[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




                 RAILROAD ANTITRUST ENFORCEMENT ACT 
                                OF 2009

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

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

                                H.R. 233

                               ----------                              

                              MAY 19, 2009

                               ----------                              

                           Serial No. 111-63

                               ----------                              

         Printed for the use of the Committee on the Judiciary


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







                  RAILROAD ANTITRUST ENFORCEMENT ACT 
                                OF 2009

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

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

                                H.R. 233

                               __________

                              MAY 19, 2009

                               __________

                           Serial No. 111-63

                               __________

         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            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
LUIS V. GUTIERREZ, Illinois          TOM ROONEY, Florida
BRAD SHERMAN, California             GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

             Subcommittee on Courts and Competition Policy

           HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               JASON CHAFFETZ, Utah
ROBERT WEXLER, Florida               BOB GOODLATTE, Virginia
CHARLES A. GONZALEZ, Texas           F. JAMES SENSENBRENNER, Jr., 
SHEILA JACKSON LEE, Texas            Wisconsin
MELVIN L. WATT, North Carolina       DARRELL ISSA, California
BRAD SHERMAN, California             GREGG HARPER, Mississippi
MIKE QUIGLEY, Illinois

                    Christal Sheppard, Chief Counsel

                    Blaine Merritt, Minority Counsel















                            C O N T E N T S

                              ----------                              

                              MAY 19, 2009

                                                                   Page

                                THE BILL

H.R. 233, the ``Railroad Antitrust Enforcement Act of 2009''.....     3

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Chairman, Subcommittee 
  on Courts and Competition Policy...............................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts and Competition Policy..................................    10
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.    11

                               WITNESSES

The Honorable Rodney Alexander, a Representative in Congress from 
  the State of Louisiana
  Oral Testimony.................................................    12
  Prepared Statement.............................................    15
Mr. M. Howard Morse, Chair, Exemptions and Immunities Committee, 
  American Bar Association, Section of Antitrust Law, Washington, 
  DC
  Oral Testimony.................................................    18
  Prepared Statement.............................................    21
Mr. J. Michael Hemmer, Vice Chairman, Policy and Advocacy 
  Committee, Association of American Railroads, Washington, DC
  Oral Testimony.................................................    35
  Prepared Statement.............................................    44
Mr. Terry Huval, Director, Lafayette Utilities System, Lafayette, 
  LA
  Oral Testimony.................................................    74
  Prepared Statement.............................................    76
Dr. Mark N. Cooper, Director of Research, Consumer Federation of 
  America, Washington, DC
  Oral Testimony.................................................    87
  Prepared Statement.............................................    90

                                APPENDIX

Material Submitted for the Hearing Record........................   109

 
               RAILROAD ANTITRUST ENFORCEMENT ACT OF 2009

                              ----------                              


                         TUESDAY, MAY 19, 2009

              House of Representatives,    
                 Subcommittee on Courts and
                                 Competition Policy
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 3 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Henry 
C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee) 
presiding.
    Present: Representatives Conyers, Johnson, Wexler, Jackson 
Lee, Watt, Sherman, Coble, Goodlatte, and Harper.
    Also present: Representatives Scott and Smith.
    Staff present: Anant Raut, Majority Counsel.
    Mr. Johnson. This hearing of the Committee on the 
Judiciary's Subcommittee on Courts and Competition Policy will 
now come to order. Without objection, the Chair is authorized 
to declare a recess.
    Today's hearing is about H.R. 233, a bill that would 
eliminate antitrust exemptions in the railroad industry. The 
bill would enable the Department of Justice and the Federal 
Trade Commission to enforce antitrust laws in the railroad 
industry. The bill would also restore the full range of 
antitrust rights and remedies to private parties.
    Under the Interstate Commerce Commission, and later the 
Surface Transportation Board, the number of class one railroads 
in this country shrank from 63 to 7. As of now, four of the 
class ones handle 90 percent of the Nation's rail carrier 
traffic, two to the East and two to the West.
    The effect of this consolidation has been an increase in 
prices. According to an October 2006 GAO study, the volume of 
traffic traveling at significantly noncompetitive rates has 
increased since 1985. The rates paid by so-called ``captive 
shippers,'' that is shippers with only one carrier option, on 
part of that route are, on average, almost 21 percent higher 
than on competitive routes, costing shippers an additional $1.3 
billion every year.
    These costs are ultimately passed on to consumers as higher 
prices. They mean higher prices at the dealership for the cars 
transported by rail. They mean higher prices at the grocery 
store for the crops shipped by rail, et cetera, et, cetera, et 
cetera.
    As a matter of public policy, we shy away from antitrust 
exemption. The Antitrust Modernization Commission, created by 
this Committee, made the following observation about exemption: 
``Antitrust exemptions create economic benefits that flow to 
small groups while the costs are usually passed on to a large 
population of consumers though higher prices, reduces output, 
lower quality, and reduced innovation.''
    The bill before us today would leave the rail carrier 
industry no differently situated than any other number of 
industries subject to both antitrust laws as well as 
regulation. It would, however, remove antiquated antitrust 
exemptions favoring the industry, which will spur innovation, 
drive down costs, and ultimately lower prices for consumers.
    [The bill, H.R. 233, follows:]
    
    
    
