    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                          THE 35TH ANNIVERSARY OF THE STAGGERS
                            RAIL ACT: RAILROAD DEREGULATION PAST,
                                 PRESENT, AND FUTURE

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

                                    (114-16)

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                           RAILROADS, PIPELINES, AND
                              HAZARDOUS MATERIALS

                                     OF THE

                                  COMMITTEE ON
                       TRANSPORTATION AND INFRASTRUCTURE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 13, 2015

                                   __________

                           Printed for the use of the
                 Committee on Transportation and Infrastructure

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             Available online at: http://www.gpo.gov/fdsys/browse/
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                                  _____________

                         U.S. GOVERNMENT PUBLISHING OFFICE
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                 COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      BILL SHUSTER, Pennsylvania, Chairman

    DON YOUNG, Alaska                    PETER A. DeFAZIO, Oregon
    JOHN J. DUNCAN, Jr., Tennessee,      ELEANOR HOLMES NORTON, District of
      Vice Chair                         Columbia
    JOHN L. MICA, Florida                JERROLD NADLER, New York
    FRANK A. LoBIONDO, New Jersey        CORRINE BROWN, Florida
    SAM GRAVES, Missouri                 EDDIE BERNICE JOHNSON, Texas
    CANDICE S. MILLER, Michigan          ELIJAH E. CUMMINGS, Maryland
    DUNCAN HUNTER, California            RICK LARSEN, Washington
    ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHAEL E. CAPUANO, Massachusetts
    LOU BARLETTA, Pennsylvania           GRACE F. NAPOLITANO, California
    BLAKE FARENTHOLD, Texas              DANIEL LIPINSKI, Illinois
    BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
    RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
    DANIEL WEBSTER, Florida              DONNA F. EDWARDS, Maryland
    JEFF DENHAM, California              JOHN GARAMENDI, California
    REID J. RIBBLE, Wisconsin            ANDRE CARSON, Indiana
    THOMAS MASSIE, Kentucky              JANICE HAHN, California
    TOM RICE, South Carolina             RICHARD M. NOLAN, Minnesota
    MARK MEADOWS, North Carolina         ANN KIRKPATRICK, Arizona
    SCOTT PERRY, Pennsylvania            DINA TITUS, Nevada
    RODNEY DAVIS, Illinois               SEAN PATRICK MALONEY, New York
    MARK SANFORD, South Carolina         ELIZABETH H. ESTY, Connecticut
    ROB WOODALL, Georgia                 LOIS FRANKEL, Florida
    TODD ROKITA, Indiana                 CHERI BUSTOS, Illinois
    JOHN KATKO, New York                 JARED HUFFMAN, California
    BRIAN BABIN, Texas                   JULIA BROWNLEY, California
    CRESENT HARDY, Nevada
    RYAN A. COSTELLO, Pennsylvania
    GARRET GRAVES, Louisiana
    MIMI WALTERS, California
    BARBARA COMSTOCK, Virginia
    CARLOS CURBELO, Florida
    DAVID ROUZER, North Carolina
    LEE M. ZELDIN, New York

                                      (ii)

         Subcommittee on Railroads, Pipelines, and Hazardous Materials

                       JEFF DENHAM, California, Chairman

    JOHN J. DUNCAN, Jr., Tennessee       MICHAEL E. CAPUANO, Massachusetts
    JOHN L. MICA, Florida                CORRINE BROWN, Florida
    SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
    CANDICE S. MILLER, Michigan          JERROLD NADLER, New York
    LOU BARLETTA, Pennsylvania           ELIJAH E. CUMMINGS, Maryland
    BLAKE FARENTHOLD, Texas              RICK LARSEN, Washington
    RICHARD L. HANNA, New York           STEVE COHEN, Tennessee
    DANIEL WEBSTER, Florida              ALBIO SIRES, New Jersey
    TOM RICE, South Carolina             RICHARD M. NOLAN, Minnesota
    SCOTT PERRY, Pennsylvania            ELIZABETH H. ESTY, Connecticut
    TODD ROKITA, Indiana                 GRACE F. NAPOLITANO, California
    JOHN KATKO, New York                 JANICE HAHN, California
    BRIAN BABIN, Texas                   PETER A. DeFAZIO, Oregon (Ex
    CRESENT HARDY, Nevada                Officio)
    MIMI WALTERS, California
    LEE M. ZELDIN, New York
    BILL SHUSTER, Pennsylvania (Ex
    Officio)

                                     (iii)

                                    CONTENTS

                                                                       Page

    Summary of Subject Matter........................................    vi

                                   WITNESSES

    Hon. Deb Miller, Acting Chairwoman, Surface Transportation Board:

        Testimony....................................................     4
        Prepared statement...........................................    48
        Responses to majority-side questions for the record..........    64
    Hon. Calvin Dooley, President and Chief Executive Officer,
      American Chemistry Council:

        Testimony....................................................     4
        Prepared statement...........................................    68
        Responses to majority-side questions for the record..........    77
    Edward R. Hamberger, President and Chief Executive Officer,
      Association of American Railroads:

        Testimony....................................................     4
        Prepared statement...........................................    82
    Linda Bauer Darr, President, American Short Line and Regional
      Railroad Association:

        Testimony....................................................     4
        Prepared statement...........................................   107
    John W. Mayo, Professor of Economics, Business, and Public
      Policy, McDonough School of Business, Georgetown University:

        Testimony....................................................     4
        Prepared statement...........................................   113

              PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

    Hon. Peter A. DeFazio of Oregon..................................    43

                           SUBMISSIONS FOR THE RECORD

    Edward R. Hamberger, President and Chief Executive Officer,
      Association of American Railroads, submission of the following:

        Letter of March 14, 2014, from Chairman Bill Shuster and
          Ranking Member Nick J. Rahall II, Committee on
          Transportation and Infrastructure, and Chairman Jeff Denham
          and Ranking Member Corrine Brown, Subcommittee on
          Railroads, Pipelines, and Hazardous Materials, to Chairman
          Daniel R. Elliot III and Vice Chairman Ann D. Begeman,
          Surface Transportation Board...............................    10
        Charts: Average U.S. Freight Rail Rates for Commodities and
          Chemicals..................................................    28
        Chart: Freight Railroad Spending on Infrastructure and
          Equipment Since 1980.......................................    40

                            ADDITIONS TO THE RECORD

    Letter of May 13, 2015, from Ginny Sinkel Kremer, Esq., Blatman
      Bobrowski Mead and Talerman, LLC, to Chairman Bill Shuster,
      Committee on Transportation and Infrastructure.................   116
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

     THE 35TH ANNIVERSARY OF THE STAGGERS RAIL ACT: RAILROAD DEREGULATION
                           PAST, PRESENT, AND FUTURE

                                  ----------

                            WEDNESDAY, MAY 13, 2015

                      House of Representatives,
              Subcommittee on Railroads, Pipelines, and
                                   Hazardous Materials,
                Committee on Transportation and Infrastructure,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:25 a.m., in
    room 2167, Rayburn House Office Building, Hon. Jeff Denham
    (Chairman of the subcommittee) presiding.
        Mr. Denham. The subcommittee will come to order.
        This morning's hearing is on the 35th anniversary of the
    Staggers Rail Act. But before we get started with the hearing
    itself, I think that it is important to let the American public
    know that it is with a heavy heart we are given the notice of
    this tragic accident in Philadelphia. Last night, we saw
    something horrific that was unimaginable, that we would never
    expect to see on our passenger rail. So, this morning, myself,
    Ranking Member Capuano, the chairman, and ranking member would
    each like to make a statement.
        First of all, I want to commend the first responders and
    the fellow travelers that helped out those that were injured in
    this accident. We have now seen the Federal officials, both
    from the National Transportation Safety Board and the Federal
    Railroad Administration, respond quickly. I think the American
    public is looking for answers on how this can happen, and we
    have held several hearings now on rail safety, and that will be
    the question that this committee continues to follow up on and
    ask, as well.
        Again, we express our condolences to the loved ones who
    have lost or have someone missing or injured in this accident.
        I now turn it over to the ranking member, Mike Capuano.
        Mr. Capuano. Thank you, Mr. Chairman.
        I want to join you in everything you just stated, and I
    would also just like to just offer my prayers and, I guess on
    behalf of everyone, to be perfectly honest, to offer the
    prayers for those who are still in the hospital or suffering.
    May God bring them a speedy recovery and bring them back to
    health as quickly as possible.
        Thank you, Mr. Chairman.
        Mr. Denham. The full committee chairman, Mr. Shuster.
        Mr. Shuster. Thank you, Chairman Denham.
        Obviously, it is a horrific accident, as the chairman said,
    something that, you know, we haven't seen in some time.
        The National Transportation Safety Board is obviously up
    there looking at it. We certainly don't know why. I have heard
    some politicians already come out and say, ``If we would have
    spent more money.'' Maybe that is the case, but it is
    something, I think, we really need to take a serious look at
    that and, first of all, figure out what happened up there.
        The Northeast Corridor is extremely important to the
    Nation. That is why Chairman Denham and myself worked hard with
    Ranking Member Capuano and DeFazio to put out a passenger rail
    reform bill focusing really on the Northeast Corridor, making
    sure those profits for the Northeast Corridor get put back into
    the Northeast Corridor.
        So, again, it is waiting for some action in the Senate. We
    hope that they will take a serious look at it and especially
    with this accident, because hundreds of millions of people ride
    the Northeast Corridor, not just Amtrak but all those daily
    commuters from SEPTA, to New Jersey, Massachusetts,
    Connecticut, and all the way up that corridor. So it is
    critical we find out exactly what happened up there and make
    sure that we take the appropriate response to make sure it
    doesn't happen again.
        And, with that, I yield back.
        Mr. Denham. With that, we will start with our panel
    members. Let me just first start with opening statements on the
    hearing this morning.
        Railroads have played an important and integral role in
    this country since railroading came onto the transportation
    scene in the early 1800s. In fact, most American cities and
    towns, especially in the Midwest and West, were founded along
    the railroads.
        Today, they are the backbone of the Nation's freight
    system, transporting 40 percent of all freight volume--more
    than any other mode. They transport 30 million carloads of
    freight every year, ranging from coal to agriculture products
    to intermodal shipments. In fact, our freight rail system is
    the envy of the world. And countries--as we travel around, we
    hear most often that other countries are envious and look to
    emulate our rail system in their countries.
        However, it was not long ago when America's freight rail
    system was in complete disarray. By the 1970s, battered by
    competition from trucking and airlines and hampered by
    burdensome regulations, railroads were dying a slow death.
    Their infrastructure was falling apart. Customers were not
    getting efficient service. Railroad bankruptcies were an all-
    too-common occurrence.
        Congress tried several acts to fix the system, even going
    as far as getting into the business of creating railroads, yet
    nothing seemed to work. It wasn't until the Staggers Act that
    Congress was able to find the mix of policies to get the system
    working again. First, it allowed railroads to act more like
    true businesses, by allowing them to charge market-driven rates
    rather than ones handed down from Washington bureaucrats.
    Second, the act allowed railroads to right-size their networks
    by focusing on rail lines that made economic sense. And,
    finally, it encouraged the creation of the short line railroads
    to serve those regional markets that the larger Class I
    railroads could not do economically. Thirty-five years later,
    we can see the benefits of these changes in the strong rail
    system that we have today.
        However, while we have had great success with the Staggers
    Act, we need to make sure that the regulatory system still
    works well. The service issues the railroads had last winter
    was a good reminder of this and of the important role of the
    STB, the Surface Transportation Board, and the role that they
    play with rail and with our customers.
        So today we are going to hear from the STB, the railroads,
    and others about the importance of the Staggers Act reforms. I
    also look forward to hearing the future of how best railroads
    can serve America.
        In closing, I look forward to the hearing and would now
    like to recognize Mr. Capuano for any opening statement he may
    have.
        Mr. Capuano. Thank you, Mr. Chairman. I will keep mine
    brief.
        Basically, the Staggers Act, as we all know, was a great
    act. It was really an improvement and an advancement in the
    rail industry. Yet, with all good acts, they require and demand
    and deserve continuous monitoring and attention and updating
    and amendments if and when they are necessary.
        And, to me, that is what I am hoping to find out from this
    hearing. Is it working as we hoped? Are there any improvements,
    are there any tweaks we can make to it? Should we completely
    leave it alone? Should we roll it back? I mean, not that I
    would agree with any of those statements, but I want to hear
    other people's opinions.
        And, with that, I will simply yield back. Thank you, Mr.
    Chairman.
        Mr. Denham. Thank you.
        And the chairman of the full committee, Mr. Shuster.
        Mr. Shuster. Well, I want to thank Chairman Denham and
    Ranking Member Capuano for holding this hearing today.
        It has been one of the committee's priorities to look at
    the movement of freight across this country, whether it is by
    rail, whether it is by highway, by water. So, again, we look
    forward to, whether we passed WRRDA last year or the surface
    transportation bill or the FAA reauthorization, making sure we
    are doing the right things to strengthen all the modes of
    transportation.
        The Department of Transportation is projecting that freight
    volumes will increase significantly over the next few decades,
    and we need to prepare for that growth, again, through all the
    modes.
        As Chairman Denham noted, the railroads have played a
    critical role in moving large quantities of freight long
    distances. So we need to make sure that we are doing the right
    things here in Congress to stay out of the way when necessary
    but to assist where necessary with the transportation system.
        After 35 years, it is clear the Staggers Act has been
    successful, and we can learn from it, what it has done to the
    railroad and, I think, across all the modes, in ways to
    upgrade, change our infrastructure.
        I always like to point out that the railroads reinvest 19
    percent of their revenues--not their profits, their revenues--
    back into their infrastructure, which in 2015 I believe is
    projected to be $29 billion. Volume is up, productivity has
    increased, safety has improved, and the financial health of the
    industry is strong.
        We have, though, seen some disruptions because of the
    winter in 2013 and 2015. And, again, there is concern with
    shippers as to the STB's relief procedures, I think. So it is a
    good time to revisit the regulatory environment of the
    railroads.
        And in response to some of those concerns, I know our
    counterparts in the Senate have produced an intriguing bill
    that we need to take a careful look at. But I hope that when we
    look at that bill we realize we have a very strong railroad
    industry. And, over the past 35 years, it has gone from being
    not strong to very strong. And I think, again, we need to do
    what is right here in Congress to make sure that we maintain
    the strength of our railroad industry, which, as Chairman
    Denham said, is the envy of the world.
        And, with that, I yield back.
        Mr. Denham. Thank you.
        I would now like to welcome our panel of witnesses: first,
    the Honorable Deb Miller, Acting Chair of the Surface
    Transportation Board; the Honorable Calvin Dooley, president
    and CEO of the American Chemistry Council; Edward R. Hamberger,
    president and CEO of the Association of American Railroads;
    Linda Darr, president of American Short Line and Regional
    Railroad Association; and John Mayo, professor of economics at
    Georgetown University.
        I ask unanimous consent that our witnesses' full statements
    be included in the record.
        Without objection, so ordered.
        Since your written testimony has been made part of the
    record, the subcommittee would request that you limit your oral
    testimony to 5 minutes.
        Ms. Miller, welcome, and you are recognized.

