[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
U.S. GOVERNMENT PRINTING OFFICE
49-781 PDF WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
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
----------
Material Submitted for the Hearing Record