    Mr. Johnson. I now recognize my colleague, Howard Coble, 
the distinguished Ranking Member of this Subcommittee for his 
opening remarks.
    Mr. Coble. Thank you, Mr. Chairman. And I appreciate your 
having called today's hearing. Last year, Mr. Chairman, the 
full Committee approved similar legislation by voice vote. I 
have not changed my views on the impact that shipping costs 
have on many industries in the district I represent, many of 
which provide essential services; but as I did not serve on the 
Antitrust Task Force last session, I appreciate this 
opportunity to more closely review H.R. 233 and to discuss its 
impact, as you have just done.
    My concern with the rail shipping industry and hope for 
today's hearing is that we approve the most effective solution. 
Perhaps antitrust review by the Justice Department or FTC is 
the most effective solution, although are needed improvements 
at the Service Transportation board, known as the STB.
    And a visit back down memory lane, in an antiquated way, 
Mr. Chairman, in 1887 the Congress passed the Interstate 
Commerce Act, which established the Interstate Commerce 
Commission. That body was in charge of regulating virtually 
every facet of the railroad's operations, including the rates 
that they charged customers to ship goods across the country.
    Congress' regulation of the railroads began at about the 
same time as it passed the Sherman Antitrust Act. As the two 
laws developed over time, the courts and the Congress 
recognized that heavily regulated industries, such as 
railroads, should not be subject to the full reach of the 
antitrust laws. The courts developed the so-called ``filed 
rate,'' or Keogh Doctrine, to shield railroads from antitrust 
liability for rates that were set through a regulatory body, 
and the Congress statutorily exempted certain pooling 
arrangements from antitrust security.
    Over time, the Nation's attitude toward heavy regulation 
changed, particularly as some heavily regulated industries, 
including the railroads, began to suffer. By 1980, the rail 
industry had become glaringly inefficient, and as a result, the 
Congress passed the Staggers Act, which deregulated the 
industry and shortly thereafter replaced the Interstate 
Commerce Commission with the STB.
    Currently the STB is not required to approve shipping 
rates, and the rail industry is not covered by the antitrust 
laws, which is why the Justice Department can not independently 
challenge rail mergers. This authority rests solely with the 
STB and is at the heart of H.R. 233 and today's hearing.
    Many shippers who also claim to be captive to unjustified 
rates and rigid schedules argue that there are instances where 
shipping from other countries can be more cost effective than 
shipping within two points in the United States. Meanwhile, we 
all know the benefit of railroads. They are energy efficient; 
they can move massive amounts of goods; and they are, indeed, a 
driving force in our sagging economy.
    I have heard from constituents back in my district, Mr. 
Chairman, about this issue. I want to help solve the problem, 
but feel very strongly that we should understand how H.R. 233 
will affect the rail industry. While I am here with an open 
mind, in my view the onus today and moving forward is on the 
rail industry to help us identify problems and to recommend 
solutions or improvements to H.R. 233.
    That said, I look forward to today's testimony and yield 
back the balance of my time, and thank you again, Mr. Chairman, 
for having called the hearing.
    Mr. Johnson. Thank you, Ranking Member Coble.
    I thank the gentleman for his statement, and I now 
recognize John Conyers, a distinguished Member of the 
Subcommittee and the Chairman of the Committee on the 
Judiciary, should he wish to make a statement.
    He has said, ``Good afternoon.'' And is there anyone else 
who wishes to make a statement for the record?
    The Honorable Lamar Smith, the Ranking Member of the full 
Committee?
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Chairman, let me begin by saying that I appreciate the 
concerns of the shipping industry. Like many others in the 
economy, they are suffering. Rising costs mean that when their 
existing long-term contracts for the shipment of coal expire, 
for example, some power companies in my district will face 
drastically higher rates from the railroads.
    While I am sympathetic and concerned about the plight of 
the captive shippers, I am also concerned that the legislation 
before us will not necessarily solve their problem. The bulk of 
the shippers' concerns seem to lie with what they view as an 
ineffectual regulatory body, the Surface Transportation Board, 
or STB.
    Like the members of the Antitrust Modernization Commission, 
I am skeptical about many antitrust exemptions. To me, the 
elimination of some antitrust exemptions for the railroad 
industry, such as subjecting mergers in the industry to review 
before the antitrust division of the Department of Justice, 
makes sense.
    However, the Railroad Antitrust Enforcement Act of 2009 
does more than just that. It would subject railroads to search 
for injunctive relief throughout the country. Because railroads 
are widespread networks that are not easily diverted into other 
channels, an injunction in one part of the network could have 
serious repercussions throughout.
    In addition, a railroad that runs across multiple districts 
and circuits, as most do, could be subject to an injunction in 
one district, whereas the exact same conduct could be deemed 
``not problematic'' just one district over. Worse still, 
discrepancies among district circuit courts may lead to form 
shopping by aggressive plaintiff lawyers, which is something 
that has created problems in the class action arena before.
    Another issue raised by this bill is the provision that 
specifies that Federal district courts do not have to defer to 
the discretion of the Surface Transportation Board in these 
suits. As it is currently worded, this provision, which is 
inconsistent with generally accepted principles of 
administrative law, is likely to encourage judges to be overly 
reluctant to refer suits that would most appropriately be 
handled by the Surface Transportation Board to that regulatory 
body.
    Finally, I am concerned that the section of the bill that 
provides for a grace period for civil suits after the enactment 
of the bill may actually invite courts to look retroactively 
into practices that were exempted from the antitrust laws or 
were specifically approved by the STB at the time they 
occurred. I am worried that in an effort to address the 
shippers' concerns about bottleneck pricing and paper barriers 
courts may be tempted to undo mergers that were approved years 
ago. Such unscrambling of the eggs is something that is 
generally discouraged in antitrust law.
    Mr. Chairman, I appreciate the issues that bring us here 
today. I am hopeful that this hearing will give us the 
opportunity to consider the concerns that I have with this 
legislation. And I am also hopeful that we will be able to come 
up with solutions that will address the shippers' concerns 
without ruining our vital railroad infrastructure or 
undermining widely and long held aspects of regulatory law and 
practice. And with that I will yield back.
    Mr. Johnson. I thank the gentleman for his statement, and 
without objection, other Members' opening statements will be 
included in the record.
    I am now pleased to introduce the witnesses at today's 
hearing. On our first panel is the Honorable Rodney Alexander. 
Congressman Alexander proudly represents the Fifth District of 
the great southern State of Louisiana. He is also an original 
cosponsor of the legislation we have before us today.
    Congressman Alexander, will you proceed please?