       TESTIMONY OF HON. DEB MILLER, ACTING CHAIRWOMAN, SURFACE
     TRANSPORTATION BOARD; HON. CALVIN DOOLEY, PRESIDENT AND CHIEF
       EXECUTIVE OFFICER, AMERICAN CHEMISTRY COUNCIL; EDWARD R.
     HAMBERGER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, ASSOCIATION
     OF AMERICAN RAILROADS; LINDA BAUER DARR, PRESIDENT, AMERICAN
    SHORT LINE AND REGIONAL RAILROAD ASSOCIATION; AND JOHN W. MAYO,
    PROFESSOR OF ECONOMICS, BUSINESS, AND PUBLIC POLICY, MCDONOUGH
               SCHOOL OF BUSINESS, GEORGETOWN UNIVERSITY

        Ms. Miller. Thank you very much.
        Good morning, Chairman Shuster, subcommittee Chairman
    Denham and subcommittee Ranking Member Capuano, and members of
    the subcommittee. My name is Deb Miller. I am the Acting Chair
    of the Surface Transportation Board. What I would like to do
    this morning is give you a brief look back at the history of
    the ICC and a brief look forward, looking at the priorities
    today of the Surface Transportation Board.
        The Interstate Commerce Commission, the predecessor agency
    of the Surface Transportation Board, was the first Federal
    regulatory agency, created in 1887. Over time, the ICC grew
    into a massive organization, with 2,900 employees at its peak.
        But, by the late 1960s, the railroad industry in the United
    States was in decline. One reason was competition from other
    modes, but another major contributing factor was excessive
    regulation. Railroads were not given the flexibility needed to
    manage their business in this new competitive environment. They
    were governed by burdensome and Byzantine regulations.
        By the early 1970s, the situation was so perilous there was
    even talk of nationalizing the rail industry. In response,
    Congress passed a series of laws aimed at deregulating the
    industry. And, in what many considered a last-ditch attempt to
    save it, the most sweeping of these was the Staggers Act,
    passed in 1980.
        The Staggers Act instituted a number of changes to the
    regulatory landscape. First, it allowed railroads to more
    easily abandon unprofitable lines. Second, it made it easier
    for railroads to merge. Third, it provided exemption authority
    to quickly approve transactions that were routine and
    noncontroversial. Most significantly, though, Staggers gave
    railroads greater pricing freedom. Railroads were allowed to
    engage in differential pricing, meaning they could charge
    different shippers different rates depending on the demand for
    that traffic.
        Since passage of the Staggers Act, the railroad industry
    has become more efficient, productive, and profitable.
        In 1995, Congress sunsetted the ICC and created the Surface
    Transportation Board. Today, the agency's mission is still
    governed by many of the principles established by Staggers.
        The Board is charged with promoting an efficient,
    competitive, safe, and cost-effective rail network by enabling
    railroads to earn adequate revenues that foster reinvestment in
    their networks and attract outside capital and provide reliable
    service. At the same time, the Board is mandated with working
    to ensure that effective competition exists between railroads
    and to maintain reasonable rates where there is a lack of
    effective competition.
        This hearing is particularly timely for me, as the Acting
    Chair of the Surface Transportation Board. The Board is in the
    process of reevaluating many of our economic regulatory
    practices to determine if they are still appropriate for
    today's environment.
        On May 8, we announced that we will conduct two significant
    hearings. First, the Board will hold a hearing on June 10 to
    examine whether our rate case methodologies are sufficiently
    accessible for grain shippers. Second, the Board announced that
    on July 22 and 23 we will explore issues pertaining to the
    concept of revenue adequacy.
        Revenue adequacy is an economic concept that describes
    whether a carrier is earning sufficient revenue to cover its
    costs and earn a reasonable return sufficient to attract
    capital. The ICC held that rates could be challenged if a
    railroad were revenue-adequate over a period of years, but no
    corresponding methodology was ever adopted.
        The Board also has another major proceeding that has been
    pending before us for some time. It involves something called
    competitive access or reciprocal switching. Reciprocal
    switching occurs when one railroad that exclusively serves a
    facility agrees to provide switching services for another
    carrier for a flat switching fee. These reciprocal switching
    agreements create rail-to-rail competition by permitting a
    competing railroad to offer its own single-line rate even
    though it cannot physically serve the shipper.
        The Board was presented with a proposal for the increased
    use of reciprocal switching several years ago. I regret to say
    that the Board has taken no action. I believe the Board owes
    our stakeholders, who have spent significant resources to
    develop the record in this proceeding, a decision on what it
    plans to do with the proposal.
        Given the overlap between the issues raised by the
    competitive access proposal and the proposals raised in our
    grain rate and revenue adequacy proceedings, my goal after
    these hearings is for the Board to issue a package of proposals
    on many, if not all, of these matters.
        The Board is also examining our method for regulating
    railroad rates. It is well known that our current process,
    known as a stand-alone cost test, is cumbersome and expensive.
        To address concerns related to rate regulation, the Board
    initiated two studies. First, the Board engaged an independent
    firm to study rate reasonableness methodologies used in other
    industries and throughout the world. Second, the Board hired a
    consulting firm to examine the Board's internal processes for
    deciding rate cases. The consultant was tasked with studying
    our internal process and offering recommendations on how we
    could streamline and improve our case processing so we would be
    quicker and more accurate.
        The Board is also reviewing how to handle nonrate cases to
    improve and speed up our decisionmaking. The industry is
    frustrated with our pace, and so am I. It has been one of my
    priorities since my first week at the Board, and I am hopeful
    that this set of recommendations, including a set of
    performance metrics that we are putting in place, will help
    move the Board forward more quickly.
        Mr. Chairman, thank you for giving me this opportunity. I
    will welcome questions at the end.
        Mr. Denham. Thank you for your testimony.
        Mr. Dooley, you may proceed.
        Mr. Dooley. Well, thank you, Chairman Denham and Ranking
    Member Capuano, and it is a pleasure for me to be testifying
    today on the Staggers Act.
        And I represent the American Chemistry Council, and we
    employ about 800,000 men and women throughout this country. We
    are the second-largest shipper of commodities by rail in the
    country, and it is absolutely important for us to have a strong
    rail industry.
        I want to say at the outset, there is no interest among our
    membership to see a reregulation of the rail industry and go
    back 20 or 30 years ago. But we do feel that when we have seen
    what has transpired over the past since the Staggers Act has
    been implemented: that we have a changed rail landscape that is
    resulting in a greater consolidation.
        And with this greater consolidation of the rail industry,
    it is changing the marketplace and the competitiveness of the
    marketplace. Because what we have seen happen in just since--I
    guess you would go back to 2001, when you had the last major
    consolidation of the rail industry, we now have basically seven
    Class I rail lines out there, of which four are responsible for
    90 percent of all shipments.
        We think that also can be--you can see a correlation to
    that increased consolidation to what we have seen is a fairly
    rapid increase in the shipping rates, which have increased
    almost 100 percent since about 2000, 2001.
        That has also resulted in--that consolidation--in an
    increased number of shippers that are captive to one rail line.
    We think now that there is almost--the figures you can--you
    know, close to 75 percent of all shippers now in our industry
    are captive to one rail line.
        What that is resulting in is a fairly significant increase
    in rates and cost of shipments. We have done an analysis, using
    AAR data and STB data, I should say, that has calculated what
    is the cost of shipments that exceed the 180 percent RVC,
    recoverable variable cost, that the STB uses to consider
    whether or not a rate could be challenged. In the last year,
    that figure was about $20 billion.
        Now, we are also concerned not by the aggregate amount of
    that, because I am not challenging--all those rates are
    certainly not unjustified. But what we are also seeing is a
    very rapid increase in the rates that are in excess of that 180
    percent. In fact, we have seen a 50-percent increase in the
    rates, an increase of 300 percent of the RVC, since 2005.
        So that is what is being experienced not just by our
    industry but by shippers throughout the country. And that has
    resulted in a coalition that we have helped to organize that
    includes 47 other groups representing manufacturing,
    agriculture, and energy interests that employ about 4.7 million
    people and contribute $2.4 trillion in economic output.
        And what we are asking for is some commonsense reforms to
    the Staggers Act and some modifications that Commissioner
    Miller has articulated. We think it is badly in need of
    reforms.
        So what we are suggesting is that we need to give greater
    attention to improving the administrative process, reforming
    rate bundling protections, closing rate review loopholes,
    allowing competitive switching, updating rate review standards,
    and providing arbitration as an option to streamline rate
    reviews.
        There are clearly regulatory and financial impediments to
    securing rate relief through STB. STB's own calculations are it
    costs about $5 million to bring a rate case to the STB. It
    takes close to 3 years before you get an outcome in that rate
    dispute case. That clearly is not acceptable.
        Now, I think that there is a way forward. And I appreciated
    Congressman Shuster's acknowledging the action that the Senate
    took that passed a bill that passed unanimously out of the
    Senate Commerce Committee. But what we need to do is set aside
    some of the hyperbolic rhetoric.
        And I just want to cite a statement that Ed Hamberger has
    in his written testimony. He said, ``When one looks behind the
    actions that proponents of reregulation are urging upon
    Congress and the STB to 'reform' freight rail policy, it is
    clear that 'reform' is a euphemism for 'force railroads to
    subsidize us' and that the needs of the railroads and the
    general public are a distant second to their own narrow
    desires.''
        Let me be very clear that the farmers, the manufacturers,
    the energy producers, that are all part of our coalition are
    not narrow interests. They are in every congressional district
    in this country.
        What we are asking for is commonsense reforms that have
    been articulated by STB Commissioners. What we are asking for
    is commonsense reforms that have been advanced by the Senate.
    This type of rhetoric does a disservice to shippers that are
    customers of the rail industry, that need a strong rail
    industry. It is an insult to Senator Thune and Senator Nelson,
    who embraced the objectives that are part of the STB reforms
    that we are trying to advance.
        I hope that we can continue to work with this committee to
    see if we can advance similar legislation that ensures--there
    is nothing mutually exclusive about a strong and a financially
    robust rail industry and giving equitable, efficient access to
    a rate resolution process through the Surface Transportation
    Board.
        Thank you.
        Mr. Denham. Thank you, Mr. Dooley.
        Mr. Hamberger, you are recognized.
        Mr. Hamberger. Thank you, Chairman Denham, Chairman
    Shuster, Ranking Members DeFazio and Capuano. Thank you for the
    opportunity to be here this morning.
        Before we turn to the issue of the Staggers Act, I would
    like to associate myself with the eloquent statements of the
    leaders of this committee about the horrific accident outside
    of Philadelphia last evening. Everyone in the rail industry was
    saddened by what occurred last evening. Our thoughts, prayers,
    sympathies go out to the victims, their friends, their family.
        I had occasion to communicate with Joe Boardman, President
    of Amtrak, this morning, and he asked me to express his
    gratitude to the medical personnel, the firefighters, the
    emergency responders, all of whom were there working through
    the night tirelessly to try to mitigate the impact of this
    accident.
        I understand the NTSB and FRA are on the scene, as is Joe
    Boardman. I hope in the days and weeks to come that we will be
    able to learn a lesson from what happened there last evening,
    that we will be able to take that lesson, as we try to do with
    every accident, and apply it into the future so that we can
    make what is already a safe industry even safer.
        If I might turn now to the Staggers Act, it is an
    interesting juxtaposition to me that we are sitting here in the
    middle of National Infrastructure Week with pundits from across
    the political spectrum saying we should be spending more
    private money on our Nation's infrastructure. On that same side
    of the ledger, this committee and all of Congress, wrestling
    with where to find money for the Highway Trust Fund. And on the
    other side, juxtaposed with that, thanks to the Staggers Act,
    the freight rail industry quietly goes about its business,
    spending this year $29 billion, private capital, on the
    140,000-mile network that is recognized as the best in the
    world.
        It is the best in the world because of a direct result of a
    balanced economic system at the Surface Transportation Board.
    It relies on competition to establish rate and service
    standards, with a regulatory safety net available to rail
    customers who need it.
        This balanced regulation has allowed railroads to improve
    their financial performance from the anemic levels prior to the
    Staggers Act, which Chairwoman Miller talked about, which in
    turn has allowed the railroads to plow $575 billion, private
    capital taxpayer money, back into the network. Class I
    railroads, as I mentioned, will spend an additional $29 billion
    this year.
        Millions of Americans work in industries that are more
    competitive in the tough global economy thanks to the
    affordability and productivity of America's freight railroads.
    We know that if America's future freight transportation demand
    is to be met railroads must have the capacity to handle it. We
    are preparing for tomorrow today all over the country,
    expanding intermodal terminals, double-tracking hundreds of
    miles of track, installing millions of new rail ties, upgrading
    signal systems, and building new major rail yards.
        These projects are aimed at maintaining and growing the
    railroads network so that they are better able to serve our
    customers and provide the safe, efficient freight
    transportation service our Nation's economy needs. And all of
    these projects are more likely to be undertaken under today's
    balanced regulatory system than they would have been under a
    system of excessive, needless regulation.
        This committee knows well that transportation systems are
