that's why I'm so supportive of going after 
what we have ought to have gone after a long time ago and 
that's ANWR and the Outer Continental Shelf.
    Does anybody want to comment? You don't have to. Okay, 
thank you very much, and I yield back.
    Chairwoman  Velaquez. Ms. Fallin?
    Ms.  Fallin. Amen.
    Mr.  Chabot. Let the record reflect that the gentle lady 
from Oklahoma said amend.
    Chairwoman  Velaquez. Let me just say that we will continue 
to monitor this issue and look at what the Transportation 
Committee is doing regarding Mr. Oberstar's legislation. One 
possibility might be to bring some of the railroad executives 
here and STB to answer some of the concerns that have been 
raised here.
    With that I ask for unanimous consent that Members will 
have five days to submit a statement and supporting materials 
for the record. Without objection, so ordered. This hearing is 
now adjourned.
    Thank you.
    [Whereupon, at 11:18 a.m., the hearing was concluded.]

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