 TESTIMONY OF THE HONORABLE RODNEY ALEXANDER, A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Alexander. Thank you, Mr. Chairman. First thing I would 
like to do is thank you and the Ranking Member for allowing me 
the opportunity to be here today and to thank the full 
Committee for hearing this bipartisan bill that attempts to 
level the playing field out there today.
    I would like to be clear, in starting, that this bill is 
not about reregulation of the railroad industry. The bill does 
nothing of the sort. It simply places the rail industry under 
the same antitrust laws that every other industry, such as 
energy, telecommunications, or even other forms of freight 
transportation, including trucking and aviation, places. These 
laws, of course, are the Nation's basic laws for ensuring 
competitive markets.
    As you know, Mr. Chairman, 30 years ago the railroad 
industry was failing and Congress removed much of the 
regulatory oversight over the industry, and merger authority 
was transformed to the industry's only regulator, the Surface 
Transportation Board. Unfortunately, at that time Congress did 
not remove the antitrust exemptions from the industry that had 
accumulated through various acts of Congress and the courts 
during the 1900's.
    Since 1980, the railroad industry has been able to use the 
antitrust exemptions that they still currently enjoy to 
consolidate over 40 major class one railroads into four major 
carriers that today carry 90 percent of our Nation's rail 
freight. The problem that this poses is that freight rail 
customers are subject to abusive practices without the 
protection of our Nation's antitrust laws.
    This problem is now evident not only to consumers but to 
the Department of Justice as well. In her Senate nomination 
hearings, Christine Varney, who is now the chief antitrust 
enforcer at the Justice Department, recognized the need for 
competition in the rail industry when she stated that she 
enthusiastically supports the bill that we are debating today.
    Shippers continue to report skyrocketing rates and 
unreliable service. Louisiana is the second largest chemical 
manufacturing state in the Nation. As such, the chemical 
industry provides significant economic benefits to the state 
and to the Nation as a whole.
    I think it is important to remind ourselves that over 96 
percent of all manufactured goods are directly touched by the 
business of chemistry, making the industry an essential part of 
every facet of Louisiana and the national economy. But these 
businesses do not see the railroads as a reliable source of 
transportation, especially when you compare that service to the 
rates they are forced to pay.
    The chemical companies are not alone. Utility companies are 
being forced to raise the cost of electricity provided to the 
businesses and households that they serve. On the next panel, 
Terry Huval, the director of utilities for the city of 
Lafayette, will testify concerning a bottleneck that prevents a 
large coal-fired electricity generating plant near Boyce, 
Louisiana, called the Rotomaker Plant, from gaining access to 
competitive coal transportation rates for over 95 percent of 
the length of a coal haul from Wyoming.
    An organization known as the Louisiana Energy and Power 
Authority also receives electricity from the Rotomaker Plant 
and distributes it to six towns in my congressional district: 
Alexandria, Jonesville, New Roads, Plaquemine, Vidalia, and 
Winnfield. The citizens, businesses, and schools in these towns 
are facing a cost of captivity that is similar to the cost that 
Terry will describe for the city of Lafayette.
    In 2004, the Bush administration Department of Justice 
wrote the Chairman of this Committee, indicating that the 
bottleneck ruling that is causing these high transportation 
costs that my constituents are paying likely violates the 
antitrust laws, if those laws applied here.
    Unfortunately, until this Congress enacts H.R. 233, the 
railroads will remain exempt from and beyond the reach of the 
Nation's antitrust laws. I want to see my constituents relieved 
of this cost of captivity through the enactment of this 
legislation, of which I am proud to be a lead cosponsor of my 
political party with Congresswoman Tammy Baldwin.
    Coal-fired electric generating stations serving citizens 
across our Nation are facing similar problem. Recently, in 
Florida, the CSX Railroad, which is the sole source of 
transportation of coal from the Appalachians to Seminole 
Electric Co-op, doubled its rate for coal shipments to 
Seminole. Seminole states that this rate hike will cost its 
electricity consumers an additional $100 million annually 
beginning in 2009.
    American manufacturing, agriculture, timber, and paper 
companies that are all facing rising rates that they are forced 
to attempt to pass on to their consumers at a time when their 
customers can't afford the cost of these increases. While these 
rate hikes don't work for most Americans and most businesses, 
the hikes have served the freight rail industry well, as can be 
seen by the returns of the four major freight railroads in the 
fourth quarter of 2008. These four railroad companies each 
posted earning increases on decreased volumes of traffic moved. 
Unfortunately, few if any of their consumers--their customers--
could report such a positive economic performance.
    Congressman Baldwin, Congressman Pomeroy, Congressman 
Walsh, and I introduced this bill to level that playing field. 
First, the railroad antitrust exemption that has no current 
public policy jurisdiction and is protecting anticompetitive 
conduct for the railroad industry. Second, the bill permits the 
Justice Department and the FTC to review railroad mergers, line 
sales, and other railroad transactions under the antitrust law 
standard to ensure competitive markets.
    Third, the bill ensures that the regulatory program 
developed by the Surface Transportation Board will be pro-
competitive. And finally, the bill allows the state attorney 
general and other private parties to sue for damages and for 
injunctions to halt anticompetitive conduct, both of which are 
currently allowed due to the railroad industry's exemptions 
from the antitrust laws.
    In March of this year, the Senate Judiciary Committee 
passed unanimously by a vote of 14 to zero bipartisan 
legislation very similar to this. Some have argued that his 
legislation would result in overlapping dual regulation by 
antitrust courts and the STB; but in fact, they would not be 
overlapping nor would the conflict.
    Rail transportation that is subject to STB jurisdiction is 
the only major Federal regulated activity that operates outside 
the U.S. antitrust laws. All other U.S. industry activities 
that are subject to Federal economic regulation are also 
subject to the antitrust laws that protect consumers from 
monopolization, agreements in restraint of trade, and mergers 
that may lessen competition.
    While the bill is by no means the final solution for 
restraining railroad monopoly power, the enactment of the bill 
would be a giant step forward in that direction.
    Again, I thank you, Mr. Chairman, for allowing me to 
testify in support of this legislation, and I look forward to 
working with the Committee as we move forward with this 
legislation. Thank you.
    [The prepared statement of Mr. Alexander follows:]
         Prepared Statement of the Honorable Rodney Alexander, 
        a Representative in Congress from the State of Louisiana



                               __________

    Mr. Johnson. Thank you, Congressman Alexander. The 
Subcommittee appreciates you being with us today.
    And we will now turn to our second panel and ask them to 
take their seats here at the table. And while they are doing 
that I will introduce them.
    First we have Mr. Howard Morse. Mr. Morse is a partner at 
the law firm Drinker Biddle & Reath. Before joining the firm, 
Mr. Morse spent 10 years at the Federal Trade Commission, where 
he served as assistant director of the bureau of competition. 
Mr. Morse is here today on behalf of the American Bar 
Association's section of antitrust law and he is currently 
chair of the section's exemptions and immunities committee.
    Next is Mike Hemmer----
    And by the way, Mr. Morse, welcome today.
    Next is Mike Hemmer, Vice Chairman of the Policy and 
Advocacy Committee of the Association of American Railroads. In 
addition to his position with AAR, Mr. Hemmer is a Senior Vice 
President and general council of Union Pacific Railroad. Prior 
to his appointment, Mr. Hemmer was a partner in the Washington, 
D.C. office of Covington & Burling, specializing in 
transportation law.
    Welcome, sir.
    Next we have Mr. Terry Huval, director of Lafayette 
Utilities System, located in Lafayette, Louisiana--or is it 
Lafayette?
    Mr. Huval. Lafayette.
    Mr. Johnson. Lafayette. Okay. LUS is a municipally-owned 
utility providing electric water and waste water services to 
over 60,000 customers.
    Finally, we have Dr. Mark Cooper. Dr. Cooper is director of 
research at the Consumer Federation of America. He has provided 
expert testimony in over 200 cases for public interest clients, 
including state attorneys general and citizen interveners for 
state and Federal agencies, courts and legislatures in the 
United States and Canada.
    Thank you for being here, Dr. Cooper.
    And I appreciate all of you all's willingness to 
participate in today's hearing. Without objection, your written 
statement will be placed into the record, and we would ask that 
you limit your oral remarks to 5 minutes. You will note that we 
have a lighting system here, right on the table in front of 
you. Nobody ever complies with it. [Laughter.]
    But we are asking you to do so.
    You will note that at 4 minutes the little light turns 
yellow, and then at 5 minutes it goes red. After each witness 
has presented his testimony, Subcommittee Members will be 
permitted to ask questions subject to the 5-minute limit.
    Mr. Morse, please begin your testimony.
    Sir, if you would put on your mic?

TESTIMONY OF M. HOWARD MORSE, CHAIR, EXEMPTIONS AND IMMUNITIES 
COMMITTEE, AMERICAN BAR ASSOCIATION, SECTION OF ANTITRUST LAW, 
                         WASHINGTON, DC