    expensive to build and maintain, whether with private or public
    funds. Railroads are no exception. By any of a number of
    measures, the capital intensity of freight railroading is at or
    near the top of all U.S. industries. For example, this year,
    railroads will spend 19 percent of revenue on capital
    investment. The comparable figure for U.S. manufacturing is 3
    percent.
        Looking ahead, the long-term demand for freight
    transportation will undoubtedly grow. With highway congestion
    becoming more acute and with public pressure growing to reduce
    emissions, conserve fuel, and promote safety, railroads are
    likely to be called upon to do even more in the years ahead.
    And as our economy evolves, we will be called upon to make
    additional investments.
        For that to happen, there must be appropriate public
    policies in place. Policymakers should acknowledge that, for
    reasons of international competitiveness, safety, and economic
    growth, the United States has a critical and growing need for
    investment in transportation infrastructure. Private rail
    investment should be encouraged, and regulations and
    legislation should not adversely affect railroads' ability or
    willingness to make those investments.
        And I want to thank the committee for its bipartisan letter
    last year to the STB explicitly acknowledging those facts,
    dated March 14, 2014, which I would ask be made part of the
    record.
        [The information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Hamberger. Today our Nation faces a number of serious
    transportation-related problems, many of which this committee,
    to its credit, is working hard to address. I submit to you that
    it makes no sense to add to that list by trying to fix
    something that is not broken. The current rail regulatory
    system is working well, and, because of that, our Nation's
    freight rail network is working well too.
        I will just add at the end, with respect to the bill that
    came out of committee in March from the Senate Commerce
    Committee, our industry did not object to that bill, and I
    expect that it will be moving through the Senate and on its way
    to the House sometime this year.
        Thank you for the opportunity. Sorry I went a little over,
    Mr. Chairman. I appreciate your allowing me to do so.
        Mr. Denham. Thank you, Mr. Hamberger.
        Ms. Darr, you may proceed.
        Ms. Darr. Thank you, Chairman Denham, Chairman Shuster,
    Ranking Members Capuano and DeFazio, and members of the
    committee.
        In the wake of last night's Amtrak accident, I also wanted
    to contend the condolences of all those in the short line
    industry to those that lost their lives, those that are in the
    hospital, and the family and friends that grieve for them.
        I am Linda Darr. I am president of the American Short Line
    and Regional Railroad Association. We are ``the little
    association that could.'' ASLRRA is a national trade
    organization representing the Nation's 550 Class II and Class
    III railroads. Together, the short line railroads operate
    nearly 38 percent of the national rail network. We handle in
    origination or destination one out of every four railcars
    moving on the national system.
        The Staggers Act saved the rail industry from collapse,
    and, in many respects, it is the parent of the short line
    industry. The economic freedoms and the regulatory flexibility
    embodied in the act allowed the railroads to save light-density
    branch lines rather than abandon them. As a result, short lines
    have grown from 8,000 miles of track in 1980 to 50,000 miles
    today.
        We operate in 49 States. In 5 States, short lines operate
    100 percent of the State's total rail network; in 10 States, we
    operate more than 50 percent; and in 30 States, we operate at
    least one-quarter of the rail network.
        In creating the modern-day short line industry, the
    Staggers Act ensured that huge areas of rural and smalltown
    America would stay connected to the national network. For the
    small businesses and the farmers in those areas, our ability to
    take a 25-car train 50 miles to the nearest Class I creates the
    critical link that allows rail to be their choice for shipping.
        The Staggers Act jump-started today's short line industry,
    but short lines took hold of that opportunity, and short lines
    made it work. The industry was formed by entrepreneurs who took
    large financial risks to purchase and rehabilitate light-
    density lines. Most borrowed heavily from the bank and
    contributed substantial amounts of their personal capital to
    make these new ventures work. They are aggressive marketers
    that fight as hard for single-carload business as they do for
    unit trains. And that fight for business keeps transportation
    costs as competitive as possible, which is good for our
    customers and, ultimately, for the Nation's consumers.
        Short lines have worked hard on building relationships with
    their customers. Many of those customers were our partners in
    helping save even the most marginal lines. They did so by
    helping finance rehabilitation through realistic rates and by
    agreeing to meaningful traffic volumes. Today, our customers
    are the beneficiaries of our success.
        Short lines reinvest, on average, as much as 30 percent of
    annual gross revenues in repairing and upgrading our
    infrastructure. This is a huge percentage of what we earn, and
    it is evidence of our real drive to succeed. That investment
    has been supplemented by important help from Congress in the
    form of the 45G rehabilitation tax credit, which allows us to
    invest more of what we earn in improving our infrastructure.
        We are grateful to the members of the Transportation and
    Infrastructure Committee, who have been enormously helpful in
    shepherding this legislation. This has been the most
    consequential piece of railroad legislation for the short line
    industry since the Staggers Act, responsible for leveraging
    over $1.5 billion in short line capital investment.
        Capital investment in railroads is not only about economic
    growth and jobs; it is also about safety. Every dollar we
    invest in track rehabilitation makes our tracks safer. The
    leading cause of train derailments are track-related, and the
    better our track, the safer our railroads.
        We also know that improving safety requires building a
    strong safety culture on every short line property. To that
    end, the Short Line Association has partnered with the Congress
    and the FRA to establish a Short Line Rail Safety Institute to
    assess the safety practices and the safety culture of
    individual short lines and to provide support to improve
    workplace safety.
        Track rehabilitation and a strong safety culture are what
    we need to take the progress we have made under Staggers and
    make the short line story viable for the long term.
        Let me conclude with an anecdote that tells the short line
    story post-Staggers as concisely as anything I have said here
    today.
        In 1983, 3 years after Staggers was passed, Dick Webb, the
    father of Watco's current CEO, was a unionized car repairman at
    the Kansas City Southern. He took out a $25,000 bank loan to
    begin a rail switching operation in DeRidder, Louisiana, which
    began Watco Companies. Today, Watco operates 4,600 miles of
    short line track, employs 3,600 people, and moves over 1
    million carloads annually across track that was surely headed
    for abandonment.
        Hundreds of short lines across the country can repeat some
    version of that story. It is a great American success story,
    and it was made possible in no small measure by the Staggers
    Act.
        I appreciate the opportunity to be here today, and I
    welcome any questions.
        Mr. Denham. Thank you, Ms. Darr.
        Mr. Mayo, you are recognized.
        Mr. Mayo. Chairman Denham, Ranking Member Capuano, members
    of the committee, my name is John Mayo. I am a professor of
    economics, business, and public policy at Georgetown
    University's McDonough School of Business.
        For 30 years, I have studied the economics of regulation
    and deregulation in the American economy in a variety of
    industries, including electricity, telecommunications, cable
    television, pharmaceuticals, the Internet, as well as the
    domestic freight rail industry. A summary of my publications
    and relevant experience is included as an attachment to my
    testimony. \1\
    ---------------------------------------------------------------------------
        \1\ The summary of John Mayo's publications and experience is
    attachment A of the addendum to his testimony available online at GPO's
    Federal Digital System (FDsys) at http://www.gpo.gov/fdsys/pkg/CPRT-
    114HPRT96276/pdf/CPRT-114HPRT96276.pdf.
    ---------------------------------------------------------------------------
        In 1980, the Staggers Act passed Congress in an
    overwhelmingly bipartisan fashion. It was signed and
    enthusiastically endorsed by President Carter. This act
    fundamentally altered the governance structure of the rail
    industry, shifting from a highly granular model of regulation
    to a model in which markets, rather than regulators and rate
    bureaus, are largely responsible for establishing prices and
    investment.
        Importantly, this legislation was not driven by simple
    ideology. It did not embrace deregulation out of a belief that
    markets are always superior to Government. Neither, at the time
    of the passage of the act, did ideologues argue that steps to
    free railroads from regulatory constraints should be halted out
    of a fear that railroads would necessarily harm the public
    interest.
        Rather, the deregulatory measures adopted in Staggers were
    embraced for a simple and profound reason: Deregulatory steps
    in the industry were, as a practical matter, not an ideological
    matter, but a practical matter, being revealed to produce
    superior economic outcomes for the industry and for the economy
    more generally.
        Legislators from both political parties, economists, and
    industry observers at the time were all very optimistic about
    the potential for improved rail performance under the Staggers
    Act. Of course, optimism on the front end of any legislation is
    very normal. The real question--the real question--is, how have
    economic outcomes evolved for consumers, for producers, and for
    the American economy as a whole in the wake of Staggers?
        Fortunately, we now have 35 years of experience with
    Staggers, and I can tell you with considerable confidence that
    the governance structure of the act has been significantly and
    substantially successful. This was recognized in Congress in
    1995 when the Senate Commerce Committee declared, quote, ``The
    Staggers Act is considered the most successful rail
    transportation legislation ever produced, resulting in the
    restoration of the financial health of the rail industry,'' end
    quote.
        Consequently, with President Clinton's support, Congress
    took the additional step of further easing regulatory
    constraints by eliminating the Interstate Commerce Commission,
    replacing it with the current Surface Transportation Board.
    Importantly, the bill transferred authority to the STB,
    carefully avoiding alteration of the fundamental premises of
    the Staggers Act.
        With the benefits of an additional 25 years now of
    observation--or 20 years since the observation of the 1995
    congressional blessing of the Staggers Act, it is now possible
    to look afresh at whether the act is succeeding in promoting a
    safe and efficient rail transportation system as is called for
    in the act.
        Economic signals of efficiency include increased output,
    the breadth and utility of service offerings, reduced cost, and
    indications of consumer value. And, of course, as with all
    transportation modes, safety is generally thought of as being
    measured by or gauged by the severity and frequency of
    casualties.
        While a detailed discussion of these economic metrics is
    beyond the time permitted by my oral testimony, I have taken
    the liberty of attaching a recent study that I coauthored with
    Professors Jeffrey Macher and Lee Pinkowitz, also of Georgetown
    University, that examines in detail the economic metrics
    associated with this industry. \2\
    ---------------------------------------------------------------------------
        \2\ The study is attachment B (page 15) of the addendum to John
    Mayo's testimony available online at GPO's Federal Digital System
    (FDsys) at http://www.gpo.gov/fdsys/pkg/CPRT-114HPRT96276/pdf/CPRT-
    114HPRT96276.pdf.
    ---------------------------------------------------------------------------
        We find, as numerous other scholars have, that the
    liberalizations introduced by Staggers and their subsequent
    implementation have produced a variety of positive economic
    indicators and consequences for the industry, for consumers,
    and for the economy as a whole.
        We also identify areas of vulnerability as the future of
    rail policymaking unfolds. Of particular concern is the
    prospect that the emerging successes in the industry may be co-
    opted by the imposition of earnings regulation in the industry.
    These concerns are discussed in detail in the research article
    that is appended to my testimony.
        Thank you very much for your time and attention this
    morning. I look forward to any questions.
        Mr. Denham. Thank you, Mr. Mayo.
        I am going to deviate from this morning's schedule just
    slightly in light of last night's horrific accident and
    recognize Mr. DeFazio for any opening statement he may have.
        Mr. DeFazio. Thank you for the courtesy, Mr. Chairman.
        And I am going to deviate from my prepared remarks for a
    few moments here in light of the horrific accident last
    evening, where 8 people lost their lives and more than 200 were
    injured. Our hearts and prayers go out to the family and
    friends of those involved, and hope for a speedy recovery of
    those who were injured.
        We obviously don't know the cause at this point. We always
    depend upon the good work of the NTSB to bring that result to
    us, and I look forward to learning and finding out what we can
    do to mitigate or prevent future accidents.
        We do know a little. It was a shared section of track. So
    that is, you know, the beginnings of, you know, understanding
    where and how these things happen. But we don't know much else
    at this point.
        However, I will observe--and I find it very, very ironic
    that, as we sit here, over there somewhere, wherever the
    appropriations lords sit, they are proposing to cut $290
    million from the Amtrak capital grants program.
        I would say that that program is already somewhat
    insufficient since Amtrak has a $21 billion state-of-good-
    repair backlog. And, you know, it is deteriorating every year,
    and at the current level of investment, if the appropriators
    don't cut it, it will take about 25 or 30 years to get it up to
    a state of good repair. And that doesn't deal with some other
    major projects that would facilitate rail movement, let alone
    make it safer and in a state of good repair.
        So I would hope that our friends on the Appropriations
    Committee are cognizant of the real world out there, of what
    happened last night, of what the capital needs of Amtrak are,
    and will not engage in a shortsighted budget cutting in an area
    where we already have a $21 billion backlog.
        There were two issues--and I will submit my full opening
    statement for the record--that I really wanted to focus on:
    short line investments and tariffs or the potential for tariffs
    for transporting dangerous products.