    Mr. Morse. Chairman Johnson, Congressman Coble, Members of 
the Subcommittee, my name is Howard Morse. I am an antitrust 
partner here in Washington with Drinker Biddle & Reath. As your 
introduction indicated, I also serve as chair of the Exemptions 
and Immunities Committee of the American Bar Association's 
Section of Antitrust Law, and I am testifying today on behalf 
of the Section.
    The Antitrust Section appreciates the opportunity to be 
here and express support for H.R. 233, the Railroad Antitrust 
Enforcement Act, which would dismantle antitrust exemptions 
that insulate the railroad industry from antitrust actions. The 
Section Council has approved this position. Our testimony has 
not been reviewed, however, by the ABA House of Delegates or 
Board of Governors, and so I speak only for the section.
    The Section believes that statutory exemptions and 
immunities from the antitrust laws should be strongly 
disfavored. Competition has proven time and again to lead to 
lower prices, better quality and service, and more innovation.
    For more than a century, the antitrust laws have 
effectively promoted competition, consumer welfare, and 
efficient markets. Indeed, the Supreme Court, in a 1972 opinion 
by Justice Marshall, called the antitrust laws the Magna Carta 
of free enterprise, as important to the preservation of 
economic freedom and our free enterprise system as the Bill of 
Rights is to the protection of our fundamental personal 
freedoms.
    The antitrust laws encourage firms to compete aggressively. 
They permit collaborations that generate pro-competitive 
efficiencies. But they prohibit conduct that excludes rivals to 
the detriment of consumers, collusion among competitors, and 
mergers that lessen competition.
    The Section of Antitrust Law has frequently noted its 
opposition to antitrust exemptions based on claims that 
immunity is needed because of unique characteristics of 
particular industry. The section has opposed exemptions in 
industries from baseball, to health care, to ocean shipping. 
Claims that an antitrust exemption is necessary for competition 
to flourish, or because competition is itself harmful or 
undesirable, or that competition does not work in an industry, 
or that an immunity is necessary in order to provide an 
industry with certainty and predictability to encourage 
investment should not prevail.
    The 2007 report of the congressionally-mandated Antitrust 
Modernization Commission, which was already mentioned today, 
similarly advises that statutory immunities from the antitrust 
laws should be disfavored. They should be granted rarely, and 
only where and for so long as is necessary.
    The Section of Antitrust Law believes it is time to repeal 
exemptions adopted in an era that considered protection of 
particular industries to be beneficial. It is the Section's 
view that even if antitrust exemptions may have made some sense 
in a regulated environment, deregulation of the railroad 
industry has eroded the basis for continuing exemptions.
    Antitrust enforcement is all the more important where there 
may be uncertainty as to whether activity is subject to 
regulation. While the railroad industry today is not immune 
from all antitrust actions, the industry does benefit from 
express statutory and judicially-created immunity, which would 
be eliminated by the Railroad Antitrust Enforcement act.
    Even after the act becomes law, of course, the implied 
immunity doctrine will prevent antitrust from imposing 
obligations that conflict with regulation. The act would, 
however, among other things, remove railroads from the 
protection of the judicially-created ``filed rate'' or Keogh 
Doctrine, which insulates firms from antitrust damages actions.
    The act would also allow private parties to seek injunctive 
relief against railroads. So-called ``bottleneck rates'' and 
``paper barriers,'' or tying arrangements and exclusive 
dealings, would be subject to scrutiny, as in other industry, 
but whether they would be unlawful would depend upon the facts 
in the particular situation.
    The act would also bring railroad mergers within the ambit 
of Section 7 of the Clayton Act and empower the Department of 
Justice and Federal Trade Commission to block acquisitions 
which lessen competition, as the agencies can even in other 
regulated industries.
    The Section of Antitrust Law supports these steps. I thank 
you for your time and welcome your questions.
    [The prepared statement of Mr. Morse follows:]
                 Prepared Statement of M. Howard Morse



                               __________

    Mr. Johnson. Thank you, Mr. Morse.
    Mr. Hemmer, would you proceed now?
    And by the way, Mr. Morse, that was right within the 5 
minutes. I am extremely blown away by that.
    Mr. Morse. We try to be respectful.
    Mr. Coble. Mr. Chairman, would you want to give Mr. Morse 5 
more minutes? [Laughter.]
    Only kidding.
    Mr. Johnson. I am afraid not. This subject matter is so 
riveting that I don't want anyone to get overexcited about it.
    But, proceed.

   TESTIMONY OF J. MICHAEL HEMMER, VICE CHAIRMAN, POLICY AND 
    ADVOCACY COMMITTEE, ASSOCIATION OF AMERICAN RAILROADS, 
                         WASHINGTON, DC

    Mr. Hemmer. Mr. Morse set a high standard for performance. 
I will try to equal it.
    Chairman Johnson, Ranking Member Coble, Ranking Member 
Smith, and Members of the Committee, I am Mike Hemmer, from 
Union Pacific Railroad. Thank you for the opportunity to 
comment on H.R. 233 today.
    During my testimony today I will review three points and 
refer you otherwise to the lengthy written testimony that I 
supplied previously. The first point is, if this bill did 
nothing more than what Mr. Morse said--that is, to repeal 
statutory immunities--the railroad industry would not have much 
trouble with it. My second point, though, is that this bill 
goes considerably beyond repealing statutory immunities, and I 
will explain why. And finally, we are concerned about what we 
believe is the likely retroactive application of those 
additional changes.
    Let me begin, though, if I may, by attempting to dispel a 
myth. I continue to be astonished at broad statements that the 
railroad industry is completely exempt from the antitrust laws 
or broadly exempt and that shippers do not have antitrust 
remedies. That is a myth.
    I am going to hold up a--this is a law firm bill. It is 
typical of a bill that I receive every month for about a 
quarter of a million dollars to defend Union Pacific against an 
antitrust class action--or attempted class action. Cases like 
this are brought periodically. We win most; we lose some. But 
we are by no means exempt from the antitrust laws.
    As I explained in my written testimony, where the railroads 
have statutory exemptions today, and some other exemptions, we 
are prepared to work with you to remove them. This includes 
allowing dual review of all rail mergers by the Department of 
Justice and the Surface Transportation Board, so I hope we get 
that opportunity.
    This bill, however, extends beyond simply removing 
exemptions. And you don't have to take my word for it.
    There have been several mentions today of the Antitrust 
Modernization Commission, which was quite hostile to 
exemptions, as was the ABA. In annex A of the commission's 
report, they listed all of the major exemptions from the 
antitrust laws. I assume you have seen a copy of it--it looks 
something like this.
    I commend it to you. That list did not include the doctrine 
of primary jurisdiction, which H.R. 233 curtails for railroads 
only. It did not include the exclusion of FTC jurisdiction over 
common carriers, which this bill overturns for railroads only. 
And it certainly didn't mention anything about protecting local 
communities in STB transactions, which of course, has nothing 
whatsoever to do with the antitrust laws, but is in this bill.
    We believe that H.R. 233 overrides for railroads only 
fundamental principles of antitrust jurisdiction and of civil 
procedure, which are embodied in numerous Supreme Court cases. 
For example, it guides courts that they may not choose to apply 
the doctrine of primary jurisdiction, which is a fundamental 
set of principles embodied in numerous Supreme Court cases that 
instructs courts about how to interact with regulated 
industries. Frankly, I don't know what a trial judge should do 
with that guidance.
    Moreover, the report accompanying last session's comparable 
bill virtually instructed antitrust courts that they should 
disregard antitrust analysis, and instead should override 
certain Surface Transportation Board decisions. In doing so, 
they counsel courts not to follow Supreme Court jurisprudence 
on such issues as unilateral behavior and applied immunity.
    To put it simply, this bill does not merely open up the 
railroads to antitrust--that we have little objection to. It 
alters substantive law when it comes to railroads, and only to 
railroads. We think antitrust discrimination against one 
industry ought to be at least as troubling as antitrust 
protection of one industry.
    So why is this happening in this bill? Last session's 
Committee report made it quite clear that an objective of the 
bill was to overturn certain STB decisions that some shipper 
groups disliked, but that, I must say, were crucial in 
transforming the railroad industry from the Chrysler Motor 
Company of its day into a very vibrant and effective industry 
that meets national needs.
    With all due respect, if Congress wishes to change STB 
regulation, it should do that rather than attempting to use the 
blunt cudgel of antitrust policy changes to override 
legislation and create conflicts with regulation--override 
regulation, I am sorry. We urge, as the Antitrust Modernization 
Commission urged, that antitrust changes be coordinated with 
changes, if any, in regulation.
    Finally, we also urge you to repair defective section nine, 
which we believe would allow retroactive application of 
antitrust law to literally 100 years of STB and ICC decisions, 
which have conferred express antitrust law immunity. We know 
you don't intend retroactivity, but as you know, retroactivity 
is highly unusual. It creates constitutional issues; it may 
create taking issues. And we believe that you didn't--that that 
section needs to be repaired.
    In closing, I ask that we be allowed to submit for the 
record three letters from major railroad unions which recognize 
that this bill could hurt not only shippers and customers and 
railroads and the national interest, but labor employment----
    Mr. Johnson. Without objection.
    [The information referred to follows:]
    
    
    
                               __________

    Mr. Hemmer. Thank you, sir. That concludes my remarks, and 
I would be happy to answer questions.
    [The prepared statement of Mr. Hemmer follows:]
                Prepared Statement of J. Michael Hemmer



                               __________
    Mr. Johnson. Thank you sir.
    Next we will hear from Mr. Terry Huval.

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

    Mr. Huval. Thank you very much, Mr. Chairman. My name is 
Terry Huval, from Lafayette, Louisiana. I would like to thank 
the Members of the Subcommittee for allowing me to testify 
before you today.
    I am appearing on behalf of my community, Lafayette, 
Louisiana. I am at America Public Power Association, which 
represents 2,000 publicly-owned utility systems in the country, 
and the Consumers United for Rail Equity.
    What we are asking is to seek removal of any antitrust law 
exemptions applicable to railroads, which we believe--and we 
will be able to show you in a couple of minutes--affects the 
marketplace and creates significant--of harm to our customers 
and the customers of many other entities. House Resolution 233, 
the Railroad Antitrust Enforcement Act of 2009, we think is a 
necessary step.
    We congratulate, of course, the Judiciary Committee of last 
year for having voted for similar legislation, and believe that 
taking this to the final conclusion would be in the best 
interest of the public.
    I want to tell you a little story about Lafayette, 
Louisiana. We serve 125,000 people. Those are residents of our 
population. We have 60,000 customers, as a whole. We own 523 
megawatts--50 percent of our 523-megawatt Rotomaker Power Plant 
in Boyce, Louisiana.
    We are the 50 percent owner of that 523-megawatt unit; been 
an owner of that unit since 1982. And that particular unit 
provides almost two-thirds of our electricity, so whatever cost 
impacts affect that plant have an impact on two-thirds of the 
energy costs that we provide to our customers.
    If you look at the screen, I will refer you to the trek 
that our coal must take from the Powder River Basin in Wyoming 
all the way down to Louisiana. You will notice that we have one 
rail provider that is in red and an alternative rail provider 
that is in green and blue.
    The whole trek to our plant is 1,500 miles; 1,480 miles of 
that trek has a competitive option. In other words, we could 
either choose, in a purely competitive environment, to buy rail 
transportation from the company in red or we could purchase 
from the company in green or blue. The only part that is 
subject to monopoly control, where there is only one provider, 
is the last 20 miles to our plant.
    But as the Surface Transportation Board addresses an issue 
like this, they will not force or put the railroad companies in 
any position where they have to give us a price either for the 
last 20 miles, so therefore we could get a competitive option 
for the 1,480 miles coming is, or for us to be able to get a 
price from the competitive provider so we could make a decision 
on how we would deal with the last 20 miles. And that is tied 
down to the Surface Transportation Board's 1996 bottleneck 
decision, which allows this practice to take place where we are 
forced to have to take rail service on from one provider.
    So, bring it to some simple conclusions, and that 
description nets us 1 percent of our rail--the rail I take to 
get the service--that 1 percent monopoly transforms itself to 
monopoly over the entire train route. What does that do to our 
customers? Since 1999 we estimated that our customers have paid 
over $65 million more in energy costs because of those 
additional costs for rail transportation. Those costs are 
passed directly to our customers.
    As an example, 10 percent of our total electrical service 
in Lafayette, Louisiana is provided to educational 
institutions, public and private. That means that that $65 
million translates to $6.5 million that those public and 
private educational institutions have had to pay over the last 
10 years. The remainder of the $65 million, of course, goes to 
everybody else--all of the businesses, all of the residences in 
our community.
    In addition to costs, we have had service quality level 
interruptions, where because of derailment, because of lack of 
proper maintenance of the tracks, that we have had to purchase 
coal from Venezuela and have that shipped to our plant. We have 
had to use late night, which created some operational problems 
with our plant. We have had to move forward with prematurely 
retiring steel coal cars in exchange for aluminum coal cars at 
a price of about $16 million, the purpose of that being, of 
course, to be able to get all of our coal in the event of a 
disruption.
    And so I ask this Committee to strongly consider and to 
vote into this--this bill to move forward. We believe it is 
what is necessary to negate the anticompetitive behavior that 
we have experienced, and until the Surface Transportation 
Board's bottleneck decision is rescinded, this problem will 
persist.
    So I encourage your passage of H.R. 233 and thank you for 
your attention, and I look forward to answering any questions 
that you may have later on.
    [The prepared statement of Mr. Huval follows:]
                   Prepared Statement of Terry Huval



                               __________

    Mr. Johnson. Thank you, Mr. Huval.
    Dr. Cooper, your turn.