        We have heard from the rail industry about the investments
    they are making. And they shouldn't have to divert from basic
    investments that they need to be making in capacity and safety,
    including positive train control, which we mandated, to deal
    with concerns or problems caused by shipments of hazardous
    materials and others.
        There was one particular case that got my attention, Powder
    River Basin coal, where the company was refusing to put a
    surfactant on it. The dust was coming out; it was getting into
    the ballast and destabilizing the rail bed. So, since the
    company was refusing to deal with that, you know, they were
    taken by BNSF to--BNSF decided to charge an additional tariff.
    They lost that judgment, even though the STB found that coal
    dust did propose a danger for the ballast and the rail
    stability, but they couldn't charge that differential tariff.
        I think we need to reexamine that principle and our
    directives to them in light of current shipments. I mean, if we
    could send a market signal, we would see probably a lot less
    chlorine being sent on rail because there are substitutes for
    unbelievably toxic chlorine, which would cause much more damage
    in an urban area, potentially, than oil. There are problems
    with oil, et cetera. So I hope we will look at that.
        And, secondly, short line railroads. We had an FRA report
    on the capital needs, and they found that, although holding
    companies are able to attract some capital, that the total
    overall investment needs are about $6.9 billion that are unmet.
    And I would hope we can find ways to work with the short line
    railroads to accomplish those necessary investments because
    they are critical to areas like my Port of Coos Bay and other
    areas.
        So, with that, I would yield back the balance of my time. I
    thank the chairman for his courtesy. And I apologize that I am
    going to have to go meet with a bunch of mayors pretty soon and
    leave.
        Mr. Denham. Thank you, Mr. DeFazio.
        The first question I have: Mr. Mayo, given the history of
    railroads and the Staggers Act, what is the appropriate role of
    regulation in this marketplace currently?
        Mr. Mayo. Well, from an economic perspective, the role of
    regulation in general is to correct market failures where the
    cost of correcting that failure is less than the damage done by
    the market failure itself.
        Now, if we turn to the Staggers Act and to the rail
    industry itself, I think the place that I would start if I were
    you is right at the very outset of Staggers there is a set of
    congressional findings, legislative findings, that, number one,
    transportation services are, generally speaking, provided under
    conditions of competition, and, number two, in light of that
    competition and the general absence of market failures, that
    unnecessary and inefficient regulations should be removed.
        Now, the Staggers Act did that. The Staggers Act peeled
    away a number of regulations that were deemed to be unnecessary
    and inefficient. In your situation now and today at the
    hearing, what you are trying to do is say, how did that work
    out for us as a Nation?
        And I think the good news for you is that it has worked out
    quite well on the economic metrics. Prices are lower than they
    were in 1980. Output is massively higher than it was in 1980.
    The quality of services is higher than it was. Investment has
    been very robust. Innovation has been very high. And safety is
    generally improved. On any number of metrics, it has worked out
    pretty well.
        So what I would say is that, in terms of regulatory and
    legislative oversight--let's call it a light-touch regulatory
    approach has been very, very successful. That doesn't mean that
    there can't occasionally be market failures that warrant
    intervention. It doesn't mean that we ought not have regulatory
    oversight when market failures do occur. Regulators should be
    vigilant and move decisively. But, by and large, the light-
    touch approach has worked very well.
        Mr. Denham. Thank you, Mr. Mayo.
        Ms. Miller, we have heard from shippers quite often about
    the access to rate cases as well as the cost of rate cases.
    And, as I understand, the STB has taken a look at several
    different steps to enhance the accessibility to some of these
    smaller shippers and medium-size shippers.
        Can you explain some of the actions that STB has taken and
    whether or not that is improving that access?
        Ms. Miller. Yes, Mr. Chairman. I would be happy to address
    that.
        The Board, over a period of time, has taken a look at ways
    that they can improve access to our processes for smaller
    shippers. We have put in place something that is called the
    simplified SAC approach. We also have something we call the
    three benchmark test.
        What we have discovered, though, is that few shippers have
    found those approaches to be beneficial to them, and, while we
    have had a few rate cases filed under our streamlined
    methodologies, it hasn't had the impact we had hoped that it
    would have.
        So I think we need to go back to the drawing board. We have
    gone back to the drawing board. We need to look for additional
    ways that we can make our processes more accessible and easier
    for shippers.
        One example of that would be the hearing that we are going
    to have in June, which is for grain shippers. You know, there
    has not been a grain rate case filed since 1981. Some might
    conclude that is because grain rates are quite appropriate so
    there is no need for a rate case. Certainly, when agricultural
    groups come in to meet with me, that is not their view. They do
    feel that the processes before the Board simply don't suit
    their needs.
        So we need to do some work, see if we can't find some
    better approaches to come back and present to our shippers and
    see if we can't make our processes more accessible and more
    useful.
        Mr. Denham. OK. Thank you.
        And, Mr. Dooley, have you utilized these new provisions
    that have been put in place by STB? Are they working?
        Mr. Dooley. In terms of the new provisions, our industry,
    in terms of the simplified SAC or the three benchmark, I don't
    think there are any of our member companies that have used
    that, in part because the caps on awards that you can secure
    there doesn't justify the cost of expense.
        I think Commissioner Miller would state, too, that----
        Mr. Denham. Big caps meaning that they are too high and it
    becomes too expensive for the smaller shippers?
        Mr. Dooley. Yes. I mean, it is--yeah. You still, on a SAC,
    simplified SAC, there still could be a $3 million to $4 million
    investment. And then you have a limited ability in terms of
    what you could be rewarded if you prevailed, that it doesn't
    justify it.
        On the stand-alone cost of SAC is that, you know, we had
    two member companies, Olin and DuPont, that invested, you know,
    in excess of $5 million each and brought cases, which both were
    turned down. And they were turned down, in large part, because
    they are required to develop their own theoretic railroad, a
    SAR, a stand-alone railroad. And that process is so cumbersome
    and expensive, and, you know, we are not in the business of
    that.
        And I would just read a statement that Commissioner Begeman
    had in regards to the DuPont case. And she stated, ``I was
    struck by the level of detail that must be considered to design
    a SAR and the high burden it places on both parties, but
    especially for the shipper, who lacks familiarity with
    constructing and running a railroad. I am concerned that, in
    some instances, the task of designing a winning SAR''--so the
    shipper would prevail--``can be so burdensome, and a single
    error by the shipper in the design of the SAR can be fatal.''
    This is a clear example of the regulatory problems we face.
        And she also stated in another case, ``The Board has a duty
    to ensure that shippers have a viable means to challenge a
    rate. I already know that is not the case for grain shippers.
    And the Board should ask whether the SAC process can provide a
    meaningful gauge of rate reasonableness for carload traffic
    shippers.''
        And I think that is consistent with Commissioner Miller's
    commitment to continue working on this, and it is also
    consistent with the legislation that passed the Senate Commerce
    Committee.
        Mr. Denham. Thank you, Mr. Dooley. My time has expired.
        Mr. Capuano?
        Mr. Lipinski?
        Mr. Lipinski. It will take me a second here. I wasn't
    expecting to be next. But thank you, Mr. Chairman, for holding
    this hearing.
        You know, it would be an understatement to say the Staggers
    Act has saved the railroad industry, since it really saved our
    freight system as well as preserving thousands of miles of
    track for goods movement.
        And, as others have said, you know, I have been to Europe,
    I have been to Asia, and they talk about our freight rail
    system as the envy of the world. And I certainly think that the
    Staggers Act has, you know, played a very important role.
        Now, that doesn't mean, though, that every railroad has
    been a good actor and that there haven't been some problems for
    local communities and sometimes for shippers.
        In many instances, we have seen freight railroads do the
    right thing and work with local communities beyond Federal
    regulations, obviating the need to expand regulations. I
    certainly applaud these efforts, and I have been pleased to
    work with Norfolk Southern, CSX, BNSF, and Union Pacific on
    CREATE in northeastern Illinois; also working with the
    railroads and Metra on commuter rail and other issues.
        But I have concerns that not all Class I railroads are
    holding up their ends of the bargain as community members. And
    I hate to raise this publicly, but I feel the need to do that
    here.
        There is one railroad that I won't name, but I think people
    will find easy to figure out, I have had a few issues with.
    This railroad refused requests to slow its trains as they
    passed close to a local annual weekend-long festival--so that
    is just a couple days a year--that featured a children's
    carnival. I have joined this town in asking for cooperation
    this year and have yet to hear anything 1 month before the
    event.
        I have also asked this railroad to work with commuter rail
    to add more service, and nothing has moved forward after many
    years of working on this. I have also heard some complaints
    from shippers.
        Now, I am not asking for more Federal regulations. I think
    that is the last place that we want to go and only if it is
    absolutely necessary to do.
        But I am wondering, what can be done--I wanted to ask
    Chairwoman Miller and Mr. Hamberger, if he has any comments to
    add--what can be done to encourage any bad actors to change
    their behavior? You know, how do we get everyone on the same
    page? You know, are there options for STB?
        Chairwoman Miller?
        Ms. Miller. Well, I think that is an excellent question. It
    is certainly one I spend some time thinking about.
        We have a minimal number of regulatory tools available to
    us at the Surface Transportation Board. Truthfully, I don't
    think that regulatory tools really is what would be useful in
    the situation. As the professor has pointed out, the rolling
    back of regulation really has had a profound effect in terms of
    allowing the freight transportation industry in the United
    States to really blossom, and we need to be mindful of that.
        I know from my own experience in the year that I have been
    at the Board, fairly aggressively reaching out to both shippers
    and railroads, doing a fair amount of traveling, that there are
    certainly frustrations out there on the part of both shippers
    and communities at times when they feel that the railroads have
    not been responsive to their concerns.
        By the same token, I have seen amazing things that are
    happening on the rail system in terms of the way that they are
    improving their processes and becoming more and more
    productive. And we want to keep that going, as well.
        I think one thing that the Board can do, I think we need to
    be cognizant of providing opportunities, is to be a sounding
    board, a place where people can come when they have concerns, a
    place where problems can be aired and we can try to find
    opportunities to get both shippers, communities, and the
    railroads to work together to solve them.
        And I think that the Board's presence, just the very fact
    that we are present and at times can bring both parties in for
    discussions, has been helpful. And I would like to look for
    more opportunities to do those things.
        Mr. Lipinski. Thank you.
        Mr. Hamberger. Mr. Lipinski, thank you for that question. I
    would be glad to meet with you offline to get the specifics of
    this particular case.
        I would like to point out, however, that all of my members,
    all of the AAR members have taken voluntary steps to improve
    safety, whether it is speed limits, increased track
    inspections, reaching out to their communities, emergency
    responders, making sure that they are trained for dealing with
    an incident if a hazardous-material incident does occur.
        So, while I understand your frustration at this particular
    incident, I guess I would take exception with your saying that
    one of the Class I's is a, quote, ``bad actor.'' I think they
    are all committed to working with the communities in which they
    operate and operating at a safe level. But I will be glad to
    come by and discuss the details of your specific situation.
        Mr. Lipinski. Thank you. I appreciate that.
        And I had other questions I won't be able to get to on
    reciprocal switching. If we don't have a chance to come back
    for more questions, I will submit a question for the record.
        I yield back. Thank you.
        Mr. Denham. Thank you, Mr. Lipinski.
        Mr. Shuster.
        Mr. Shuster. Thank you very much.
        My question concerns, as I mentioned in my opening
    statement, the Senate Commerce's STB bill. I am very interested
    in hearing your views. And could you be concise as to what you
    may have concerns in it or what you like about it, but if you
    could be concise.
        I will start with Ms. Darr.
        Ms. Darr. Thank you, Chairman Shuster.
        We are generally supportive. We especially like the
    provision that allows the board members to talk to one another.
    We think that that is just good common sense. And we also
    support the idea of it being an independent agency.
        Mr. Shuster. Any concerns in it that you--in general, you
    are OK with it?
        Ms. Darr. We are OK with it.
        Mr. Shuster. Mr. Hamberger said he didn't object to it. I
    don't know if he----
        Mr. Hamberger. We did not object to it.
        I think that the bill does provide for voluntary
    arbitration. I would point out that the Board itself set up a
    voluntary arbitration program 1 or 2 years ago, I believe,
    whereby a shipper or railroad would sign up and say, ``I hereby
    agree that arbitration can be used for a case to be brought
    against me.'' And, of all the shippers, not one has signed up.
    One Class I railroad has, but--so I just find it interesting
    that that is the case.
        But, with respect to the committee's action, again, we have
    no objection.
        Mr. Shuster. And Mr. Dooley?
        Mr. Dooley. Yeah, maybe I will start off with the
    arbitration issue, is that there is an improvement in the
    arbitration process in the Senate bill.
        Ed referred to the existing arbitration that no shipper has