  TESTIMONY OF MARK N. COOPER, DIRECTOR OF RESEARCH, CONSUMER 
             FEDERATION OF AMERICA, WASHINGTON, DC

    Mr. Cooper. Thank you, Mr. Chairman, Members of the 
Committee. The Consumer Federation of America has been involved 
in public policy affecting the rail sector for 30 years for a 
simple reason: two-thirds of the coal shipped by rail is 
captive to a single railroad, and excessive coal rail rates end 
up in the electricity bills paid every month by American 
consumers. Excessive rail rates paid by other captive shippers 
of agriculture, chemical commodities, automobiles, industrial 
commodities distort the economy, lowering output and reducing 
employment.
    The report we have filed for the record today demonstrates 
the pervasive abuse of market power that afflicts the rail 
sector. The vast majority of rail markets are highly 
concentrated. Abusing their market power, the railroads have 
accumulated billions of dollars of excess profits and cost 
subsidies on large quantities of traffic that they carry below 
cost. The current rail sector is a textbook case of abuse of 
market power run rampant, and we give about a dozen indicators 
of that in our analysis.
    Combining the fact that we warned Congress this would 
happen before the Staggers Act was passed with the dramatic 
increase in abuse in the recent years, we conclude that as 
implemented by the Interstate Commerce Commission and the 
Surface Transportation Board, the Staggers Rail Act is among 
the first and worst examples of irrational exuberance for 
deregulation that has brought our economy to the brink of 
disaster.
    We must reaffirm our commitment to competition and the 
prevention of the abuse of market power if we are to rebuild 
our economy. Enacting H.R. 233, the Railroad Antitrust 
Enforcement Act of 2009, is a perfect place to start.
    The Staggers Rail Act is a particularly pernicious example 
of excessive deregulation because at the same time that 
Congress deregulated the rails, it also exempted the sector 
from the antitrust laws, entrusting the protection and 
promotion of competition to a regulatory agency that has been 
thoroughly captured by the industry it is supposed to oversee.
    The result has been a double whammy for captive shippers 
and consumers. Over the objection of the Department of Justice, 
the STB has allowed the railroads to increase their market 
power through mergers and anticompetitive tactics while 
simultaneously failing to implement the residual regulation 
contained in the Staggers Act to prevent the abuse of market 
power.
    Let us be clear: You can not look at what the STB and the 
ICC have done for a quarter of a century and say that this is a 
regulated industry. The regulator has been absent, 
irresponsible, and absolutely useless in terms of protecting 
shippers. That claim has zero credibility.
    If this Congress and this Administration can not quickly 
restore the commitment to vibrant competition as the 
cornerstone of the American economy, we will be doomed as a 
Nation to economic mediocrity. All across the economy, Congress 
is beginning to repair the damage of accepted deregulation--in 
the financial sector, in the energy sector. But antitrust has a 
special place in our economy because it should affect and drive 
competition in all sectors.
    Now, in some areas restoring the vitality of antitrust 
requires administrative action and court cases. Those will take 
a great deal of time. The rail sector is one area where 
Congress and quickly and decisively correct a mistake that 
Congress made.
    We urge you to reverse that error and pass H.R. 233, which 
will restore antitrust scrutiny in the rail sector. This will 
eliminate artificial barriers to competition, called paper 
barriers, because they are a blatant affront--a contractual 
obligation not to compete--they are a blatant affront to the 
antitrust laws.
    The threat of antitrust suits will also put pressure on 
railroads to behave more reasonably with respect to bottleneck 
facilities and reciprocal switching rates, as you have heard by 
the previous witness. Antitrust alone will not solve the 
problem of market power in the rail sector because the fabric 
of competition has been so severely damaged by more than a 
quarter of a century of neglect that we will need more. We will 
need regulation too.
    But restoring antitrust oversight of this sector is a 
critical first step to addressing the problem of market power. 
We must use antitrust to drive competition as deeply as 
possible into our economy, and then rely on regulation where 
market power can not be addressed or where market failure is 
likely.
    In the rail sector, we really do not know how far 
competition will carry us because it was never allowed to have 
a chance under the Staggers Act. Now is the time to give 
competition a chance and reform this industry as much as it is 
can, and then we will deal with regulation someplace else. 
Competition is the first thing we need to do to fix this 
sector.
    Thank you.
    [The prepared statement of Mr. Cooper follows:]
                  Prepared Statement of Mark N. Cooper



                               __________

    Mr. Johnson. Thank you, Dr. Cooper
    We will now begin the questions, and I will recognize 
myself for 5 minutes.
    For all of you, I would like to--well, prior to that, I 
would like to enter into the record a letter from--a letter to 
the Subcommittee signed by hundreds of companies across the 
country that ship their products by railroad. Any objection?
    Without objection, it is so entered.
    [The information referred to follows:]
    
    
    
                               __________

    Mr. Johnson. These companies believe that the antitrust 
exemptions are raising their costs, which, in turn, raise the 
prices that consumers have to pay. Is there anything that makes 
railroads different from any other industry that should make us 
hesitate before applying antitrust laws?
    Anybody who wished to respond, please do.
    Mr. Huval. This is Terry Huval. No, I don't see any reason 
why, you know, the railroads should be exempt from any of the 
antitrust laws that many other industries must deal with, in 
the utilities business--whether you are in the electric 
business or the gas business--you have regulation and you have 
to abide by the antitrust laws. So we think that ought to be 
uniform and we think that that type of umbrella requirement the 
railroad companies would create a different behavior on how 
they deal with customers like Lafayette.
    Mr. Hemmer. If I may, I have already pointed out that in 
many respects H.R. 233 would treat Union Pacific and other 
major railroads differently than other regulated industries. So 
we would like to at least start with the proposition that you 
should treat us the same way other regulated industries are 
treated.
    Are there unique characteristics of the railroad industry 
that make them appropriate for antitrust exemptions? Well, 
given the fact that I have already told you that we would be 
relatively untroubled by eliminating the statutory exemptions I 
am not going to make that claim. What you have to look at, 
though, and what would be looked at by any antitrust court 
looking at any regulated or partially regulated industry is, 
what is the structure of that regulation and how does that 
regulation interact with an antitrust court's jurisdiction?
    We would expect to be accorded the same treatment. My 
colleague on the right said something very important. He said 
the implied immunity doctrine would still apply to railroads.
    I am very concerned, especially given the legislative 
history that was prepared for last year's bill, that this 
Committee was instructing courts not to apply the implied 
immunity doctrine. So if I had some reassurance about that--
again, about equal treatment with other regulated industries--I 
would feel more comfortable.
    Mr. Cooper. The suggestion that regulation has somehow--
should be accorded any credibility in this industry is 
literally absurd. You can go back over 25-year history and look 
at the number of cases that shippers have won and you can count 
them on one hand, and then you will look at the relief they got 
and you will discover that the hand was just slapping them in 
the face. There is literally no notion that there is regulation 
of rates over captive shippers whatsoever.
    So that leads to the reason why there may be an effort to 
look back a little bit, because we have had a 25-year history 
of the rampant exercise of market power under a lack of 
regulation and a lack of competition and a lack of antitrust 
oversight. And so you combine that 25-year history with an 
incredible increase in profitability in rates in the last few 
years, a tightness of capacity, and the answer is that this is 
an old problem, and I worked on the Staggers Act as it went 
through this Congress, and we knew this could happen, and it 
has happened.
    You can look at the mergers of the mid-1990's--a tremendous 
increase in market power. The Department of Justice opposed 
those mergers. That is anticompetitive, and the out--the result 
has been abuse of market power.
    So yes, we have to look back to try and unravel a quarter 
of a century of abuse.
    Mr. Hemmer. Mr. Chairman, if I may try to unravel some of 
the misstatements that were just made, the Surface----
    Mr. Johnson. Well, Mr. Hemmer, I really don't want us to 
get into a debate on this, so I would appreciate your 
forbearance.
    Mr. Cooper, by removing the railroad industry's antitrust 
exemptions, how much do you think we could save consumers every 
year?
    Mr. Cooper. Well, we have estimated a total figure that we 
see as abuse--a combination of excess profit and cost subsidy. 
It is remarkable after a quarter of a century that so much 
traffic is carried on the rail that doesn't cover its costs. We 
think there are $3 billion or more of abuse.
    How much would come out from any particular decision, you 
can not predict. And the point is that, in a certain sense, 
that is the magic of real competition. If you let competition 
reign, if you tear up those paper barriers, if you put pressure 
on these bottleneck decisions that frustrate competition that 
could take place over 99 percent of a movement, you--shippers 
will get lower rates, railroads will be more efficient, and the 
economy will be better off.
    I can't put a dollar figure on any particular decision. It 
is the principle of competition that we really need to get back 
to. The competitive marketplace will sort that out.
    Lafayette, Louisiana will get a fair rate because they have 
an alternative. There are many power plants in America that 
don't have this situation of 99 percent potential competition 
and 1 percent bottleneck. Some of those are 100 percent 
monopolies, and those rates will be decided not in the 
competitive marketplace, but they should be overseen by the 
Surface Transportation Board.
    Mr. Johnson. Thank you, sir.
    And last but not least, this question: Mr. Hemmer, in his 
written testimony, argues that courts are incapable of 
evaluating the network effects of applying the antitrust laws 
to bottleneck situations. How would you respond, Mr. Morse?
    Mr. Morse. I think we have seen--let me make clear, I am 
not sure that the antitrust section has addressed that position 
in its testimony, so let me address it personally in answer to 
your question. I think we have seen the benefits of competition 
in other industry when interconnections have been opened up.
    There was a long time when we viewed the telephone industry 
in this country as a monopoly and we were told that we could 
not interconnect and connect our personal telephones or other 
devices within our home to the telephone network for fear that 
it would cause the entire network to fall apart. As we have 
seen competition increase in the telecommunications industry, 
in those areas where competition can flourish, we have seen 
tremendous benefits to consumers.
    Mr. Johnson. All right. We appreciate that.
    I will now recognize the Ranking Member for his questions.
    Mr. Coble. Thank you, Mr. Chairman.
    And gentlemen, thank you for being here. We only have 5 
minutes, so let me move along.
    Mr. Hemmer, it is your belief that H.R. 233 is retroactive 
and that past mergers could be contested in the future by the 
Justice Department or FTC. Explain to us how that would be 
problematic for the railroads, A, for shippers, B, and how it 
would impact consumers.
    Mr. Hemmer. Well, transactions that have been approved in 
the past have been fully implemented. Operations of network 
industries have been fully combined. You can no longer 
distinguish, in my case, the Missouri Pacific from the Union 
Pacific from the Western Pacific, all of which were combined 
back in 1980.
    If an antitrust court were attempt--to attempt to 
disassemble various parts or segments of that network, we would 
have a chaotic situation that would take years to unravel. You 
may recall, and I confess, that following the Union Pacific-
Southern Pacific merger there were service disruptions. Those 
would be modest compared to the disruption that would occur if 
we were to attempt to untangle the railroad system that has 
been operating as a single system for decades.
    Mr. Coble. Mr. Morse, what competitive standard will be 
used by the Justice Department if, in fact, 233 is enacted, and 
how would that standard differ from the one currently used by 
STB?
    Mr. Morse. Congressman, I am not a railroad regulatory 
expert, and therefore am not in a position to address the 
question of how the STB regulates. I have read the testimony 
that indicates that the STB, with respect to some of these 
issues with respect to bottleneck rates, for instance, with the 
STB, does allow the railroads to quote rates for the entire 
distance. And I believe that antitrust, in approaching that 
issue, would look at that as a tying question, would question 
whether a firm has market power in one market and is using that 
market power to foreclose competition in a second market and 
might condemn those arrangements in those circumstances where 
there is market power and a tying agreement.
    Mr. Coble. Thank you, sir.
    Dr. Cooper, would you oppose an amendment clarifying that 
past mergers would continue to remain exempt from challenges by 
the FTC or the Justice Department--and as briefly as you can, 
because I am running out of time.
    Mr. Cooper. That would be an extraordinary exemption from 
the antitrust laws. The fascinating thing, as you heard, the 
mention of the AT&T case, and that was--their exact argument 
was, ``You can't break us up.'' Why? The network will collapse. 
And my god, 20 years later we are a lot better off for having 
had competition.
    So the question here is that if the Department of Justice 
looks at that monopoly situation and discovers that market 
power is being abused, they could well take action against that 
far short of requiring divestiture. They might look upon the 
paper barriers as illegal restraints on trade and have those 
removed; they might look at the refusal to deal, in terms of 
bottleneck facilities, and have those be eliminated. So those 
are actions that ought to be allowed when the Department of 
Justice examines a monopoly.
    Mr. Coble. Okay. I don't want to omit Mr. Huval. Let me 
bring him in as my cleanup hitter.
    Mr. Huval, I am been told and I think it has been aired 
today, that in certain instances some electric companies have 
found it to be less effective to ship foreign oil into the 
United States by a barge rather than shipping domestic coal by 
railroads to points within this country. Is this a common 
conclusion?
    Mr. Huval. We would by far prefer having all of our energy 
sources come from this country versus having to ship it from 
abroad.
    Mr. Coble. Mr. Chairman, not unlike Mr. Morse, I have beat 
the red light.
    Mr. Johnson. Thank you, Mr. Coble,
    And I would just admonish everyone that don't--no 
spontaneous outbursts will be done here today, and if they are 
then they will be treated very harshly, even though they may be 
based on your irrational exuberance, Dr. Cooper, and anyone 
else that may find themselves afflicted with this urge.
    We will now begin with our questions by the Members. First, 
Congressman Mel Watt, North Carolina.
    Mr. Watt. Thank you, Mr. Chairman. And thank you for 
convening this important hearing, which, for some of us, has 
given us an opportunity to focus on this issue for the first 
time. I have two concerns that I want to explore, and I will 
explore them with Mr. Hemmer and Mr. Morse, since they seem to 
be on opposite sides of them.
    Mr. Hemmer, you suggested that section nine of the bill 
allows this bill to be applied retroactively. Can you concisely 
give me an example of how that might play out, and without 
getting into a debate, which the Chairman said he didn't want 
to encourage, I would like to have Mr. Morse respond to 
whatever situation you describe. So describe your best 