    utilized, is because there really is no real value to it. It
    doesn't specifically allow for the consideration and
    arbitration of rates.
        Mr. Shuster. Do you think this bill addresses that so----
        Mr. Dooley. It does.
        Mr. Shuster. You would anticipate some of your members
    signing up?
        Mr. Dooley. And it does have a cap of damages--or a cap on
    awards of $200,000, which, you are talking in the shipper
    community, is not worth the effort. In the Thune proposal, they
    increase that to $25 million. And so you will see a lot more
    interest and participation in this. And it will be interesting
    to see if the rail industry will agree to it.
        The other issue I would say that we are very appreciative
    is included in the Thune bill--and it gets to Congressman
    Lipinski--is the issue of reciprocal shipping. And we
    appreciate the work that the commission is continuing to do on
    that.
        But if you look at this and why this is an increasingly
    important issue when you have the consolidation of the rail
    industry, is that, right now, if you were shipping, say, from
    Chicago to Long Beach, the Port of Long Beach, and you have two
    different rail lines there, you have two competitive
    opportunities, in terms of pricing your shipment. But if you
    are shipping through a short-haul--or through a Class I
    railroad into Chicago, today you can't get a rate from that
    point A to Chicago and then from Chicago to Long Beach. And
    this doesn't allow for the marketplace to work and give you the
    access.
        What we are hopeful is that, with the inclusion in the
    Senate bill of consideration of reciprocal shipping, is that we
    can see a way where we can get a rate quoted from point A to
    Chicago, we would be willing to pay the cost of that transfer,
    and then we would have the ability to have a more competitive
    marketplace from Chicago to Los Angeles or Long Beach.
        Mr. Hamberger. Mr. Chair, if I might correct Mr. Dooley for
    the record.
        Mr. Shuster. Briefly.
        Mr. Hamberger. Last year's bill that was reported in
    September had a specific provision directing the Board to
    proceed on the NIT League proposal. That provision is not part
    of the bill that was reported out at the end of March. I
    believe there is a great deal of inference that the Board
    should draw from the fact that this year's bill is not
    directing them.
        Mr. Shuster. OK. I got the point.
        Ms. Miller, what are your thoughts on the Senate Commerce
    STB?
        Ms. Miller. Well, I think it is a regulator's--we didn't
    necessarily take a position saying we supported it or had
    problems with it. But, generally speaking, we found it to be a
    very balanced bill that I think will provide some advantages to
    the Board and will allow the Board to do its job in a better
    way. And, generally speaking, we think it is a good bill that
    will be advantageous.
        Mr. Shuster. And, Mr. Dooley, instead of you responding
    here, I would rather the two of you come see me and let's talk
    about this issue so I fully understand.
        Mr. Dooley. This only has--you know, Ed was right--it
    doesn't have a specific requirement. It has a specific
    requirement that STB concludes their consideration of
    reciprocal shipping and come to a decision.
        Mr. Shuster. And you made a comment about Mr. Hamberger
    saying narrow interest. Well, I don't know about narrow
    interest, but I know about self-interest. And I have seen the
    railroads, and I have seen the different industries, yours
    also, driven by self-interest. I understand that. That is what
    keeps us all straight, self-interest up here. The Founding
    Fathers said that is the critical issue that is going to keep
    us all in line.
        But I just want to make sure that, you know, captive
    shippers, I have had testimony after testimony, I ask the
    question, who is building facilities? You know, mines, of
    course, are where the mines are. And the agriculture industry
    is kind of where it is. But I know that there are manufacturers
    that actually build facilities to be captive shippers along
    rail lines. And several years ago, 1 railroad, there were 48
    different companies making themselves captive shippers.
        So, again, when we are talking about that captive shipper
    issue, that is something I am always focused on to say who does
    this to themselves. And I would also like to add I have a place
    in western Pennsylvania that has connections to three Class I
    railroads. And I have yet to have a big manufacturer come and
    locate there when they talk about captive shipping. So, again,
    that is something I am very interested in. If some of your
    companies are doing that to themselves, well, I mean, they must
    be there for a reason. It must be the railroads are providing
    something that they want, and so again.
        And the final issue, if I could, Mr. Denham, on the issue
    of natural gas, I think you guys have taken the right position.
    But some of your members don't want to export natural gas
    because that will possibly drive up their costs. And, once
    again, I know that is self-interest. But my self-interest is we
    have got a tremendous amount of gas in Pennsylvania. And we
    want to share it with the world.
        With that, I yield back.
        Mr. Denham. Thank you, Mr. Shuster.
        Mr. Sires.
        Mr. Sires. Thank you, Mr. Chairman. I enjoy watching the
    Mayweather-Pacquiao fight between you two. Let me just say,
    first, that my heart goes out to the victims of last night. And
    I hope that there is a speedy recovery for the people that are
    hurt and that they determine quickly what happened so we can
    address it.
        You know, I represent the northern part of New Jersey,
    which is very congested. I represent the ports. And there have
    been a number of investments over the years between the
    railroads and obviously the port authority. But I was wondering
    what can, you know, what policies can the STB and the Congress
    put in place to continue and maximize the investment into the
    infrastructure of the railroads? Because in my district it is
    very important. What policies can we put, can we help out with?
    Mr. Hamberger?
        Mr. Hamberger. Thank you, Congressman Sires.
        As I tried to point out in my written testimony, there is a
    direct correlation between the amount of money that railroads
    can put back into the infrastructure and the amount of money
    that they can make in the private sector, direct correlation,
    which is why we have been able to put $575 billion back in
    since 1980; $29 billion this year; $26 billion last year. As
    the Congressional Budget Office has observed, profits are both
    the means and the motive for reinvestment. You have to have an
    ability to have that revenue to reinvest. And you have to have
    the expectation that that investment will pay a return. And
    that means you have to have a balanced economic regulatory
    system, which I think the Board currently enjoys. I believe
    that there are process changes that can be made. I commend the
    Board for the 3-B or the three benchmark approach, the
    Simplified SAC [Stand-Alone Cost]. I believe they have
    increased the amount of money that can be recovered under that.
    The authority that they are going to get from the Senate
    Commerce bill, should that come into play. So I think there are
    process changes that can be made, but that the underlying basic
    economic approaches Dr. Mayo has pointed out is working. And I
    think, going forward, it should be continued.
        Mr. Sires. Thank you. Ms. Miller, I don't know if you
    discussed this before, but can you just discuss some of the
    major proceedings that are pending before the STB Board, and
    what challenges does the STB face in resolving some of these
    proceedings in a timely fashion?
        Ms. Miller. Well, let me say a couple of things. One, I was
    surprised when I got to the Board to discover how many
    decisions, in fact, pass across the Board. So we tend to focus
    a lot of our attention on the rate cases, which take years,
    cost millions of dollars. But, in fact, day to day, there is so
    much more work that is going on at the Board. So I think, one,
    it is just good to have that as a reference point, that there
    are other things that are happening or happening in a very
    timely way.
        I would say a couple of issues related to the Board's
    ability to move more quickly and do its work in what I would
    consider to be a better process. One, I want to take the
    opportunity--and I am most sincere when I say this--to say that
    one of my biggest surprises when I came to the Board was to
    discover that we have virtually a Third World computer system
    which is so arcane and outdated that we just cannot get on top
    of solving our problems. Our Web site regularly goes down. Our
    practitioners can't get access to our information. We have
    massive problems with it and have very little budget to deal
    with it. One of my highest priorities is fixing our computer
    system. But it is hard to do it when you don't have a capital
    budget to fix it. It is a serious issue.
        Secondly, we have process problems that we can and should
    solve ourselves. When I look at what I would consider the
    process for how the Board deals with rate cases, it is not a
    rigorous enough process. We are not creating deadlines. And we
    are not then being disciplined in terms of meeting what
    deadlines are set. I think that is something we can solve
    ourselves and that we need to do. One of my first questions
    when I came to the Board was to ask, what are the performance
    metrics that we use in order to monitor the Board's own
    performance, and was met with surprised looks because people
    didn't even know what I was talking about so one of the things
    we are doing is to develop a set of metrics. Are we, in fact,
    meeting goals we should be setting for ourselves in terms of
    how we are doing our work? I think those things will be hugely
    beneficial in terms of not just improving how we function as a
    Board but, quite frankly, better serving the shippers who come
    to us and better serving the railroads. And I think they are
    very important.
        I would want to say one other thing, the Senate 808 gives
    greater authority for the board members to speak with each
    other. I think that would be very helpful. But I also think
    that the Board has been quite conservative in how it has looked
    at those issues. It has been quite conservative in how it deals
    with ex parte communications. Far too often, the Board is
    making decisions based simply on a written record. And I don't
    know about any of you, I just know that if all I am doing is
    reading a record that has been written by attorneys, I am not
    going to fully understand an issue in a way which will allow me
    to make a good, on-the-ground, practical decision. And I think
    it is extremely important that we open up our processes. I feel
    like many of our Board employees are much too isolated from the
    industries that we are regulating. And so I want to open that
    up as well. And I think we can do that in a responsible way
    that will in significant ways improve our decisionmaking
    process.
        Mr. Sires. My time has run out. Thank you very much.
        Mr. Denham. Thank you, Mr. Sires.
        Mr. Hanna.
        Mr. Hanna. Mr. Mayo, Mr. Hamberger rightly points out that
    they invested billions and billions of dollars, $29 billion
    recently. Mr. Dooley would argue that a disproportionate amount
    of that comes out of his pocket because of the captive
    shipping, the limited competition, et cetera. The 180 percent
    benchmark for the RVC ratio would also--Mr. Dooley would argue,
    that the appeal process is difficult, cumbersome, and, frankly,
    just not worth it. As someone, I assume, is more independent
    here than others and less vested, what do you think about that,
    Mr. Mayo?
        Mr. Mayo. Two things: One, the data speak pretty clearly to
    the issue of investment. As I described it, the light touch
    regulatory approach has been swimmingly successful. A number of
    $29 billion of investment this year was used; that's just a
    fact. And that is an intense level of investment. And that
    bodes very well not only for current consumers but for future
    consumers.
        Mr. Hanna. But speak to the issue that Mr. Dooley is
    talking about. I mean, no one is going to argue that it is a
    wonderful thing to invest their money. The argument that I hear
    and that I am trying to understand better is the
    disproportionate because of the lack of captive lines and
    allegations.
        Mr. Mayo. So that brings me to the second issue, which is
    that how is the investment going to play out for consumers? And
    there is a regulatory process in place to ensure that rates at
    the end of the day are reasonable. The STB oversees that
    regulatory process. If rates aren't reasonable, then the STB
    can and should step in. But, by and large, what you have seen
    over the last 30 years is that prices have fallen. As I
    mentioned in my opening remarks, prices are lower now than they
    were even in----
        Mr. Hanna. That still doesn't speak to the 180 percent RVC
    benchmark--what you're saying right now--because that hasn't
    changed.
        Mr. Mayo. That benchmark has not changed. And I am not
    advocating that it should change. That change was part of
    Staggers. Some rates are below that 180 benchmark. Some are
    above the 180 benchmark. And the STB has a process, now a
    three-part process, for allowing consumers, shippers, to come
    to the STB and make a case that those rates, if they lie above
    180, are unreasonable. In the event that the firm is, that
    there is a captive shipper and that the rates are judged to be
    unreasonable, there is a mechanism in place----
        Mr. Hanna. But I also hear you saying that on a weighted-
    average basis, it sort of works out.
        Mr. Mayo. It has more than worked out. Prices, as I
    mentioned, on average are considerably below where they were
    in----
        Mr. Hanna. Mr. Dooley, would you like to comment?
        Mr. Dooley. I guess, you know, first off, you know, I think
    the 47 associations representing, again, the farmers,
    manufacturers, energy producers, we don't want to go back. I
    mean, the Staggers Act made a major improvement in terms of
    creating a robust rail industry. And we want that to continue.
    What we are asking for is something--it is not like we are
    paying a disproportionate share. I wouldn't even go as far as
    to say that is our complaint. Our complaint as shippers is, is
    that we do not have access to an efficient and an equitable
    rate resolution process.
        Mr. Hanna. Are you all right with the Senate bill then?
        Mr. Dooley. We think the Senate bill takes the step in the
    right direction. It doesn't prescribe any specific outcomes. It
    really drives the STB to conclude some of their issues that
    they currently have under review that we think, whether it is,
    you know, the stand-alone cost methodology that they are----
        Mr. Hanna. Mr. Hamberger, I have got about a minute here.
        Mr. Hamberger. I would like to associate myself with
    Chairwoman Miller when she opened, in her opening statement, I
    wrote it down: quicker and more accurate. That is what we need
    at the Board. We need quicker. But that needs to be balanced
    with more accurate. Some of these rate cases have $200 million,
    $300 million in the balance. So you don't want that done on a
    coin flip. You want it down quickly, but it has to be accurate.
    And that is why it takes some time.
        Mr. Hanna. Thank you very much. I yield back.
        Mr. Shuster [presiding]. Thank the gentleman.
        With that, Mrs. Napolitano is recognized for 5 minutes.