situation where you think this would be retroactive.
    I take it Dr. Cooper wants it to be retroactive. I am a 
little concerned about retroactivity when we are writing laws 
and applying them.
    So give us an example of where and how you believe section 
nine would make this--allow this to be retroactive.
    And then, Mr. Morse, if you can respond to Mr. Hemmer's 
example, that would be helpful to me, just to frame the issue 
here.
    Mr. Hemmer. I actually thought Mr. Morse and I were getting 
along reasonably well. I believe that section nine establishes 
two requirements for limitations. Basically, it says that 
conduct that takes place within the first 180 days after 
passage of the act and that has been immunized from the 
antitrust laws can not be challenged. However, conduct that 
takes place after the 180th day, which is essentially the 
continued implementation and carrying out of all of those 
immunized transactions, would be subject to attack.
    To take a specific example, when Union Pacific and Southern 
Pacific railroads merged, they formed a very efficient, now 
extremely competitive, single-line route across the southern 
tier of the United States, from Los Angeles into Texas and 
other points beyond. On the 181st day, I am fearful that 
someone might say, ``The Surface Transportation Board's 
creation and authorization of that route can now be attacked 
under the antitrust law.''
    Mr. Watt. Let me be clear on that. If we changed the word 
``and'' to ``or,'' would that solve that problem?
    Mr. Hemmer. I believe it goes a long way toward doing that, 
but I would want to look very carefully at the language to make 
sure that it would.
    Mr. Watt. Mr. Morse?
    Mr. Morse. Actually, as Mr. Hemmer said, we don't quite 
disagree so much on some of these issues. Let me be clear: In 
our testimony----
    Mr. Watt. Do you agree with Dr. Cooper that you intend for 
it to be retroactive?
    Mr. Morse. I may take a middle ground between them. And 
what our testimony said is, we said that we thought that the 
House bill takes a more sound approach than the Senate bill, 
with respect to this issue.
    I read the Senate bill as potentially opening up the issue 
that Mr. Hemmer identified, because it talks about previously 
exempted agreements. The House bill, as I read it, only talks 
about ongoing conduct. I am not sure----
    Mr. Watt. Would it do injustice to change the word ``and'' 
to ``or'' on page seven, line seven of the bill?
    Mr. Morse. I think I would want to look at that----
    Mr. Watt. If you all could look at that and give me 
something in writing on that. Let me go on----
    Mr. Morse. Let me make one point, though, with respect to 
this, and that is, I do see a difference with respect to 
mergers and with respect to the paper barrier issue, simply 
because there was a divestiture or trackage at some point in 
time. But let me be clear: I don't think the antitrust section 
does not believe that previously consummated mergers should be 
subject to challenge. But at least looking at the question of a 
paper barrier, where you had a divestiture of trackage, if that 
included an agreement that would permanently prohibit 
competition----
    Mr. Watt. I understand that.
    Mr. Morse [continuing]. Then to allow that continued 
prohibition on competition is a different situation than the 
merger situation.
    Mr. Watt. My time has run out, Mr. Chairman, but if I could 
just ask the other question for them to respond to in writing, 
it would be helpful.
    Mr. Johnson. Proceed.
    Mr. Watt. The other thing that I have some concern about 
was the prospect of inconsistent liability and outcomes if you 
have various folks along in various jurisdictions interpreting 
the statute. And so I would like any of you who care to to give 
me something in writing on that, and whether that might be 
addressed by--instead of giving the final authority to the STB, 
perhaps giving jurisdiction over these disputes to one 
particular court as the ultimate auditor, so that we don't end 
up with courts in different parts of the country reaching 
results on essentially the same facts that are inconsistent 
with each other. I know we don't have time for the witnesses to 
respond, but if you could do that in writing that would be 
wonderful, and I will be happy to put it in the record if you 
will address it to me.
    I thank the Chairman for his indulgence and yield back.
    Mr. Johnson. Certainly. Thank you, Congressman Watt.
    Next we will have questions from Bob Goodlatte, of the 
great state of Virginia.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    And I want to thank all of the witnesses. I would like to 
pick up right where the gentleman from North Carolina left off 
and give you an answer--give you an opportunity to answer the 
very question that he just asked----
    Mr. Johnson. Can you speak into the microphone? I can 
barely hear you----
    Mr. Goodlatte. This microphone doesn't tilt in the right 
direction. There we go.
    If you could follow up and address--I will ask each of you 
to do that--how we would handle the issue of the fact that 
these rail lines do transcend not just district court 
boundaries, but even Federal court of appeal jurisdiction 
boundaries. How is a railroad to behave when they have three 
different decisions from three different jurisdictions instruct 
them how to act?
    Mr. Morse. Let me say, I think that is the nature of the 
judicial system that we live in. Many of my clients in many 
industries face the possibility of being in court in different 
parts of the country. We give advice to clients on how to 
comply with the law based on the fact that we have different 
circuits sometimes coming up.
    When you actually end up in litigation, generally we tend 
to see courts at least listening to what other courts have 
said, but I don't think that is an issue which would confront 
the railroad industry different than it confronts every other 
industry in the----
    Mr. Goodlatte [continuing]. In some respects. I mean, there 
are certain types of industries where you can, and many 
industries do, operate in different fashions in different 
jurisdictions. The insurance industry operates differently 
regulated by each state insurance commissioner, and they can 
tailor that.
    But when you are shipping the same goods along the same 
line between the same communities and you are only operating 
along that line, you could have conflicting opinions that 
affect the same transaction, as opposed to two transactions 
engaged in by the same company but in different places.
    So I don't know if you want to add to that, or I will just 
turn to Mr. Hemmer and see what reflection he can give on that.
    Mr. Hemmer. Let me note at the outset that the railroad 
industry faces a more complex situation, which is typical of 
regulated industries, in that we may have one standard of 
performance established by the Surface Transportation Board and 
conflicting standards of performance under this bill set by the 
FTC and potentially by courts, whether they are in different 
parts of the country or sitting right next to each other.
    Mr. Goodlatte. Well, that is my next question, which is 
what you do when you have a conflict between a court decision 
and the Surface Transportation Board. Does this legislation 
tell us the answer to that?
    Mr. Hemmer. The legislation, in my view, doesn't clearly 
instruct a court about what to do. With respect to so-called 
paper barriers and so-called bottleneck rates, the legislative 
history virtually tells a court what to do and it, in my view, 
tells it to ignore several doctrines of antitrust jurisprudence 
that would normally apply in deciding what the relationship is 
between the court and the regulatory agency. That is a major 
concern for us, and if we could get that cleared up that would 
make a big difference.
    So I think we might find courts not knowing how to interact 
with regulation, whereas, for decades they have had basic 
standards, such as primary jurisdictions, implied immunity--
modified recently by the Credit Suisse decision--and they can 
apply those things. We know the standards and they know the 
standards. I believe this bill creates significant confusion.
    Mr. Goodlatte. Dr. Cooper?
    Mr. Cooper. Well, ultimately, in America we have 
federalism. And in the court system we do get conflicts between 
the courts, and they get resolved, when there is a conflict, 
through the court system. And we do get uniformity. And that 
takes time, but that is the process that we have in this 
country for resolving those judicial outcomes. And frankly, we 
are frequently proud of that federalism----
    Mr. Goodlatte. Let me ask you, Dr. Cooper, would you--with 
this legislation would you preserve the Surface Transportation 
Board--or if you are going to go to a system where you can have 
legal action and Federal Trade Commission supervision, do you 
also need the Surface Transportation Board, or can you go with 
one or the other?
    Mr. Cooper. No. The simple fact of the matter is that there 
is pervasive market power in this industry, as several other 
industries, and we, as a Nation, have actually had both 
antitrust and regulation. The problem here is that we didn't 
have antitrust, and so we don't know how far antitrust can 
carry us.
    And some of the most important antitrust cases have, in 
fact, been in regulated industries--in the electric utility 
industry ottertails require the integrated grid. And believe 
me, an electric utility system is a lot more integrated than a 
railroad system; electrons are more difficult. Second of all, 
AT&T--antitrust cases take place in regulated industries, and 
by introducing competition we are much better off for it.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Johnson. Thank you.
    Next we will hear from Mr. Bobby Scott, from--oh yes, that 
is right. That is right. I am sorry. I will hear from Mr. 
Scott. [Laughter.]
    Let us see. Do we have any other--anyone else that is 
interested in testifying?
    Looks like we do not. Everybody has departed, so I would 
like to thank all the witnesses for their testimony today. 
Without objection, Members will have 5 legislative days to 
submit any additional written questions, which we will forward 
to the witnesses and ask that you answer as promptly as you 
can. They will be made part of the record. Without objection, 
the record will remain open for 5 legislative days for the 
submission of any other additional material.
    Mr. Watt. Mr. Chairman?
    Mr. Johnson. Yes.
    Mr. Watt. Could I ask the Chair to buttress my request for 
written responses to the questions that we ask on the record? I 
am not sure I have the authority to do that. It may require the 
Chair's intervention on my behalf.
    Mr. Johnson. Well, thank you, Congressman Watt. Of course, 
just because you have seniority doesn't mean that I have got to 
do what you say, but you are on----
    Mr. Watt. That is why I made the request, Mr. Chairman. It 
wasn't a directive; it was a request.
    Mr. Johnson. All right. Any objection?
    All right. Thank you. Thank you, and this Subcommittee 
meeting is adjourned.
    [Whereupon, at 4:15 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

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               Material Submitted for the Hearing Record





                                 
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