        Mrs. Napolitano. Thank you, Mr. Chairman.
        And I do have a couple of interesting observations. Ms.
    Miller, you indicate your computer, that goes to the issue of
    being able to have enough adequate staffing to investigate
    complaints, do you have them?
        Ms. Miller. One of the things that the Senate bill does is
    provide the Board with investigatory authority. Currently, we
    are a complaint-driven Board. So we don't initiate any
    complaints or any investigations. We just respond to the
    complaints that have been brought to us. In the Senate 808, one
    of the things it would do is provide us with investigatory
    authority. And so we certainly would need additional----
        Mrs. Napolitano. How about funding for the computer change?
        Ms. Miller. Pardon me?
        Mrs. Napolitano. Computers. You say you have outdated
    computers.
        Ms. Miller. Right. And you are asking if we have the
    staffing resources to improve our computer systems?
        Mrs. Napolitano. And to do a new system of computers.
        Ms. Miller. I think that we have the staff to do it. What
    we really need still is hardware and software updating. So it
    is not a staffing problem as much as it is a hardware, software
    problem that needs to be updated.
        Mrs. Napolitano. Which leads me to the other question. My
    understanding is the Board is supposed to have three members;
    only two were appointed.
        Ms. Miller. That is correct.
        Mrs. Napolitano. They are asking for an increase to five.
    Would that have an impact?
        Ms. Miller. Mr. Dooley and others could perhaps address
    this better. Some of our practitioners have felt that the Board
    is handicapped by having three members because no two members
    can have a conversation on any topic before the Board. And if
    we had five members, then at least two members would have the
    ability to talk with each other. I think that would be
    extremely helpful----
        Mrs. Napolitano. Anybody else?
        Ms. Miller [continuing]. But I think we can also improve it
    by opening up our ex parte communications.
        Mrs. Napolitano. Agree?
        Mr. Dooley. Yes, I would agree. We think that STB needs to
    be a more efficiently operating organization. We think the
    expansion of the number of Commissioners would be a partial
    solution to that. But also I think we are seeing the evolution
    of the focus of the STB, is that they did help to get the rail
    industry back on track. But now we are moving into an area
    where there is increased consolidation, their focus needs to
    increasingly shift to ensuring that there is competition in the
    marketplace.
        Mrs. Napolitano. OK. Mr. Dooley, you hit on another point
    that some of my shippers have brought to my attention, and that
    is overcharging. Do you want to address that?
        Mr. Dooley. Well, that gets back to the fundamental issue,
    I think, that shippers are most interested in, is that having
    access to or eliminating some of the regulatory and financial
    impediments to having access to a rate resolution process. It
    is, it is not acceptable that a shipper has to commit to paying
    $5 million----
        Mrs. Napolitano. And 3 to 4 years for resolution.
        Mr. Dooley [continuing]. And 3 or 4 years. So let's find a
    way that we can fix that which----
        Mrs. Napolitano. What will be, what is your recommendation?
    What would help?
        Mr. Dooley. I think that, you know, part of it is, you
    know, reevaluating some of the policies that were put in place
    35 years ago. I mean, the whole issue of revenue adequacy, that
    was a relevant issue, I mean, a very relevant issue back 35
    years ago. But I attest that Warren Buffett doesn't make
    investments in companies that are not revenue adequate----
        Mrs. Napolitano. Correct.
        Mr. Dooley [continuing]. And we need to be evaluating how
    that is used and calculated in resolving rate disputes.
        Mrs. Napolitano. Another area of great concern, as we have
    gone through and talked to is public safety, railroad safety,
    safety of our grade separation. As you know, I am key on grade
    separations because the Alameda Corridor-East.
        Mr. Hamberger. Absolutely.
        Mrs. Napolitano. And the safety of anything that comes out
    of the ports for ontime delivery to the eastern seaboard. So I
    am just wondering how much of that is going to be continued to
    be able to address the different aspects of the infrastructure
    change, whether it is the ties, whether it is the rails,
    whether it is your locomotives, greener, what is it that is
    going to affect us?
        Mr. Hamberger. Well, of course, all of that is where the
    $29 billion I keep referring to goes, to millions of new ties,
    new rail, stronger gauge rail, Tier 4 locomotives that are the
    newest, cleanest locomotives out there that are now being
    bought. But if I could go back to your previous question for
    just a quick second, where you talked about overcharging, I
    would just like to put in the record, I think it may be in my
    written statement but I would like to draw your attention to
    it, that the average inflation-adjusted freight rail rates for
    all commodities are about where they were in 1991. And for Mr.
    Dooley's members, it is where they were in 1988. So where there
    is, quote, ``overcharging,'' that is what the Board is there
    for. And I have expressed our support for quicker but more
    accurate processes. But I would like to get on the record that
    the rates being charged today are where they were in 1991, 1988
    for the chemical company.
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        Mrs. Napolitano. Is there a way to be able to, and I will
    leave this for the record, to be able to ensure that the
    complaints received will be resolved in a faster, more
    expedient manner? The complaints?
        Ms. Miller. Yes. I think there is. And I think we are
    working on that to improve our processes so that we can ensure
    that happens. I would want to say, as I said before, we get
    very focused on these rate cases because, as Mr. Hamberger
    pointed out, sometimes we are talking about hundreds of
    millions of dollars that are at stake. So they are very
    important. They take a lot of our staff time. But every day,
    every month, decisions are going through our agency that are
    handled very quickly and are allowing businesses to get back to
    doing what they need to do.
        Mrs. Napolitano. Thank you to the witnesses.
        And thank you for your indulgence, Mr. Chairman.
        Mr. Shuster. Thank you, Mrs. Napolitano.
        With that, Congressman Rokita is recognized for 5 minutes.
        Mr. Rokita. I thank the chairman. Good morning, gang. I
    appreciate you being here. And I appreciate the passion I see
    in each one of you for the industries that you regulate or are
    in. I do think you are part of America's 21st-century future.
    So, again, thanks for being here. Ms. Darr, we have a lot of
    short-range railroads in Indiana or a lot for us. We seem to
    like them. General question for you, what is the overall
    economic outlook for the U.S. short line railroad industry and
    the future demand for rail transportation? And, in your view,
    what role should Ms. Miller's agency play to ensure that the
    U.S. freight rail system can continue to grow, especially with
    regard to the short lines?
        Ms. Darr. Thank you, Congressman Rokita. I would say, first
    of all, short lines love Indiana. So I think it is a reciprocal
    relationship.
        Mr. Rokita. We love you. Don't tell CSX.
        Ms. Darr. In regard to your question about the economic
    outlook, I believe it is strong. But that doesn't mean that we
    can just go along a path and not interject along the way and
    assume that it is going to remain strong. We have invested in
    our infrastructure. We have been able to do that through the
    45G program. And as I indicated in my testimony, that is not
    just about economic development. That is also about safety.
    Making sure that our infrastructure is safe is critical for our
    growth. Staggers got us this far. Going forward, 45G is going
    to be absolutely essential to our ability to rehabilitate our
    track.
        And I also think we have done an excellent job of
    attracting new customers. Short lines have developed a
    reputation within the industry as being very customer friendly.
    You have not seen me get into any negative discussion with Mr.
    Dooley. And I can assure you that all of his, all of his
    members would be thrilled with the short line performance that
    they have received to date. And I won't let Mr. Dooley take on
    any conversation about that, except outside of the room. And
    then I think also an important part of our growth is the good
    partnership that we have established with the Class I's. I
    think that is demonstrated by the work that we are doing with
    AAR and Mr. Hamberger here. That is going to be very critical.
    We rely on them for a lot of our business. And they rely on us
    to bring the customer to them as well. It is an important
    relationship.
        In regard to what Chairwoman Miller can do in regard to
    changes in the STB to help us out, it is speed and expedited
    rulings. And, as Ed said, the speed can't happen without
    accuracy. Both of those things are absolutely critical. In
    relation to what we are talking about today, don't roll back
    Staggers. Anything else that rolls back the Staggers Act is
    going to put us in a position, as Chairman Denham had said
    earlier, of being hammered by burdensome regulations. And, as
    in the past, that was putting us in a position where we were
    dying a slow death. And we can't go there again.
        Mr. Rokita. Thank you.
        And, on that, Mr. Hamberger and Mr. Dooley, would agree,
    correct? You are all in line on that, with that last statement?
        Mr. Hamberger. I do certainly would, yes.
        Mr. Rokita. OK. Let the record reflect they are answering
    in the affirmative. And Mr. Dooley has a footnote.
        Mr. Dooley. We certainly do not want to see the Staggers
    Act eliminated. But we think there could be some modifications
    that, again, give us more equitable access to a rate resolution
    process.
        Mr. Rokita. OK. At the risk of not getting to you, Mr.
    Mayo, I need to go to the chairwoman. And I want to, first,
    thank you for sitting in the chair as you do and actually
    articulating the fact that you have a strategic plan with goals
    and rates set to them and that kind of thing inside your
    office. I think that goes without saying, quite frankly, when
    you have agencies as big as yours and others that are much
    bigger. Yet many who sit in that chair don't bring any of that
    information to us. I am puzzled that your testimony seems to
    focus on the fact that you don't have a computer system or your
    technology is behind and this and that. And are you trying to
    tell me that the appropriations has that much control in
    micromanaging your budget that well that you couldn't fire a
    nonperforming employee or 2 or 10 or 20 or 100 and get the
    computer money you need so that you can expedite these cases
    with a bit more accuracy?
        Ms. Miller. Well, in terms, overall, just very quickly, we
    are actually quite a small agency, about 140 people. And the
    way that we have created any of the funding necessary to try to
    make improvements to it is by holding positions open and not
    filling them. Otherwise, we just don't have any kind of a
    capital budget at all. So we have got nothing to turn to absent
    that.
        I think one of the things that you are saying is that,
    while I am a firm believer you don't start by saying we need
    more people to accomplish your job; you start by saying what
    can we be doing differently to get our jobs done. I have been
    at the Board for a year. I could not say that we are
    overstaffed. I would not draw that conclusion at all. And, in
    fact, there are some real gaps, I think, in skill sets at the
    Board that we need to be better able to serve both the
    railroads----
        Mr. Rokita. You don't have one nonperforming worker that
    you wish you could under the law fire?
        Ms. Miller. I sure do.
        Mr. Rokita. OK.
        Ms. Miller. And I have to say, I come from State
    government. It is where I worked my whole life.
        Mr. Rokita. Can you tell I came from State government?
        Ms. Miller. And I would tell you that I have found many
    more ways at the State system to take care of nonperforming
    employees than I have been able to uncover----
        Mr. Rokita. Maybe we should work together and find a way to
    get those ideas here.
        Ms. Miller. But I do want to go back to say quickly,
    because I don't want to give anybody a false impression, we are
    working very hard to solve our own problems. But I have to say,
    we have very few tools to do it. And I use this as an
    opportunity today because I feel so strongly about it. We want
    to do a better job for these guys, but we need some tools. And
    you just can't do that, you can't create it out of nothing. And
    we really don't have the resources necessary.
        Mr. Rokita. My time is up, Mr. Chairman.
        I will yield back. We can carry on later hopefully.
        Ms. Miller. Sure. Happy to.
        Mr. Denham [presiding]. Thank you, Mr. Rokita.
        Ms. Hahn, you are recognized for 5 minutes.
        Ms. Hahn. Thank you, Mr. Chairman. And thank you for
    holding this hearing.
        I do want to add my voice to those who are expressing,
    first, shock and then, of course, sympathy for the horrible
    train accident last night. And I will say, I am one of those
    politicians that Chairman Shuster was maligning earlier. Even
    though we have not found out what the cause is--and I am sure
    we will--this is National Infrastructure Week. And I do know
    for sure that the funding for our infrastructure in this
    country is woefully inadequate. I think everybody needs to be
    investing more in our country's infrastructure. And even
    sometimes when we find out that the cause of a train accident
    was human error or something else, it seems that we move away
    from focusing on, did infrastructure play a role or are we just
    another bad infrastructure design away from another accident?
    Folks on the morning news shows this morning were talking about
    our design, our outdated design of our rails and curves that
    maybe shouldn't be there and shared tracks.
        I think if we really want a rail system and an
    infrastructure that is the envy of the world, I think we are
    far from having the perfect infrastructure. And other countries
    are investing billions more in their rail infrastructure than
    we are. I still think that is a huge problem. And I think our
    Highway Trust Fund is running out in a few days. Maybe we will
    have a short-term fix. But that is no way to run a country. And
    it is no way to run rail lines.
        And no matter what fees we are paying and no matter what
    disputes we are arbitrating, at the end of the day, I am
    embarrassed about the infrastructure we have. And we just
    haven't put the time or effort or money into it.
        I do have a bill that I have introduced. It is a freight
    network bill because I don't think our freight network ought to
    be competing with our Highway Trust Fund. So I have got a way
    to take what the shippers are paying in import fees, they pay
    about $40 billion in import fees, and diverting some of that to
    a freight network guaranteed revenue stream that we can fund a
    lot of the things that we are talking about. So I hope we take
    a good look, unfortunately, in light of this accident, at what,
    if any, role our infrastructure played or will play in future
    accidents in this country.
        And I just wanted to follow up on something my colleague,
    Pete DeFazio, was talking about with the short line railroads.
    And I am a big fan of short lines. A lot of them service our
    ports, which is a huge role and also a hugely needed infusion
    of infrastructure funding in and around our ports, the last
    mile into our ports. I think that keeps us from being globally
    competitive like we should be. But of the 560 short line
    railroads currently operating, 27 holding companies control
    almost one-half of these railroads. And I am concerned that
    these holding companies, these investment firms, are looking at
    turning a profit for shareholders more than maybe investing in
    railroad improvements and safety. And the FRA published a
    report on the capital needs of short line railroads and found
    that while holding companies reduce the risk associated with
    lending capital, funding that is available must be thinly
    spread among all carriers under their control in order to meet
    current and ongoing needs. And we know there is about a $6.9
    billion need for short line and regional railroads. I would
    like to hear your comment on that funding mechanism for short
    rails. And is that a positive thing that we are seeing? Can we
    do better?
        Ms. Darr, I would love to hear from you. I didn't know if,
    Mr. Hamberger, and, Ms. Miller, if you would like to comment on
    that as well, the economic structure of who is owning our short
    line railroads.
        Ms. Darr. Certainly we have seen a lot of consolidation,
    especially in the last few years, particularly one of our
    largest members. But, altogether, there is really only one and
    maybe two publicly held companies in the short line business.
    So I don't know that that would be an accurate representation
    of our industry. Although certainly there are constraints for
    publicly held companies that independents don't have, I am not
    sure that that is, altogether, a bad thing because, obviously,
    we have seen some tremendous growth as a result of those
    arrangements.
        As to what is needed to allow our independents to grow--and
    the bulk of my members are independent railroads--45G is
    absolutely critical to that. And 45G is a tax credit that
    allows us to take our earnings and reinvest them back into
    tracking. You made some excellent points about this being
    National Infrastructure Week and the challenge that we are
    facing. If the short lines don't have access to that capital,
    we are not going to be able to do our part of the job for the
    industry. So, again, I would like to thank everyone on the T&I
    [Transportation and Infrastructure] Committee for their
    overwhelming support. We have had great luck with that. But if
    we don't continue to follow through with 45G and make it
    permanent, rather than have to fight for it every year and deal
    with that vulnerability, we are not going to be able to engage
    in the long-term planning that is necessary.
        Ms. Hahn. Thank you. I can hear you tap, tap, tapping back
    there.
        Mr. Denham. The time was definitely expired.
        Mr. Capuano.
        Ms. Hahn. I will yield back.
        Mr. Capuano. Thank you, Mr. Chairman.
        First of all, I want to thank the Board. This has been just
    as informative as I had hoped it would be. To some extent, this
    is kind of ending up like a lovefest, which is good. It sounds
    like we all want to do some minor improvements to the STB to
    make everybody work a little bit better and make this country
    better. So I want to thank you all for your input.
        But I do want to pick at a couple little things that bother
    me.
        Mr. Hamberger, do any of your member companies haul wheat?
        Mr. Hamberger. Yes, sir.
        Mr. Capuano. Do they haul coal?
        Mr. Hamberger. Yes, sir.
        Mr. Capuano. OK.
        Ms. Darr, do yours haul wheat?
        Ms. Darr. Yes. They do.
        Mr. Capuano. And coal?
        Ms. Darr. Yes.
        Mr. Capuano. Do you know if they haul casino chips, poker
    chips, or slot machines? You may not know that, but I thought I
    would ask.
        Ms. Darr. Should they?
        Mr. Capuano. I don't know. If some were to ask, they would?
        Ms. Darr. Yes.
        Mr. Capuano. Mr. Hamberger, do you----
        Mr. Hamberger. If some were to ask, we have a common
    carrier obligation, so absolutely.
        Mr. Capuano. That is what I thought.
        Ms. Miller, if a railroad came to and you said, ``We haul
    wheat and so, therefore, we want to build a bread factory on
    our land in the middle of a residential area and we want to be
    exempted from all health regulations, we want to be able to
    make that bread any way we please, not subject to local zoning,
    not subject to local environmental issues, not subject to local
    health issues,'' would the STB approve that as a related
    activity?
        Ms. Miller. I don't know. In that specific example, I think
    you are referring to the preemption----
        Mr. Capuano. You don't know? So you think there is a
    possibility that the STB would approve a railroad making bread
    to sell to the general public that is not subject to local
    health requirements? The problem is your hesitation. The
    problem is that that is a possibility. Would you approve them
    if they haul coal? Would you approve the railroad saying, ``By
    the way, we want to process coal, we want to mine coal, we want
    to dig oil because we haul oil, we want to frack in my
    backyard, not subject to State or local requirements because
    Federal law preempts them''? Is there a possibility the STB
    would say yes?
        Ms. Miller. Well, Mr. Capuano, I think perhaps my
    hesitation has less to do with not knowing for sure how the STB
    would act but reflecting on what I do or don't know about any
    authority we would have if a railroad----
        Mr. Capuano. Fair enough.
        Ms. Miller [continuing]. Was wanting to build a factory
    that had nothing to do with transporting or rail
    transportation.
        Mr. Capuano. Fair enough. Well, then why in the world would
    you approve a railroad getting into the hazardous waste
    business? Why in the world would you approve a railroad getting
    into the propane business not subject to State or local
    regulations? Why on earth would you say that anyone would be
    exempted from local safety requirements, local zoning
    requirements, when it is not an issue that is directly related
    to a railroad? Yet you have done that. Why should I have faith
    that the STB is not just a tool of the railroad industry, and
    it is truly an independent agency that understands, yes, when
    it comes to rail, we all want successful railroads. But let's
    be honest, trash handling is not a core item in any railroad.
        Now, I am not saying they shouldn't do it. If the railroad
    wants to get into the trash business, good luck. But your
    business, your entity, not necessarily you, I don't know if you
    were on the Board at the time, said that they were no longer
    subject to local zoning requirements. Just last year, the STB
    said they are not subject to local zoning requirements on a
    propane facility in the middle of my State. I have to tell you,
    that shakes my trust in the system.
        I want the STB to work. And all of the issues that we talk
    about today, they sound fine; we are heading in the right
    direction. That is the wrong direction. I would like to know
    what the STB might ever do about it, except to say: We are
    sorry. We are going to turn this issue backwards. We are going
    to do the right thing moving forward and stop this nonsense. Is
    that possible that that might happen?
        Ms. Miller. I think one of the--I think the issue that is
    frustrating you--which I appreciate the frustration, I felt it
    myself--is the way the preemption rules play out. Under the
    Federal laws, State and local laws are preempted as to having
    to do with rail transportation. And the frustration I think you
    are expressing is whether or not we have properly determined
    whether an activity is a part of rail transportation, or if, in
    fact, it is something else. I can say that since I have been at
    the Board, I have a strong sense of importance of the
    preemption requirements. One of the reasons we, in fact, do
    have such a strong rail network in the United States is because
    of preemption. I think it is extremely important that
    preemption----
        Mr. Capuano. I am not arguing when it comes to the core
    business of railroads.
        Ms. Miller. But I would also say, I have seen situations
    that have come before the Board since I have been there that I
    have personally found repugnant but that I also believe fall
    under the preemption requirement. So, even though I personally
    have not been supportive of what I have seen an entity doing,
    we have also found that they do, in fact, meet the requirements
    of preemption.
        Mr. Capuano. I know what you have found, but you earlier
    touted your background in State government. I also have a
    background in State and local government, and I understand
    there are certain things that are conducive to Federal
    preemption, which I support in many instances, but I don't
    think that applies to zoning. I don't think it applies to
    health. I don't think it applies to the environmental issues.
    Those are State and local matters, and the Federal Government
    should stay out of them. And I believe that preemption was
    inappropriate, wrong, and should be changed. And I guess you
    have left me with no choice but to now advocate for legislative
    change, which I actually think is always the last option.
        I think you have made a big mistake. I think you have
    opened the door to basically sticking your Federal thumb in the
    eye of every State and every city and town in this country. And
    I wish that that weren't the case. And I would like to find a
    way to get the STB to correct that action, but I guess we will
    have to do it legislatively.
        Thank you, Ms. Miller.
        Mr. Denham. Thank you, Mr. Capuano.
        Mr. Mayo, if a wheat farmer and a coal miner opened a
    bakery--I think we have covered that topic long enough.
        I actually have----
        Mr. Mayo. I would have gone mute at this point. I would not
    have answered that. Thank you, though.
        Mr. Denham. Actually, I have one final question, and that
    is, you know, a misconception of revenue adequacy. We continue
    to hear how the railroads are doing so well on Wall Street, but
    that misconception of revenue adequacy is always out there. Can
    you explain in a little detail the challenge there?
        Mr. Mayo. Sure, and I will try to be concise. The details
    are in the study that is appended to my written testimony. But
    what the study does, is to look at the notion of revenue
    adequacy and to really understand the purpose of revenue
    adequacy, you need to go back to the time that it was
    introduced. It was introduced in the 1970s. There was a period
    when the rail industry was in dire financial and physical
    conditions. It was literally falling apart. In the 4R Act of
    1976, the language first appeared. And it created a benchmark.
    It said to regulators--then the ICC, now the STB--that the
    regulators should calculate a number, should calculate whether
    railroads were earning back their cost plus a cost of capital.
    So it provided an informational benchmark and a set of
    guideposts that helped legislators and regulators in assessing
    whether the industry was coming back and how far it had come
    back. So that was the legislative intent. It was a purpose. The
    purpose, I believe, at the time was informational, to create a
    set of guideposts and benchmarks.
        In 1985, the then-ICC introduced a bit of an
    interpretational change, interpreting revenue adequacy not as
    an informational benchmark but as a constraint. It was at that
    time that the word revenue adequacy ``constraint'' first
    appeared in the regulatory documents. And, at that time, the
    ICC indicated that in the rail industry, that railroads should
    not be entitled to any more revenue than what would exactly
    cover their cost of capital.
        Now, at that time, what happened is, in theory anyway, that
    regulatory determination would reintroduce back into the rail
    industry earnings regulations which we had just stepped out of
    with the Staggers Act. Now, I said in theory it did that
    because, at that time, the railroads were, largely speaking,
    and completely revenue inadequate. So it was a theoretical
    constraint, not a practical one. Now, if you move forward 20--
    30 years now, the rail industry, as we all know, is doing
    better financially. They are now being judged increasingly to
    be revenue adequate. That is to say they are covering their
    cost of capital.
        Now, to the extent--and this is where the concerns come in
    in my study--to the extent that the revenue adequacy constraint
    is then imposed and we reimpose earnings regulations in this
    industry, that is a risk of some significant backsliding, I
    think. And so what I would appeal to you, and to the regulatory
    community is to reestablish the original legislative intent of
    the revenue adequacy language, and that is as an informational
    benchmark, which is really a good thing, but to avoid using
    revenue adequacy as a regulatory hammer.
        Mr. Denham. Thank you, Mr. Mayo.
        Our final question today is from Mr. Babin.
        Dr. Babin. Thank you, Mr. Speaker, I appreciate it.
        Mr. Chairman, thank you very much. I had a couple of
    questions that I would like to ask of Mr. Dooley, if you don't
    mind. What role can the STB play to ensure that the rail system
    supports manufacturing, investment, and growth?
        Mr. Dooley. Yeah, you know, again, Congressman Babin, is I
    think that, you know, consistent with the Senate legislation,
    there is a directive there for STB to conclude some
    considerations of a host of issues that range from the rate
    resolution issues that are associated with the stand-alone
    costs, the requirements that, in order to bring a rate case,
    you have to have required that company to design a rail line
    and operating, assess the cost of that in order to make a
    determination of whether or not if you made these new
    investments, had an appropriate return on capital, whether or
    not that would result in a rate lower than what was being
    provided.
        But it provides--it is such a complicated process that even
    the STB Commissioner said they question whether or not that is
    an equitable and effective way.
        What the legislation also does is it asks for STB to
    conclude their consideration of the issue in terms of
    reciprocal switching, which again is, you know, with the
    increased consolidation, with fewer rail lines, Class I's that
    are providing service, is that there is not as much competition
    in the marketplace, and so what we think is important is, is
    that you ought to have a mechanism that can give a shipper the
    ability to ship from point A to point C through point B, but if
    there is only one shipper to get you to point B and you have
    got two shippers there, that there ought to be a way to get a
    quote from that rate from A to B and then have the opportunity
    to get a competitive quote from B to C from two rail issues and
    have the opportunity to pay for the cost of that switch. So we
    think that there is progress that STB can be making on that
    front, too, that again will ensure.
        We also have some other issues related to rate bundling
    that is a little more complicated that also could ensure,
    again, more competition or a more competitive marketplace. And
    that is what we are asking for. Two things is, when you have
    increased consolidation, you basically have a duopoly in the
    rail industry in many regions of the country, and that doesn't
    necessarily result in quite as a robust marketplace of forces
    as we think is appropriate. And how do we adjust for that? It
    is where the equitable rate resolution process as well as some
    of these other provisions that could be addressed through STB.
        Dr. Babin. OK, thank you very much.
        One other question, I am already--no, I have still got a
    little time.
        Ms. Miller, if I could ask you, the Staggers Act
    established numerous objectives for U.S. freight rail policy
    which wanted to minimize the need for Federal regulatory
    control over the railroads and would allow railroads to earn
    adequate revenues, providing expedition resolution or
    proceedings, ensuring effective competition, and maintaining
    reasonable rates where effective competition does not exist.
    How well has the STB succeeded in achieving these objectives,
    and what areas need the greatest attention in the future?
        Ms. Miller. I think if you look back over the last 35 years
    since Staggers has passed, you would have to say that the STB
    has done an outstanding job. When you look at the issue of rate
    regulation to the extent the Surface Transportation Board has
    any involvement at all, it is only 10 percent, really, of any
    of the traffic or rate regulation that we even have any
    oversight over. Anything that is done by contract we are not
    involved in. That is, the vast majority of what is moving on
    the freight system today is done under contract. And other
    situations, even though there may not be a contract, they might
    be using tariff, there is clearly competition. We are not
    involved there. So our role really is a pretty small role but
    in an area that I think becomes very important.
        I think that in a year of serving on the Board, my
    observation is, is that to the extent we are, in fact, to be an
    arbitrator of whether or not rates are reasonable where
    competition doesn't exist, if there is a criticism that I would
    have of the Board, it is that I can understand why shippers
    feel so frustrated and say to us: You know, we don't really
    feel like we have an opportunity to bring cases before you.
        We can say that we are available. We can say that you can
    file a rate case, but what we know is that it is going to take
    3, 4, 5 years. It is going to cost millions of dollars, and the
    reality of actually doing that has quite a chilling effect, I
    think, on a number of shippers.
        So Mr. Hamberger made the comment--and he is absolutely
    right--we are talking oftentimes about hundreds of millions of
    dollars. There is no way to take that sort of a rate process
    and turn it into a 6-month activity. The issues are much too
    complicated. They are much too important. So I am not saying
    that our goal at the Board should be to rush to judgment on any
    of these things. Some of these questions are simply going to
    take some time to get at. But by the same token, I don't think
    there is any question that there are people who feel they have
    an issue that they would like to have addressed, who simply
    don't bring it before us because they think it is hopeless.
        Dr. Babin. Thank you, Mr. Chairman.
        I would like to thank all of the witnesses, too.
        Mr. Denham. Thank you, Mr. Babin.
        Ms. Brown, you are recognized for 5 minutes.
        Ms. Brown. Thank you, Mr. Chairman.
        First of all, I want to say that last night I started
    getting calls about the accident that occurred in Philadelphia.
    And I want everybody to know that my heart goes out to the
    families and the community at this time.
        I mean, I am--rail is so important, and reauthorization of
    the Staggers Act and investment in rail is crucial. It is
    absolutely crucial that we work to keep rail, freight rail, and
    passenger rail separated. And, you know, other countries have
    figured it out. And we as a people of--in the United States
    need to get with it. I tell people all the time in Florida: Our
    competition is not Georgia and Alabama. It is people in other
    countries that have figured out how to move goods and services.
        And when I travel around the world, they ask me: How do you
    all have such a great freight system? And I want to know from
    them: How do you have such a great passenger system? And we in
    the United States need to figure out and we need to invest in
    making sure that we can move people, goods, and services.
        So I want to thank you all for your testimony.
        And do any of the members, I know Ms. Miller, he was
    tapping. Do you want to make any closing statements? And Mr.
    Hamberger, anybody want to make any closing statements?
        You know, I am now on the Committee on Veterans' Affairs,
    and I appreciate the fact that over 30 to 40 percent of the
    people in rail are veterans. And I thank you all for continuing
    to reach out to them because they are ready for employment.
        And Ms. Miller, do you want to add anything?
        Ms. Miller. No. I really appreciate your comments and would
    echo your statements. I have always been amazed by the U.S.
    transportation system. I think it is extraordinarily important,
    and I am struck all the time, as you said, you know, our
    competition--I came from the State of Kansas. I felt the same
    way. Our competition wasn't the States next door. It is other
    countries around the world. And I think we need to continue to
    think that way. And one of our advantages economically is our
    freight transportation system. It is extremely important that
    we maintain that advantage.
        Ms. Brown. My colleague, Mr. Dooley?
        Mr. Dooley. No, I have no other statement, but I, again,
    thank the committee for the opportunity to testify today.
        Ms. Brown. Thank you.
        Mr. Hamberger.
        Mr. Hamberger. I would just like to on a personal note say
    I know that you had a Committee on Veterans' Affairs meeting
    this morning, and the fact that you made it here just
    underscores your dedication and support for the rail industry,
    and I just want to thank you for that.
        Ms. Brown. Thank you.
        Ms. Darr. Congresswoman Brown, I just wanted to echo on
    your thoughts about the Amtrak accident last night. And I
    think, you know, it is appropriate that we talk about safety
    today. And from the short line perspective there are two
    critical aspects of safety that we can help out with. One is
    raising up the safety culture in our industry, which we are
    able to do through the Short Line Safety Institute, thanks to
    support from Congress.
        And then, finally, focusing on our rail infrastructure. By
    improving the track, we improve safety, and we are able to do
    that through programs like 45G. So I think it is a good
    partnership and appreciate your support for both of those
    programs.
        Ms. Brown. Thank you. The last comment?
        Mr. Mayo. So I, too, would echo your reflections about the
    need to look abroad for benchmarking and identifying that our
    real area of competitiveness is best benchmarked around the
    world, not necessarily here in the States. I would say, in the
    context of this hearing, that it is really sort of important,
    once in a while--I mean, we are pretty good at pounding our
    chests and chanting we are number one in the world, even if we
    are not necessarily that way. In this particular area, in the
    area of freight rail policy, I think we have a lot to be proud
    of. The economic data are very clear. It is rather remarkable
    as an economist to see an alignment of positive economic
    indicators in prices, output, innovation, employment, and so
    on, that have worked so well. So I am just glad to be here and
    to speak about this bill or this act.
        Ms. Brown. Well, thank you very much.
        And like I said, I don't care whether I am in Russia, no
    matter where I am around the world, they always ask me about
    our freight rail. And, depending on where I am, whether I am in
    Europe, or someplace, I am asking them about their passenger
    rail.
        So thank you again all for your testimony.
        And Mr. Chairman, I yield back the balance of my time.
        Mr. Denham. Thank you.
        Mr. Cummings, you are recognized for 5 minutes.
        Mr. Cummings. Thank you very much, Mr. Chairman. I
    apologize for getting here so late. I was in another hearing
    where I am ranking.
        I wanted to express my condolences to those who were
    injured in last night's terrible accident, to the families of
    the victims who died.
        I also want to express my strong support for Amtrak. Tens
    of millions of passengers ride the Northeast Corridor every
    year, including me, as we pass through Penn Station in my
    district in Baltimore. Amtrak is an essential component of our
    Nation's transportation infrastructure. Sadly, Republicans on
    the House Appropriations Committee have proposed cutting
    capital funding for this service by 25 percent in fiscal year
    2016.
        While we cannot speculate on the causes of last night's
    accident, the media reports indicate that it occurred in a
    sharp curve. And there are many such curves and tight turns
    along this very old corridor. We would never find it acceptable
    to operate the Congress using 19th-century technology, and yet
    we continue to operate in many stretches of the Northeast
    Corridor under 19th-century infrastructure. Rather than cutting
    our investments, we should be expanding them and taking all
    steps necessary to bring the Northeast Corridor into a state of
    good repair.
        Now, Mr. Hamberger, can you discuss the trends you have
    seen in the rail industry's investment in infrastructure both
    during and after the financial crisis, and have railroad
    investment trends changed in these years?
        Mr. Hamberger. Thank you, Mr. Cummings, and you were not
    here earlier, but I do want to associate myself with your
    remarks about--as I did earlier, the tragedy last evening. The
    very interesting chart, which I can provide for the record,
    what we saw in 2008, 2009, and 2010, was a very minor drop off
    in the amount of capex that the industry put into the network.
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        If you go back to 2002, the previous recession, 2001 and
    2002, we saw a dramatic dropoff. When the economy came roaring
    back, we were not ready for it, and I think what our members
    individually decided was why there was some decline, about a 10
    percent perhaps, if memory serves, that there was a need to
    continue to invest. Many of our members kept the employees that
    they furloughed on part-time status so that they continued to
    be qualified to be called back and continued to receive their
    benefits so that those investments continued to be made.
        Now, the service disruptions of 2013 and 2014 would
    undercut my argument that we were ready, but there were a lot
    of factors that went into that service challenge. But we were--
    we took the money that we were earning and put it back into the
    network the same as we are doing now at record amounts.
        Mr. Cummings. Now, Ms. Miller, you wrote in your testimony
    in July, the Surface Transportation Board will hold a hearing
    to explore issues pertaining to the concept of revenue
    adequacy. You also wrote that revenue adequacy is an economic
    concept that describes whether a carrier is earning sufficient
    revenue to cover its cost and earning reasonable return. And so
    you indicated that the Board makes the determination about
    revenue adequacy annually, is that right?
        Ms. Miller. That is correct.
        Mr. Cummings. You also wrote that the Board is beginning to
    see that some of the Class I railroads are becoming revenue
    adequate across consecutive years. Can you explain how revenue
    adequacy is calculated and is that threshold of investment and
    profit that----
        Ms. Miller. No, I think you meant to direct that to the
    professor at the end of the table.
        Mr. Cummings. Oh, I am sorry, Professor.
        Ms. Miller. No, no, I am sorry. I am just teasing you
    because----
        Mr. Cummings. OK.
        Ms. Miller [continuing]. This complicated exercise----
        Mr. Cummings. I am tired, so don't confuse me.
        Ms. Miller. I am sorry.
        Mr. Cummings. It has been a long day already. Go ahead.
        Ms. Miller. No, I have my cheat sheet----
        Mr. Cummings. OK.
        Ms. Miller [continuing]. On how it is calculated. I don't
    know that we need to go into, you know, the----
        Mr. Cummings. But you see what I am getting at? I am trying
    to figure out, you know, when we talk about the adequacy, I am
    trying to figure out what the threshold is, and how do we
    measure that? Do you follow me?
        Ms. Miller. Yes, I do follow you, and so I hope the
    professor won't be totally offended by the way I am going to no
    doubt make a mess of his economics. But when we are looking at
    revenue adequacy, we are not looking at the question of, are
    railroads profitable? It is a different question. The question
    is, can they attract adequate capital? Because we want them to
    be able to attract the capital to continue to expand as they
    have been. So what we are looking at is a little different
    question. What the Board does now is it calculates a cost of
    capital and then does a comparison between what the railroads--
    what their revenue is against that cost of capital. And if it
    is greater than the cost of capital, we would say, for that
    year, they are revenue adequate.
        What we are also trying to determine, and one of the
    reasons we are going to have the hearing is if you wanted to
    declare a railroad revenue adequate, should they be revenue
    adequate for 1 year? Should it be 5 years? Should it be over
    some period of time? What is that period of time? And so how do
    we make those determinations? And then, more importantly still,
    I think the question on the table is, if we concluded there is
    a railroad that is revenue adequate, does that say anything
    about how they should be economically regulated? Should it
    change because they are now in a changed circumstance of
    revenue adequacy? And those are the questions we are going to
    be exploring in our hearing in July.
        Mr. Cummings. I see my time is expired.
        Thank you, Mr. Chairman.
        Mr. Denham. Thank you, Mr. Cummings.
        And thank you to each of you that came to testify today. If
    there are no other questions, I would ask unanimous consent
    that the record of today's hearing remain open.
        Mr. Hamberger. Mr. Chairman, could I possibly, at the risk
    of offending you, end today's hearing on an upbeat note,
    perhaps a kumbaya moment between Mr. Dooley and myself? You may
    not have noticed in this morning's Washington Post, page 11,
    that the plastics industry is pumping out jobs. A report coming
    out of the ACC today, $130 billion of investment over the next
    5 years in the U.S. That is good news for our jobs. It is good
    news for the American economy, and I trust it is good news for
    the railroad because we will get more business from Mr. Dooley.
    But congratulations to you and your members. It is a very
    upbeat note and I appreciate you allowing me to put it into the
    record.
        Mr. Denham. Thank you. We would ask that each of our
    witnesses be provided questions--unanimous consent that the
    record remain open for 15 days for any additional comments and
    information submitted by Members and witnesses to be included
    in today's record.
        Without objection, so ordered. I would like to thank,
    again, each of you for being here to testify today. If no
    Members have anything to add, this subcommittee stands
    adjourned.
        [Whereupon, at 12:27 p.m., the subcommittee was adjourned.]
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